Death of the $30,000 millionaire

[Blue]

im not even going to pretend like i have any idea what this thread is about.

[Clueless1]

im not even going to pretend like i have any idea what this thread is about.

Me too....

But R.I.P. mr. 30kdm's... Soo much for me having the car of a 30kdm...damnit!

[flash07]

real estate generally has a profit return of 14% give or take WF. Smirk you are absolutely correct Texas market is a one of a kind market. We have a more stable market than you see in some other areas that boom and recess.

[Westfall]

real estate generally has a profit return of 14% give or take WF.

You are mistaken. Do you have a sorce to back up your statistic? There are a few mistakes you (or whomever came up with that number) may be making.

1) You're not be adjusting for inflation
2) You're likely looking at recent price apperication (since 2000) which is above the historical norms--spured by lax lending standards & low interest rates. As stated perviously, housing prices have returned less than 1/2 percent from 1890 until now.
3) You may be comparing home prices directly without adjusting for square footage. Homes built in the 1940s were much smaller than they are today, so if you compare the median home price in 1940 with the median home price today, you will get misleading results. One must adjust for the fact that houses built today have nearly double the sq footage they had 50 years ago. This is a common trick real estate sales people will use when trying to convience someone that housing is a great wonderful & sound investment.

As stated previously, housing prices have historically been very closely linked to rent prices--that is until recently durring which time speculators started buying houses, pushing their valuations far beyond their historical levels with respect to rents.

You claim that real estate is a sound investment that goes up 14% or so, my research leads me to conclude you'll likely be very disapointed, as I expect housing prices to drop (or stay flat) until they revert to their historical inflation adjusted levels with respect to rents.

You're far better off investing in companies that are able to grow earnings at a discount to what their future cash flows will be.

Westfall

[Welsh_Dragon]

real estate generally has a profit return of 14% give or take WF.

You are mistaken. Do you have a sorce to back up your statistic? There are a few mistakes you (or whomever came up with that number) may be making.

1) You're not be adjusting for inflation
2) You're likely looking at recent price apperication (since 2000) which is above the historical norms--spured by lax lending standards & low interest rates. As stated perviously, housing prices have returned less than 1/2 percent from 1890 until now.
3) You may be comparing home prices directly without adjusting for square footage. Homes built in the 1940s were much smaller than they are today, so if you compare the median home price in 1940 with the median home price today, you will get misleading results. One must adjust for the fact that houses built today have nearly double the sq footage they had 50 years ago. This is a common trick real estate sales people will use when trying to convience someone that housing is a great wonderful & sound investment.

As stated previously, housing prices have historically been very closely linked to rent prices--that is until recently durring which time speculators started buying houses, pushing their valuations far beyond their historical levels with respect to rents.

You claim that real estate is a sound investment that goes up 14% or so, my research leads me to conclude you'll likely be very disapointed, as I expect housing prices to drop (or stay flat) until they revert to their historical inflation adjusted levels with respect to rents.

You're far better off investing in companies that are able to grow earnings at a discount to what their future cash flows will be.

Westfall

WF - You should also take into account the tax benefits and recapture of $ you would otherwise be putting out to rent (no return) before making a determination on whether an owner occupied property is worth the investment. It is an individual decision and can make sense. Just don't expect price appreciation above inflation (unless you determine the real estate asset to be undervalued).

[Finesse]

A home is a liability. Not an asset, UNLESS it is generating income over which is needed to keep it up.

You have taxes to be paid on it vs. if you just rent. Plus maintainance, payments and insurance, etc..

Real estate on average would yeild about a 7% ROI.

The biggest problem is people think that real estate is liquid... and its not. If you are trying to start flipping houses you have to hold onto it for at LEAST 6 months, unless you pay cash..... thats 6 months of payments and upkeep... and thats if it even sells in that time frame.

2 cents

[Westfall]

WF - You should also take into account the tax benefits and recapture of $ you would otherwise be putting out to rent (no return) before making a determination on whether an owner occupied property is worth the investment. It is an individual decision and can make sense. Just don't expect price appreciation above inflation (unless you determine the real estate asset to be undervalued)

People who buy stocks also get tax benifits, but both are a bad deal. The interest on loans for houses (mortgages) and shares (margin balances) is tax-deductible. Nonetheless, a majority of homeowners don't claim them. Their incomes are low enough to make the standard deduction a better deal--that is most people would actually lose money if they itemized to tax deduct the interest on their mortgage. Even if it were, would it make sense to borrow money at 8% to buy something that won't appericate beyond inflation even if tax breaks effectively knock that rate down to 6%?

Rent is the cost of owning shares with money you would otherwise spend on a house. Houses have ownership costs, too: taxes, insurance and maintenance. Rent costs about 5% of house prices each year if we apply the price/rent ratio of 19. House incidentals often cost around 2%. If you have $300,000 and a choice between spending it on a house or shares, you'll pay $6,000 a year in incidentals if you buy the house or about $15,000 a year ($1,250 a month) in rent if you buy the shares. But the shares will return $21,000 a year after inflation while the house will return zero.

Essentially if you could earn more money in stocks by investing the amount it would cost to buy a house than it would to rent an equivlient place, then you should buy the stocks. Given the fact that housing prices are inflated vs rents relative to historical norms, not many houses are priced low enough to justify buying a home over investing in stocks.

Of course, if you find a home that is substantially undervalued because one of the builders built too much inventory and needs to unload them to pay off loans....that might change things a bit.

Westfall

[Xavier]

Interesting article. A lot of information about real estate and credit issues.

Last year, I was in Northern California visiting a friend. As we drove around, I would ask him how much this house or that house cost, thinking damn, come back to Texas, it's about time we see home values come back down to reality over there.

I think credit is still easy to get. My credit limit just went up this past week on both of my credit cards that I use, didn't expect it. I think they want me to spend more money.

Real estate in Texas is doing well especially here in North Texas. In regards to investments, whenever you decide to sell it, that's when you should calculate ROI. Each has it's advantages.

Real estate adds up. The true cost of owning a home.

http://realestate.msn.com/buying/Articl ... &gt1=10130