oh i forgot to include that i put in solar panels in 2 1/2 years ago.
i have net metering and only pay $15.00 per month to rent the meter.
i have wood burner in my fireplace, bank rolled a farmer friend of mine
so he could buy 10 feeder calves. we split one and sell the other 9.
Yep got a big garden too for both spring and fall.
i have been retired 5+ years now.
Thatâs not how arithmetic works.
You just added mortgage interest to the the price of your âpoorly appreciating assetâ, making it even worse.
Since Iâve been using a ârent vs. buyâ calculation to inform my real estate decisions, I didnât purchase a home until I found one at a low enough price to give me a prospect of an S&P 500 return on the asset. I wasnât investing money in real estate at a lower return than the S&P 500.
There are two different discussions here. One is rent vs. buy, and the other is rent vs. buy with cash. Letâs talk about rent vs. buy with cash.
You get to keep all of the price appreciation of your real estate investment regardless if you pay cash or get a mortgage. But with the mortgage, you get all the all of the price appreciation for just the amount of your down payment plus your ongoing monthly payment. If you think you will get a S&P500-like return out of your home, then it makes sense to leverage the crap out of it.
The other advantage is that the 80% of your remaining cash (assuming a down payment of 20%) can be invested in the S&P 500 itself.
To make the comparison equal, if you pay cash, you could invest the equivalent of your monthly payment in the S&P500. But between the leverage and the large head start not paying cash gives you, paying cash just doesnât pencil out. At least not when mortgage rates are low.
FWIW, I donât regard my house as an investment. Itâs my home. If, whenever I sell it, I get more for it than I paid, great! If not, it was my home.
I donât expect to get more for my car than I paid, though if it becomes âclassicâ or âcollectibleâ, I might. But I donât expect it. Itâs my car, and serves as my car. Thatâs it.
Yup. He just doesnât get it.
Of course, a single guy with no wife & kids has a different outlook than the typical person with a spouse and kid(s).
Iâve always said that a house is a consumption item, not an investment. Same as what you said.
Food is also a consumption item. You consume it and when youâre done with it you get rid of it.
Select grade 70/30 ground beef has the same caloric value as prime ribeye steak. I wonder if certain people would eat 70/30 hamburger and invest the savings in S&P 500, instead of wasting it on prime steak. After all, itâs all about the money, isnât it.
cgrinder writes,
in 1982 i bought a duplexâŚi live in one unit and have rented out the
other unit. The unit has generated thousands of dollars over the years.
It now just about pays my entire cost to live thereâŚtaxes, insurance
etc. No Hoa fees etc. If you want to buy yourself a place to live
buy a duplex, tri plex, or a quad. Let someone else pay your living expenses.
Itâs not difficult and the money you earn at your real job can be used to invest.
A single family house is an AlligatorâŚIt is an expense.
Yes. If you self-manage a real estate investment, and do all the work yourself rather than than hire property managers and contractors, that improves the return. It allow you to convert wage and salary labor into long-term capital gains taxed at a lower rate.
Of course, itâs a part time job, not a passive investment.
I played golf and tennis on the weekends.
intercst
cgrinder,
oh i forgot to include that i put in solar panels in 2 1/2 years ago.
i have net metering and only pay $15.00 per month to rent the meter.
i have wood burner in my fireplace, bank rolled a farmer friend of mine
so he could buy 10 feeder calves. we split one and sell the other 9.
Yep got a big garden too for both spring and fall.
i have been retired 5+ years now.
Outstanding! I believe SeattlePioneer used to harvest rainwater off his roof and boil it so that he didnât have a City of Seattle water bill.
intercst
syke6 writes,
If you think you will get a S&P500-like return out of your home, then it makes sense to leverage the crap out of it.
Not really. If I wouldnât borrow money to buy an S&P500 index fund, why would I mortgage my home to do the same?
There was a frequent poster on the REHP board by the name of golfwaymore who sold his tech business in 1999 and netted something like $30 million from the transaction.
He invested that windfall in a broadly diversified portfolio of stocks and real estate. And the real estate was only about 30% leveraged, not the 80% a homeowner has after a 20% down payment. Seemed like a very conservative thing to me at the time.
Anyway after the dot.com bust in 2000, his real estate lost a lot of its tenants in the recession while his stock portfolio was suffering major declines at the same time. He got caught in a liquidity crisis when the banks foreclosed on him and ended up losing most of it and returning to the workforce.
If youâre the average homeowner with few assets, and the bank forecloses on you, they just take the house because they realize they wonât get blood from a stone. But if you have other assets they can come after to make good on the loan like with golfwaymore, the bank will surely pursue you.
intercst
Not really. If I wouldnât borrow money to buy an S&P500 index fund, why would I mortgage my home to do the same?
A mortgage (if you do it sensibly) is long term, fixed rate, tax advantaged, and non-callable. Give me those terms and I absolutely would borrow to buy an S&P 500 index fund.
A mortgage (if you do it sensibly) is long term, fixed rate, tax advantaged, and non-callable. Give me those terms and I absolutely would borrow to buy an S&P 500 index fund.
Then you should be doing a cash out refinance and investing the proceeds.
SeattlePioneer
Now thereâs a name from the past.
Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.
Iâm surprised intercst would even rent an apartment. If the bottom line is the most important factor, he should be pitching a tent or using a nice cardboard box under the nearby overpass.
PSU
If youâre the average homeowner with few assets, and the bank forecloses on you, they just take the house because they realize they wonât get blood from a stone. But if you have other assets they can come after to make good on the loan like with golfwaymore, the bank will surely pursue you.
If golfwaymore had the assets. why didnât he use those assets to make the mortgage payments? Methinks there is more to this story.
If I wouldnât borrow money to buy an S&P500 index fund, why would I mortgage my home to do the same?
Cheap, long-term, non-callable loan.
Buy the house with a fixed rate 2.5% loan with 20% down, invest the other 80% and earn average inflation + 8.5%.
Historical 80/20 returns for 30 year periods: Median 10.3%, Min 8.6%.
Subtract off the 2.5% cost, and itâs: median 7,8%, minimum 6.1%.
Average inflation is 2.0%
Note that the mortgage payment is not affected by inflation.
If your payment starts out at $1500, and inflation averages 2%, the payment at the 30th year is equivalent to $828. Almost half the initial payment.
Meanwhile, every $1,000 you invested (at the net 6.1% MINIMUM) has grown to $5,900.
Your only financial risk is if you donât make the required monthly payment.
â cont. â
â cont. â
There is an interesting twist if you have enough retirement assets that you donât really need SS to live on, and the SS check covers (or just about covers) the mortgage payment.
Couple your SS benefit with your mortgage paymentâhave the SS go into a dedicated bank account and the mortgage payment on autopay from that account.
As inflation occurs, the SS check goes up but the mortgage payment stays the same.
In the last 15 years (2007 thru 2021) using the SSA COLA, $1,500 initial benefit has grown from $1,500 to $2,024.
In the last 30 years (1992 thru 2021), $1,500 initial benefit has grown from $1,500 to $2988.
FWIW, the average SS COLA for the last 15 years was 2.0%, for the last 30 years it was 2.3%.
That is how savvy people look at the mortgage/not in retirement question.
Of course, that is for buying a house. The question of rent vs. buy is another question.
I will note that one point is always touted to people who buy residential real-estate to rent it out. "Your tenant pays off your house for you. After 30 years your tenants have paid off the house but you still collect rent each and every month."
Then you should be doing a cash out refinance and investing the proceeds.
The problem(s) is path dependency.
Build-up of equity is very slow in the early years of the mortgage, so unless the house value has gone up substantially you canât do this soon.
Lenders are very negative on cash-out refinances. They charge more points, higher interest rates, and lower LTV.
Used to be that you could roll a HELOC balance into a rate-and-terms refi to effectively get cash out, but ever since 2008 they consider that a cash-out refi.
There are costs to a refi. All-in, I suspect the costs are around 2%-3% of the new loan balance. Sure, sometimes you can roll the cost into the new loan, but that just spreads out the cost doesnât eliminate it.
I read about a Google employee that bought a large truck, outfitted the back of it with some amenities, and parked in the Google parking lot. There was the initial outlay for the truck, and whatever he put in it, but then he lived for almost free.
I read about a Google employee that bought a large truck, outfitted the back of it with some amenities, and parked in the Google parking lot.
If I worked at Google, I might do the same since there are eateries (free food, yeah!), quiet areas to read or study, a gym to workout, showers & bathrooms to clean up, and, of course, lots of internet access.
Heck, with the way you set up your office, you might not even need the large truck itself if you âworkedâ a lotâŚ
https://www.insider.com/coolest-perks-of-working-at-google-iâŚ
Pete
Apparently he had to move (ironically, because of the publicity).
https://www.sfgate.com/lifestyle/article/Google-employee-stiâŚ
But, yes, a lot of free goodies, available showers, etc. Iâve heard of others who do similar, and have a gym membership (for the showers and workouts).
So that is probably a lot cheaper than renting an apt/condo, or buying a home. If thatâs all one is concerned about. If one wants to upgrade their lifestyle, theyâll likely have to rent or buy an actual dwelling. Personal choice. I donât regret owning a home (most of the time! 
Itâs a trade-off. I never even considered how much I could have earned if I directed my mortgage payments into the stock market, and lived in a truck instead.
1poorguy
PSUEngineer analyzes,
Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.
Iâm surprised intercst would even rent an apartment. If the bottom line is the most important factor, he should be pitching a tent or using a nice cardboard box under the nearby overpass.
I understand that ârent vs. buyâ is a difficult concept since it goes against what youâve been taught by the real estate and banking industry over your lifetime.
To repeat: Iâm not suggesting that anyone buy a smaller, less luxurious home than theyâd like. Just that it makes to do a ârent vs buy calculationâ to inform your real estate decisions.
I saved about a million dollars over the 25 years I spent in Houston by renting in comfortable, well-maintained, resort-style garden apartments with palm trees, pools, and tennis courts. And that million dollars compounded into millions more since it was invested in the stock market rather than a poorly appreciating single family residence.
Itâs just arithmetic.
intercst
If I worked at Google, I might do the same since there are eateries (free food, yeah!), quiet areas to read or study, a gym to workout, showers & bathrooms to clean up, and, of course, lots of internet access.
I was invited to a Google happy hour last Thursday. As good as you think it is, it is better. The happy hour included free food and drinks, like chicken wings, beer and wine, that sort of thing, which they do once a week. There are restaurants and coffee shops of various styles located throughout the buildings. On top of that, they have what they call micro-kitchens (IIRC) that arenât very micro. They provide full self-service kitchens with all manner of snacks and soft drinks, with lots of nice seating. They had a complete game room with foosball, pinball, pool, arcade games, console games (PS4) etc. with smaller game rooms throughout the campus. Because you donât want your employees to walk too far to play free Ms Pacman. In addition to the regular work spaces, they have lots of lounge areas with tables and booths where you can work if you like. If that wasnât enough, they have music rooms, stocked with drums, guitars, and keyboards. Oh, and they have nap pods. Yes, they encourage you to sleep at work. Iâve been in Amazon and Microsoft offices and nothing compares to Google.
I totally get the guy living in the van. Because whatever youâve got at home, what they got at the office is better.
If golfwaymore had the assets. why didnât he use those assets to make the mortgage payments? Methinks there is more to this story.
I donât recall the full story, but he bought income producing properties. Like a self-storage, a ranch, stuff like that, some of which he developed. When the housing bubble burst (which actually hit commercial real estate much harder), his stocks were crashing at the same time the business income dried up. Again, my memory is a little fuzzy, but I think the loans got called and he couldnât cover it by selling because everything was so far under water.
I understand that ârent vs. buyâ is a difficult concept since it goes against what youâve been taught by the real estate and banking industry over your lifetime.
To repeat: Iâm not suggesting that anyone buy a smaller, less luxurious home than theyâd like. Just that it makes to do a ârent vs buy calculationâ to inform your real estate decisions.
I have lived in apartments and hated that lifestyle. Therefore, for me, running a rent vs buy analysis is a useless task. My calculation is buy small, buy older, buy larger, or combination of those factors. Also good school district or not and distance of commute to work. Renting is never part of the housing calculation.
PSU