| Is home ownership really a scam, don't think so. |
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Raptor
Full Member
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Location: Missouri
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| Is home ownership really a scam, don't think so. |
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Today Yahoo Tech ticker had a segment stating that home ownership has been a scam. I don't think that is necessarily true. 5 years ago everyone was on cloud 9 and talked about how renting was a scam. To compare we have to separate home ownership of a single home vs owning multiple homes and renting them out. Homeownership and investment are two separate things. Owning your own home vs. renting is not an investment calculation for profit, it is a cost saving calculation to determine which is less expensive. I'm not going to bore you with numbers, but I'll support is with simple concepts. If rental properties did not make a profit for that investor, nobody would offer rentals, so 2 identical homes side by side, in theory have the same cost of ownership; now add the landlord profit to one. The cost of renting is now greater than the cost of owning. Of course this is over a long run, if you move often; say every three years the cost of renting maybe cheaper then constantly buying and selling your home due to the cost associated to the transaction. The market value is not relevant if you plan to stay in the home for the long run and also has little impact over time even if you do move often. Where people went wrong is that they viewed their single home as an investment. If they moved and sold a home for profit, they failed to roll that money into the new home; instead they spent the perceived profit and had a great time. Same theory, if 2 identical homes in separate areas with the same cost of living, if your house increased in value, so did the other. You did not make a profit, because you need a place to live. Now that it is time to move again, you must sell upside down, since the 2 identical home lost value due to the market. Theoretically you have not lost money, because you are now purchasing a house at a lesser price. Where did your money go? You already cashed the equity out on the first sale and had a great time, so your actual loss is generated from you consuming (spending) based on a fictional profit of your first sale, not from the loss market value. In the long run, owning a home will be cheaper than renting. Notice I did not state turn a profit, just less expensive.
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Fri Jan 22, 2010 11:50 pm |
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Pants
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Joined: 18 Feb 2010
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I agree and disagree. In terms of paying property taxes, upkeep, maintenance, insurance, and Capitol Gains if you sell it. Yes it is a rip off.
Considering no job is stable today. We are on the brink of Depression.. I think it would be a rip off if you live in a home for 12 years, the majority of your payment were interest with very little on the principle, You paid property taxes over the years, You remodeled 3 rooms, bought new appliances, maybe built an addition.. Lose your job and have the bank take it.. Yes that's a rip off..
I think it would be a sweet deal if you paid for the home with 100% cash. .
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Thu Feb 18, 2010 12:29 am |
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oldguy
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quote:
I think it would be a sweet deal if you paid for the home with 100% cash. .
Normally it is better to avoid paying cash.
A house often doubles in value every 12 years. Say you buy a $200,000 house with almost nothing down. At the end of 12 years the house is worth $400,000 but you now owe less than $200,000 on it - and your cost was about 172,000 (mostly interest).
The $172,000 that you paid was either for a place to live (same as rent) or you had a renter who paid the $172,000 for you.
In either case, you did not have to put in 'front' money - and you made a $200,000 profit.
Many years ago I sold one house and used the money to pay off two our rental houses. But then I noticed that the paid-for houses were giving me a lower ReturnOnEquty than my mortgaged houses. So I refinanced the paid-off houses - and I have kept loans on them ever since - so I know from experience that a 100% paid-for house is not necessarily a good idea.
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Thu Feb 18, 2010 3:25 am |
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Anarion125
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Location: Everett, WA
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The big scam is paying a huge interest rate and you end up paying twice what the house is worth. You need good capital to really make it work.
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Tue Mar 30, 2010 3:04 am |
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