Thursday, May 2, 2013

The House as an Investment

Interesting link at bottom shows the return you have on your house. Yes, Louise, it can do negative numbers. [vbg] At least we have to assume no return yet for Louise!

In our case, I added in roughly what we put into it and also other costs, going by the escrow payment and trying to average that a bit. 

Nothing exact here, but the result with all that shows a bit less than 2% per year. 

It has to be said that it isn't as simple as that. The alternative is paying rent, so you could flip that around and claim the entire equity of the house came nearly free, an astronomical rate of return. In some cases rent would cost more than a house payment, how do you crunch those numbers?

The site doesn't help you with any of that. If we leave out the escrow as a modifier, and leave in what we put in to it, the rate of return is about 3% for us. It's hard to say what insight to gain from this. 

One thing for sure, under certain other easier to figure out situations, real estate is not that great an investment, such as having so-called income property. On the other hand,  that can be good to have in periods of high inflation. Nothing about real estate seems simple, and there are large costs involved to make it complicated. But you hear people say, "my home was the best investment I ever had.". Well, no, it shouldn't have been anyway, but such a person benefited greatly probably from not renting, at least at not renting something equal to what he lived in. What can be said for sure is it was the best leverage that person ever got on an investment. That meaning buying it with a mortgage of course. Completely unavailable to the average guy on anything else.


Anonymous said...

I didn't look to see but the analysis should inclde deduction of interest on income taxes.

The measure of the success of the investment is relative to the times, of course. We would be very happy with a 2 or 3 % rate of return on our investments right now. A few years ago that would be way too low.


Marsha Schmidt said...

I am going through all your blogs now. Here goes. We actually rented and it was ridiculously expensive. I mean you have h=got to be kidding I could buy two houses for that kind of rent. We were paying in rent MORE than we are paying for our current mortgage. And I am living in a four bedroom house! The supposed upside of an apartment is no maintenance. Well, yes, but the fact is that, you are paying for someone to come an unclog the toilet by paying the high rent. So our short experience was that renting is crazy when you can at least put the money into the house and get it back when you sell, even if you break even.