I've had a couple realtors make what I thought was a very exaggerated claim
for purchasing a home and now I've seen the same argument made in a "Smart
Money" interview with a real-estate economist at
http://yahoo.smartmoney.com/theprosh...2&afl=myyahoo:

"Remember, a 5% price appreciation gives you a lot bigger return than 5%
because you're buying real estate on margin. You're giving a down payment.
Say you put down $10,000 on a $100,000 house. If it increases by 10%, you
get $10,000. That's a 100% return."

My logic says that, after I put down that $10,000 I also pay my monthly
mortgage payments, PMI (?), taxes, insurance, maintenance, etc. for the year
which, even after tax deductions, makes the rate of return substantially
less than 100%. I don't claim to be an economist, so am I missing something
here?

In article ,
"Mark" wrote:

I've had a couple realtors make what I thought was a very exaggerated claim
for purchasing a home and now I've seen the same argument made in a "Smart
Money" interview with a real-estate economist at
http://yahoo.smartmoney.com/theprosh...2&afl=myyahoo:

"Remember, a 5% price appreciation gives you a lot bigger return than 5%
because you're buying real estate on margin. You're giving a down payment.
Say you put down $10,000 on a $100,000 house. If it increases by 10%, you
get $10,000. That's a 100% return."

My logic says that, after I put down that $10,000 I also pay my monthly
mortgage payments, PMI (?), taxes, insurance, maintenance, etc. for the year
which, even after tax deductions, makes the rate of return substantially
less than 100%. I don't claim to be an economist, so am I missing something
here?

You are, of course, right. Over time, home ownership has a
5% or so net average gain. That is about like bonds. The
stock market is more like 11%. So, in comparison, a home
is not that great of investment. You would be better off
investing in the stock market. That assumes, of course, that
you don't need a place to live.

The economic model that the realtor played out also didn't
consider the expenses of running a house. In general, it is
cheaper to rent and invest the difference. For some people
who are bad money managers, a house might be the only savings
account that they ever have. So in that respect, something
is far better than nothing.

I see a house as a life style choice. I had some extra cash,
but I don't want to do yard work, so I bought a town home.
Others like to putter, so a yard might keep them busy. Others
still are very active, and an apartment or condo might suit
them better.

When it comes to a house, do what works for you, and don't
worry about the money. It all comes out in the wash for the
most part.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708
Newave Communications http://www.johnweeks.com
================================================== ====================

"Mark" wrote in message
...
I've had a couple realtors make what I thought was a very exaggerated
claim
for purchasing a home and now I've seen the same argument made in a "Smart
Money" interview with a real-estate economist at

http://yahoo.smartmoney.com/theprosh...2&afl=myyahoo:

"Remember, a 5% price appreciation gives you a lot bigger return than 5%
because you're buying real estate on margin. You're giving a down payment.
Say you put down $10,000 on a $100,000 house. If it increases by 10%, you
get $10,000. That's a 100% return."

My logic says that, after I put down that $10,000 I also pay my monthly
mortgage payments, PMI (?), taxes, insurance, maintenance, etc. for the
year
which, even after tax deductions, makes the rate of return substantially
less than 100%. I don't claim to be an economist, so am I missing
something
here?

From the overhead expenses you listed, don't forget to subtract out the
rent, utilities, and renter's insurance you would otherwise be paying.
(Gotta live somewhere...) Rent vs. buy is a perennial discussion on usenet,
and there are dozens of web pages and calculators out there to crunch the
numbers for your particular situation. General rule of thumb is, that unless
you live in a 'bubble' area still headed up, and have the nerve to try to
ride it up and jump the day before the bubble bursts, buying is only a good
investment if you plan to stay 3-5 years minimum, and 7-9 years for any good
ROI. Look at any amortization chart- you only add a few grand to equity in
the first 7-9 years (roughly equal to closing costs), so aside from your
initial down payment, the only equity you have is appreciation.

Anyway, I sure hope the above is true- I just bought a place, nothing fancy,
and it is costing me 2 or 3 hundred a month more than renting, but I was
paranoid about interest rates going back up and pricing me out of the
market. I tracked local market closely for several years, and saw a
consistent 3-5 per cent annual rise in sale prices, which beats the heck out
of what credit union was paying. I don't have the nerve for the stock
market, so real estate seemed like a logical choice.

aem sends....

(Mark) wrote:
I've had a couple realtors make what I thought was a very exaggerated claim
for purchasing a home and now I've seen the same argument made in a "Smart
Money" interview with a real-estate economist at
http://yahoo.smartmoney.com/theprosh...2&afl=myyahoo:

"Remember, a 5% price appreciation gives you a lot bigger return than 5%
because you're buying real estate on margin. You're giving a down payment.
Say you put down $10,000 on a $100,000 house. If it increases by 10%, you
get $10,000. That's a 100% return."

My logic says that, after I put down that $10,000 I also pay my monthly
mortgage payments, PMI (?), taxes, insurance, maintenance, etc. for the year
which, even after tax deductions, makes the rate of return substantially
less than 100%. I don't claim to be an economist, so am I missing something
here?

It depends. If it's a primary dwelling that you're going to be living
in, you won't get that kind of rate of return, because you'll willingly
spend money on living there.

If, on the other hand, you're buying it as an investment, you'll probably
be renting it out, and there aren't many people who rent property out for
less than it's costing them to own it.

--
Dan Birchall - http://danbirchall.multiply.com/ - images, words, technology