rob-2

I don't invest for other people. All my investing is rather basic, read up on Peter Schiffs (SP I'm sure) model for investing. It's working wonders for me.

Since home prices keep falling, if your friends can make 30-40% returns, go in part way with them on a few homes. Less risk then putting all your eggs in one home. Lend them 10-15K and ask for 15% return on it.

Home ownership as investing is bad, anyone who tells you living in your investment is smart, is dumb. Property that does not generate it's own income is not an investment its your home, and short term real estate is going down. Your plan should be 5-10 years to get any true gains.

That all said, now is the time to buy, well in truth the next few years will be great. There are no signs the economy is really turning around and certainly employment wise the drivers aren't there to support rising home prices.

Think on this.

2007 Home Costs $450K
2011 Same Home Costs $180K
2015 That home costs $200K

This is assuming that in 4 years home prices rise a net 10%, which is very unlikely. Fact in the cost of borrowing and inflation and that home, year by year, hasn't gone up in true value, only dollar price. So are you ahead if you bought in 2011 vs projected 2015 - no. You're only better off if you were able to rent the home at a net profit during that period.

I'm all for home ownership, rental properties and building up your wealth base. A few folks I know who are getting their feet wet, own 2-3 homes, are finding it hard to get quality renters who pay 12 months of the year. Factor in these losses and owning foreign stocks/bonds/mutual funds spread over 70-150 entities looks less risky to me. Compared to dumping 60K into 1-2 homes and carrying 400-500K in debt.

We almost bought a home earlier this month, but I would have to have moved my 15%+ returning investments into a home that so far this year has dropped 8-10%. This doesn't make sense. I view the home we live in as a living expense, only the land has value and the building requires upkeep. We rented for about $150/month less then it cost to carry the home. I have a place to live, cash in hand, and investments out performing the entire market.

Just food for thought.

03silvS2K

I would rather dump cash in a home I purchased than shelling it out to a landlord for his benefit. Heck, owning your own home as tax benefits and much more. Yes, right now, depending where you live, the market is rocky, but at the same time, you could buy a home in many places that would result in cheaper monthly payments compared to renting. So why not buy instead of rent if you can? You rented for about $150 less, but where is that money going and what type of tax breaks are you getting?

To the OP, since you are new to real estate and have plenty of simple unanswered questions. Go to a book store and pick up a "home buying book" as it will prepare you for the lenghty process. There are so many things to learn and asking questions on the let will only get you so far. Check to see if your state allows a buyer's rebate from an agent. If so, pick one that will kick back part of their commission back to you. Many realtors don't earn their checks. At the end of the day, it is you financing the 6% that goes out to the agents, so why not take advantage of a buyer's rebate or if you are in a no rebate state like me, negotiate and speak with an agent that has no problem representing you while taking a reduced commission. Good luck!

FluKy15

A home that you live in is more of an expense than an asset. If you could buy a home and rent it out, now THAT is an investment, however, that comes with risk too.

03silvS2K

So, you'd rather rent out and pay the few hundred dollars more that landlords are asking for rather than to purchase your own house with the low interest rates? Now, in that case, renting is more of an expense and makes purchasing a house an asset. A house is an investment. I don't know why it isn't? Yes, the housing market has hit rock bottom in some cities, but over the life of the house, you'll come up in the positive. A home will not always depreciate like a car. Now a car is an expense, BIG difference.

Heck, if that is your philosophy, then what is the point of investing in general?

an2ny

That is my philosophy also:

A house that you live in is not an investment.
It is an expense because it is taking money out of your pocket every month and the house is not producing any money for you. “If” the house goes up in value, unless you sell it, you do not make any money, and if you do where are you going to live now? Another house purchase? you are back in the same game. If you buy and rent a house and the rent $ is more than the expenses giving you a profit, it will be an investment or a good investment.

Renting is always cheaper; (some exception). You think that you are giving your money away to a landlord? So you rather give your money away to the bank/ finance company? Do you realize how much interest you pay monthly?

Here is an easy example:
A 250K house @ 6% 30 year fixed. For about 18 years the interest on each payment will be more than the principal.
Ok, so you will pay on this loan about $1,500 (this is the loan only) a month and over the 30 years period you will pay about $289,600 in interest…so if you wait 30 year and now the house cost 450K you made 200K? no because you paid $250K + $286K = $536K and also all the expenses, insurance, taxes and maintenance related to those 30 years so it actually cost you to live there was way more than $536K over 30 years, so you lost money.
Oh and the tax benefit is always taken out of proportion…it depends on the state that you live in, marital status, income and more and you only get a percentage back so let’s say that you get 30% back you will save about 86K, did you break even? Not really, if you take into consideration 30 years expense on the house. But like I said above now what? You still need a place to live, and if your house price went up guess what…other houses prices went up also now to get something similar you need to pay more than 450K which is what you have, so you loose either way!

There are other benefits for owning a house, but they are mostly convenience\personal benefits. So as long as you understand what you are doing and why you are doing it, you should be ok.

So to answer the question, a very easy way to see an investment and we are talking about making a profit here. Anything in were you input something with the goal of making a monetary profit. That something can be money, but it could also be time or knowledge etc. So yes your job is probably your biggest investment, and you are your biggest expense, since you need food, shelter, S2000 ;-) etc.

03silvS2K

That is my philosophy also:

A house that you live in is not an investment.
It is an expense because it is taking money out of your pocket every month and the house is not producing any money for you. “If” the house goes up in value, unless you sell it, you do not make any money, and if you do where are you going to live now? Another house purchase? you are back in the same game. If you buy and rent a house and the rent $ is more than the expenses giving you a profit, it will be an investment or a good investment.

Renting is always cheaper; (some exception). You think that you are giving your money away to a landlord? So you rather give your money away to the bank/ finance company? Do you realize how much interest you pay monthly?

Here is an easy example:
A 250K house @ 6% 30 year fixed. For about 18 years the interest on each payment will be more than the principal.
Ok, so you will pay on this loan about $1,500 (this is the loan only) a month and over the 30 years period you will pay about $289,600 in interest…so if you wait 30 year and now the house cost 450K you made 200K? no because you paid $250K + $286K = $536K and also all the expenses, insurance, taxes and maintenance related to those 30 years so it actually cost you to live there was way more than $536K over 30 years, so you lost money.
Oh and the tax benefit is always taken out of proportion…it depends on the state that you live in, marital status, income and more and you only get a percentage back so let’s say that you get 30% back you will save about 86K, did you break even? Not really, if you take into consideration 30 years expense on the house. But like I said above now what? You still need a place to live, and if your house price went up guess what…other houses prices went up also now to get something similar you need to pay more than 450K which is what you have, so you loose either way!

There are other benefits for owning a house, but they are mostly convenience\personal benefits. So as long as you understand what you are doing and why you are doing it, you should be ok.

So to answer the question, a very easy way to see an investment and we are talking about making a profit here. Anything in were you input something with the goal of making a monetary profit. That something can be money, but it could also be time or knowledge etc. So yes your job is probably your biggest investment, and you are your biggest expense, since you need food, shelter, S2000 ;-) etc.
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Like I said, , I'd rather pay the PITI (principle, interest, taxes, and insurance) of my own home rather than pay a landlord the same amount if not more for the mortgage payment. For example, if person A is paying $1500 total for his mortgage and person B is also paying $1500 to rent a home, then why wouldn't person B just buy his own house instead? I know many people that are easily paying a few hundred dollars over a landlords mortgage payment. What sense does that make?

The stock market goes up and down. Misc fees are being paid to trade, manage and sell stocks. Well then by your logic, then why invest? In regards to real estate, you're playing the same investment game. If I could buy a million houses and rent them out for the same exact mortgage payment including taxes, insurance, and interest, I would. Because, once it's time to sell each home, I'd be ahead. Now, that shouldn't be hard to believe. Now, is that considered an investment? It sure is. Renting out your own home is no different just because you're living in it.

There's that saying, a home is your biggest investmenLastly, to the folks stating that purchasing a house is an expense, are you guys leasing your cars? Because if you are buying your cars instead of leasing them, then that's a big contradiction in itself. There is a correlation between renting a home and leasing a vehicle, but that's for you to figure out t. I have not heard about a house purchase being an expense, but hey, to each their own.

an2ny

Well if the cost of renting is more than (principle, interest, taxes, insurance, maintenance and everything else related to owning a house, yes, obviously you should buy a house and not rent. Maybe in the area that you live at, but usually renting is significant lower…so yes you are doing the right thing if that is your case!

By my logic why invest? If you can make money…you invest. If you can buy a million houses and rent them out and make money, you should absolutely do it. Are you talking about renting your house and living in it also?

That is what the media wants you to believe no I have never lease a car or had payments in a car but under some circumstances leasing is a better option.
To me anything that is not generating money is not an investment or not one that I want, and everything that is consuming my money away is an expense.
I was just writing a quick explanation of why. You don’t have to agree or get upset about it; as long as you know and understand what and why you are doing it, you should be ok!

03silvS2K

Thanks for clarifying what I was saying in a different way. "anything not generating money is not an investment...., and everything that is consuming my money away is an expense." Those are the risks of investing. You can't have your cake and eat it too. Great points....

sparrow

Excellent discussion fellas. Learned a lot. I really appreciate everyones input.