The REAL Long-Term Return On Owning A Home: 0%

[ERICOPOLY]

It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home.

 

So it's 100% of the time -- unless you have found houses on the rental market where the rent is free?

 

But then we are not really looking at real estate as an investment, but rather as a place to live.

 

Well it's both at the same time really.  You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house.  Especially difficult in a market when rent is rising -- buying the house is the investment that perfectly cancels out the rental expense, no matter how fast the rent is rising.  In either scenario, the house remains "a place to live"... but so what?

 

Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent.  Which is why it's the better investment for most people to own the house before investing elsewhere.

 

 

[niels12think]

It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home.

 

So it's 100% of the time -- unless you have found houses on the rental market where the rent is free?

 

:) It's more like saying: "what is saved is earned", and go on to buy more of X than you needed just because there was a rebate and then kidding yourself that you earned a lot of money.

 

But then we are not really looking at real estate as an investment, but rather as a place to live.

 

Well it's both at the same time really.  You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house.

 

Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent.  Which is why it's the better investment for most people to own the house before investing elsewhere.

 

If you the home is exactly what you need, then the basic question should be buy versus rent?

If the home is for the long term, then a buy would most likely be attractive.

Only if people has additional funds should the investment perspective enter the equation.  And then I find it likely that most people would be better off with stocks for the very long term.

 

Cheers!

 

[ERICOPOLY]

I'm just going to drop the subject.  Let it be known though, that I think people who say it earns 0% are wrong.

[woltac]

Please let me know if there are any of these rent-free houses in the New England area.  So far I have not been able to find one. 

 

If you cannot find one for me, then I think you have to include rent in your long-term return calculation. 

[niels12think]

Please let me know if there are any of these rent-free houses in the New England area.  So far I have not been able to find one. 

 

If you cannot find one for me, then I think you have to include rent in your long-term return calculation. 

 

The rent, of course, is there allright  ;)

 

What I'm trying to say, is just that for an owner occupied home, this advantage comes in the form of consumption: You consume the "rent" by living in the house. And consumption is not investing.

If you buy "more" house than what you need (and live in the house), then this is really just equivalent to consuming more. So it should be compared to other consumption. And you should value this consumption it based on the utility it has to you.

 

Cheers!

 

[Rabbitisrich]

NY Times has a useful cash flow calculator that models the payback period given various assumptions:

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

[Rabbitisrich]

 

It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home.

But then we are not really looking at real estate as an investment, but rather as a place to live.

 

Beyond this point, the "rent" should be disregarded.

 

If you purchased a home and it has appreciated to the point that you wouldn't hypothetically repurchase it, then you would underrate the property to ignore the "excess" rent that you are receiving and paying simultaneously. If you decide to rent or to sell the house, then the market will compensate you for the "excess" + base rent recieved, but your paid rent drops to whatever you are comfortable purchasing.

 

This is just a long winded way of saying that you sell high and buy low. But the point is that you have to include the entire rent, or you risk underestimating your opportunity cost.

[arbitragr]

Didn't WEB say something along the lines of his home was his 3rd best investment ever?