Great (and amusing) recent article in the WSJ, ":How toStop Relatives
From Bragging About Their Big Profits in Real Estate", debunking a
hypothetical guy "Bob" who bought a house for $250k and sold it for
$360k 5 years later.

"Bob" claimed great leverage, $110k profit on his downpmt of $50k.
But taking his $360k and subtracting his borrowing expenses including
closing costs of $57.5k AFTER tax ($86,750 before tax), his $45.5k in
annual expenses (prop tax, insurance, maint & repair, operating
exps.), his $189k loan balance, his $50k down, and his $19k (only 5%!)
commission on the sale - and he is exactly ZERO $ ahead.

But what Bob *DID* get, is a nie place to live. And that's the
answer. It is perfectly OK to by a house to get a nice place to live.
But don't do it to "make money". In this case the appreciation and
debt paydown did indeed offset the costs - but then where is he going
to live now, all those other houses went up, too!

Nothing wrong with buying real estate - I was 22 years old when I
bought my first place. But just enjoy your home, you don't have to
delude yourself on how much money you are making.

-v.

In article , (v)
wrote:

Great (and amusing) recent article in the WSJ, ":How toStop Relatives
From Bragging About Their Big Profits in Real Estate", debunking a
hypothetical guy "Bob" who bought a house for $250k and sold it for
$360k 5 years later.

"Bob" claimed great leverage, $110k profit on his downpmt of $50k.
But taking his $360k and subtracting his borrowing expenses including
closing costs of $57.5k AFTER tax ($86,750 before tax), his $45.5k in
annual expenses (prop tax, insurance, maint & repair, operating
exps.), his $189k loan balance, his $50k down, and his $19k (only 5%!)
commission on the sale - and he is exactly ZERO $ ahead.

But what Bob *DID* get, is a nie place to live. And that's the
answer. It is perfectly OK to by a house to get a nice place to live.
But don't do it to "make money". In this case the appreciation and
debt paydown did indeed offset the costs - but then where is he going
to live now, all those other houses went up, too!

Nothing wrong with buying real estate - I was 22 years old when I
bought my first place. But just enjoy your home, you don't have to
delude yourself on how much money you are making.

-v.

It isn't fair to factor in the operating expenses as they would have had
to pay them where ever they lived. BTW 5% of $360K is only $18K so that
adds and extra $1K to the pot.

v wrote:

Great (and amusing) recent article in the WSJ, ":How toStop Relatives
From Bragging About Their Big Profits in Real Estate", debunking a
hypothetical guy "Bob" who bought a house for $250k and sold it for
$360k 5 years later.

"Bob" claimed great leverage, $110k profit on his downpmt of $50k.
But taking his $360k and subtracting his borrowing expenses including
closing costs of $57.5k AFTER tax ($86,750 before tax), his $45.5k in
annual expenses (prop tax, insurance, maint & repair, operating
exps.), his $189k loan balance, his $50k down, and his $19k (only 5%!)
commission on the sale - and he is exactly ZERO $ ahead.



Sounds like Bob lived for free for 5 years. Try living free when you're
a renter.

"v" wrote in message
...
Great (and amusing) recent article in the WSJ, ":How toStop Relatives
From Bragging About Their Big Profits in Real Estate", debunking a
hypothetical guy "Bob" who bought a house for $250k and sold it for
$360k 5 years later.

"Bob" claimed great leverage, $110k profit on his downpmt of $50k.
But taking his $360k and subtracting his borrowing expenses including
closing costs of $57.5k AFTER tax ($86,750 before tax), his $45.5k in
annual expenses (prop tax, insurance, maint & repair, operating
exps.), his $189k loan balance, his $50k down, and his $19k (only 5%!)
commission on the sale - and he is exactly ZERO $ ahead.

Not to question the WSJ, but some of the numbers don't sound quite
right. I ran a 30 year mortgage at 5.5% on a 200k balance. Cumulative
interest over 5 years is 54k. I'd like to know how closing costs and
other borrowing expenses push that up to 86.7k? And my amortization
schedule has him at 184k after 5 years, not 189k (a 7.5% rate would
be at 189k, but rates in the 5-6% range were prevalent 5 years ago).

Plus there's the value of having a place to live. If you're comparing
Bob to someone living rent-free with their parents, then maybe he
didn't do so great. But compared to a renter, I think Bob actually
did make out quite well for himself. And he probably got more dates
than the guy living with his parents.

--Neil

On Sun, 29 Aug 2004 18:59:24 -0700, someone wrote:

Plus there's the value of having a place to live. If you're comparing
Bob to someone living rent-free with their parents, then maybe he
didn't do so great. But compared to a renter, I think Bob actually
did make out quite well for himself. And he probably got more dates
than the guy living with his parents.

I agree with you completely on that. You spend some money, and you
get a nice place to live. Its an expense. But people are constantly
going on about how much money they made, when really they didn't.

Basically, the guy spent $110k over 5 years, and was fortunate enough
that appreciation cancelled this out, so he was even, "lived free",
which WSJ noted. But suppose he had spent half that to rent a smaller
place, and had the rest payroll deducted into mutual funds, then he'd
be so much ahead rather than just even, at the same time as people are
telling him he is throwing his money away on rent.....

Getting the home that you want is basically an expense. I am a home
owner myself, and I can enjoy my home without having to convince
myself that I am making a profit also.

bye-

-v.

On Sat, 28 Aug 2004 15:30:53 -0700, someone wrote:


It isn't fair to factor in the operating expenses as they would have had
to pay them where ever they lived.

Yes, they are expenses wherever he lives. They are still expenses.
Are your utilities free just because you'd have them anywhere?


BTW 5% of $360K is only $18K so that
adds and extra $1K to the pot.

My bad, typo, WSJ said $18k, I think the numbers ad up to the $18k
anyway.


A good test is, if a person had free housing - could be white collar
or blue, a job that includes housing whether it be college president,
apartment complex maintenance man, hotel manager, or military - would
thay come away with any more money if they also bought a house. Most
times they would not (unless they rented it out, which is different -
if you use it yourself, you forego that rent - if you figure you are
renting it from yourself, well that's an expense....). The house you
occupy for yourself is usually an expense - its still an expense even
if you had the same expense in a different house, or an expense for
rent.

Nothing wrong with owning your own home. But recognize it for what it
is.

-v.