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      07-12-2013, 02:40 PM   #103
schoy
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Drives: Melbourne Red E90 M3
Join Date: Apr 2010
Location: SD

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Quote:
Originally Posted by Vddr View Post
It's interesting because the owner of the 3 bed townhouse I'm living in right now actually is kicking us out at end of our lease so he can sell the place (mkt price about $1mm).
You've highlighted one of the principal problems with renting: you can be kicked out for economic reasons outside of your control. You're subject to the owner's bank, and the owner's ability to pay the bank. You also have significantly less control over how the property is used, other than the contractual terms of your lease, but then there are costs to enforcing your rights under your lease. On the other hand, owning a home offers security, particularly if you have a family. If you have a wife and kids, there's no way you could live in an apartment if you could afford to own in fee.

Quote:
Originally Posted by Vddr View Post
So if I were to buy this house based on those numbers, I'm looking at a less than 3% return on my investment per year unlevered. That to me makes no sense at all.
I always chuckle a bit when people look at their home as an investment. I see a house as primarily a secure place for shelter. Yes, I have equity tied up in that house, and yes that equity may not be making the same returns that I could, but I have a place to live, and my family has a place to live, and -- if I have a mortgage -- no one can kick me off my land so long as I have a job that can pay that mortgage.

The one thing I think you're forgetting (and what many people who see their house/apartment as an investment first, residence second) is that you'll always need a place to live (unless you don't mind living on the street). Hence, the financial benefit of ownership is really not in the front end but in the back end (when your mortgage payments, if you have a mortgage, are mainly towards principal; ultimately, you won't have any payments left in order have secure shelter. Your only expenses would be maintenance and utilities, which you would have to pay if you were renting anyways, so that would be a wash).