A Home is a GREAT investment

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Ashbobash_IHB

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<p>When you look at how much you actually pay for a house it is unfathomable to me how anyone can make that claim. If you buy a 600,000 crackerbox here in Orange County with a fixed 30 yr @ 6.25, the total payments at the end of the loan = 1,321,951.31. Total Interest =729,951.31 ($129,951.31 MORE than what you bought the house for just in interest) This is a good investment how?</p>

<p>Not factoring in property taxes, HOA, maintence etc...Can somebody help me out on this?</p>

<p> </p>
 
<p>You get tax write-offs on the interest you pay. </p>

<p>Everyone's gotta live somewhere.</p>

<p>We're running out of land in Orange County.</p>

<p>Everyone wants to live here.</p>

<p>Home prices never decline.</p>

<p>I guess those are all the good reasons why a home is a good investment. Wait... that's my realtor speak. </p>
 
Ashobash,





Houses are an extremely leveraged commodity trade, particularly in the days of 100% financing. When you are highly leveraged, even modest amounts of appreciation make you very large sums of money very quickly. Of course the opposite is also true, when you are highly leveraged, even modest declines are a complete disaster.
 
I guess I meant in terms of buying just a single home and using it to actually live in, people are always saying "oh home ownership is such a great investment blah blah" even if your home appreciates you still have to take on more debt to get a bigger and better house as the years go by..yeah the tax benefit is good unless you are subject to the AMT. I think I would feel differently about taking on a mortgage if the homes here weren't so obscenely over priced and I could actually afford something other than a condo!
 
<em>"I guess I meant in terms of buying just a single home and using it to actually live in"</em>





Yes, in those terms, houses are a very poor investment right now. You can save a lot of money by renting.
 
<p>IrvineRenter,</p>

<p>One thing I will not be saying to myself as I am buying a house for the first time is "Wow this is such a great investment!, I'm going to be making money hand over fist!" </p>

<p>By they way I love your blog and I was wondering, are we allowed to post links in this forum? I just wanted to post a picture of some tenement houses on the west side in Costa Mesa <strong>850 sq feet</strong> priced from 519-599K LOL!!</p>
 
<p>>>>Of course the opposite is also true, when you are highly leveraged, even modest declines are a complete disaster. <<<</p>

<p>A la Cramer, just walk away. Makes complete economic sense and avert the disaster! </p>
 
<em>"are we allowed to post links in this forum? "</em>





Yes, however the links may break if the source website blocks them. Unfortunately, we do not allow public access to our upload area.
 
6.25% interest? Where are you shopping? When I looked at etrade this morning, jumbo loans with 20% down were running 7.5% for zero points. The only way you get to 6.25% is to pay 4.5 points?!?!
 
<p>That was an example to show how much interest one would pay over the life of the loan (more than the cost of the actual home)...your scenario makes for even more interest! </p>

<p>I thought the Fed rates were hovering around 6-6.5% ?</p>

<p>Anyway I was trying to make a point about home purchases not being the great "investment" people are always saying they are..</p>

<p> </p>
 
<p>All sarcasm aside, I am getting married this fall and my fiancee and I are looking for a place to live. I have a realtor friend who sings the tune "When you pay rent, you make someone else rich and save no money for the future". So a week ago, I got fed up with his gibberish and sent him the link to this site with the subject "I am a bear". </p>

<p>I haven't gotten a call or e-mail since. </p>

<p>The point is, we make a combined $125k, and there is no way in hell we will invest in a home right now. We are looking to rent in Irvine once we marry, and we will save $2000+ a month in mortgage/mello/HOA, until all this mortgage mess clears up. </p>

<p>Keep up the good work ya'll, and thanks IR for the for the indepth analysis you provide. </p>
 
Blue,





Your situation is just like ours. My wife and I make approx. $140K a year but no house in sight. We're sick of moving and renting (mostly moving) but cannot justify paying $600K for a 3 bd condo.





Beyond the money, people forget about the stress of owning a home. Pipes bursting, landscaping, broken item. . . the list goes on.
 
<p>Blue, </p>

<p>Wow no response at all from the realtor? At least he/she could have responded saying to keep them in mind for when you <strong>are</strong> ready to make a purchase lol!! I have lived in S. Ca all my life w/ the exception of 1.5 yrs in Texas..when we came back here in 2006 we looked at some crackerbox condos in BFE (Wagon Wheel, RSM) then we told the realtor we would just rent and she was like "Oh your making a BIG mistake!" I told her sorry I just do not want to pay upwards of 3,000 a month for a tiny condo...if we had bought then surely we would be looking at zero/negative equity right now and for what? </p>

<p>Congrats on your impending marriage and finding the perfect house when the time is right for you</p>

<p> </p>
 
I like the 1.7 Ocean model home photos... nice and clean. It's a pretty good remodel for those into minimalistic-style living, but the price is too high.





You don't have to buy RE where you live. The world is a big place, if you cannot afford to buy here but would still like to invest in RE, you can still buy elsewhere and rent here.
 
This answer depends, I think, on whether one views a house as a home or an investment. Assuming that one pays $2,000/month in rent for 30 years for that $600K home, you're actually paying interest net of rent of about $10,000 (assuming $2,000 * 12 * 30 = $720,000 in rent over 30 years).





You can think of interest on a home as rent you're paying to the bank.





In this case, you'd need the home to appreciate $140K over 30 years to break even on the overall transaction (23% appreciation over 30 years).





I think one of the themes on this board is that as long as you're stable, willing to stay long term in Irvine, and can truly afford the payment, buying a home over the long run is still a good financial decision.





It's might be a poor investment over the next 5-10 years, but it's still a good financial decision...





-OCR
 
<p>Here is my scenario.</p>

<p>My realtor friend once showed me a property he thought I should consider purchasing. After putting down 10% on that 500k condo, we would still be paying out $3700 a month in dues including HOA, Sub HOA, Mello, and what else that the house will eat up on. Granted it's in Irvine, but the amount I put into the principal of the home in comparison to the amount I would have saved living in an apartment is almost $2k a month. </p>
 
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