WSJ: How Houses Eat Money (ya mean they do more than just sink like a rock?)

Good stuff, thanks for posting.  In all fairness though, unless I missed something, the guy didn't take into account how much of the loan had been paid down.  As it wasn't much to begin with, it was probably insignificant compared to the other numbers he posted.

What a great blast from the past.

And this written during almost the peak of madness,  hats off to a fellow realist.

That was a pretty fun read, the end I find funny though cuze when I retire I will  have not just my 401K funds but also I should be in a position to save money until monthly output to own is equal or less than renting and if I decide then to buy I am no worse off than if I continue to rent, esp since renting right now saves me $2K a month. 

I think that if you consider a house an investment and not a home and a place full of memories than you are going to lose out every time. 

Let's build on that: is it really a bad thing to RENT and SAVE if it is indeed cheaper to do so, nope,  any decision that is financial in nature should be done with prudence, and if renting is cheaper why do some still pander the emotion card, the long term aspects of buying in all actuality is not some great investment I agree.  I make plenty of memories in my rental;  I have pictures from every home I have lived in, my memories of living in all my rentals are quite fond.....the house I sold and lost big time on...well if I had struggled financially while living in that home perhaps the memories would have been much more sour (a reality for many homeowners right now out there) and any pictures that serve as a reminder of the time period would be tainted with that memory, but most memories for me were good, the only thing that comes up when looking at pictures is how it stank to loose money on the house.  I didn't loose the house in some nasty foreclosure, not great tradgey (other than a stalked neighbor of course) befell us so as to make the whole experience of owning that home a tainted one.   

rnikifor: I don't know what your true intention with that comment was, and I do agree with you on the investment part, I do however take issue with the constant need for people to use emotion and words like memories and home as if to imply that only good memories can be had from someone who owns a home.    

>I think that if you consider a house an investment and not a home and a place full of memories than you are going to lose out every time.<

QFT.

You have to add back into the house equation:  Renting sucks factor. 

Right now in many markets its not even close.  Renting still wins.  In some markets like 3GVA's...  2K a month er...  wow.  I thought NJ was ridiculous.

Renting sucks factor = "price" of not being able to modify the home + cost of moving MUCH more + loss of stability + auto insurance "penalty" for being a renter not an owner (10% for me) + etc.

Renting doesn't suck:   I don't have to FIX, mow or pretty much do anything.   I bet if I wanted to paint the landlord would gladly allow me to, but why would I want to spend my money on something that isn't mine........for all the people who have modified their homes in the last decade and are either in debt because of it or are selling their home now for a loss.....yeah, the price of freedom to modify was quite high in many instances.  Renting keeps me from going broke and buying into the HGTV mindset. Renting keeps me from spending money I really don't have for stupid stuff I really don't need.   Laminate Rocks.

I have three policies with my insurance company, and therefore I still get a discount on multiple policies, and the savings between renters insurance and homeowners is quite a bit that it goes back to the stupid rationale that you spend $50 to save $10.  

If you are a crappy renter and pay your rent late, then expect to move often cause the landlord will make you want to leave.   I bet I could stay put for a decade......you make your own destiny in life.    You don't keep a job by being a bad employee, you don't keep ownership of a home if you don't pay the mortage either, the scare tactic is such bull.

Renting $2,200mth verses Buying at $4,000 mth.......no tax break or insurance break is going to make that an better pill to swallow. 

Plus renting is the best excuse when we get the telemarketer call or the knock on the door: oh we rent and can't, thanks have a nice day.  I swear I will say that even if I ever do own again. Your free to use that line anytime. 

Renting = lots of time on the weekend to spend with the kids making memories+lots of flexiblity if hubby changes jobs + less insurance costs + no interest costs + piece of mind that we can invest our $$ instead of watching it errod as the market declines

I love to us the we "rent line" on the telemarketers and solicitors.  Shuts them up quick.  It also works for people trying to get you to donate money. Sorry we are saving for a house. 

The only down side is the judgement of others and off handed comments about renters. 

First mistake:  Dumping $130,000 into that home.  $130,000 is a ridiculously high number to be spending on a home in 13 years.  10 g's per year...c'mon man.

Now I agree with his statement about the gains not being from appreciation, but from you're cost recovery of some of the money that you've paid.  But his example is not normal, and is a bit excessive.

I lived in my last home for 3 years and based off the money total that I spent "improving" that house I spent $16K a year to save $4K in tax breaks......woo-hoo!!  (and by the way, the back yard was a drainage nightmare that we had to fix since the builder could not be held accountable for it since we tried that route).   

Amen Akka: a few weeks ago it seemed all the neighborhood men were out mowing the lawns on a Sat morning, and we were packing up our car and the guy next door asked us where we were off to and we told him to the mountains for some hiking and picnic time......and there he was having to do his weekly lawn chore.....and he has girls my kid's ages yet we NEVER see them outside cause both parents work.......yeah, and his wife is the one that made the crude comment about renting when we moved in. 

Understand your stigma against renting...especially with a drainage problem.  Another major drawback is if you live in an area with Septics...and that can get expensive.  My personal approach to buying is trying to find an older home...that has been there for a while that has a lot that has done all of the settling it's going to do...hopefully not in a town with septics...and a well built older home.

I like these things, because it can prevent some major future problems.  Of course not all can be avoided, but a little research into construction can give you an idea of what to avoid.

Oh, and maintenance free things helps with cost on things.

Indeed Jim, that is what we are looking for in our future home should we find one priced right one day.....the sellers have paid the money to fix what was wrong and have lived in the house enough years to settle it.  Of course finding one that won't need a total makeover is going to be hard....my first home was a wallpaper nightmare, took us 3 years to rid the house of all of it.   

We had a septic in GA, I actually prefer it over having public sewer, the newer ones are very efficient and self maintaining, meaning you do nothing to it and it can be a decade before the need to pump it arises which saves a lot of money, esp since pumping it cost only about $300, meanwhile I pay $40 a month easily in just sewer charges, if you were to save the savings you could easily pay for pump outs and any repairs needed through the years.  

I have watched too many of those flipper shows to buy an old house.  You see a house that looks just fine and then they start tearing down the walls and find dry rot, mold, termites, carpenter ants, cockroches, rodents, bee’s nests, water leaks, rotten electrical wires, cracked foundations, and just bad construction.  No thanks!

3Girlsva, what is the price to rent ratio in your area these days?  Here is is still ridiculously high.  I calculate about 28.  I was talking to a realtor in a beautiful house near our down town that she is trying to sell for $1.55M.  The owner bought in 2005 for $1.5 and spent $100K fixing it up.  They have to move because one of the owners parents needs them to live closer.    So anyway, I ask why don't the owners rent it out until they are ready to move back.  She says because they could not even begin to cover the mortgage with the rent.  Then I think, oh ya that is why I am renting.  Why would I buy that house and put myself in the same position.

"But his example is not normal, and is a bit excessive."

Sadly you are mistaken.

Sure many spent less, but over 10 years?

Many spent far more!

I am not sure what the ratio is here in my neck of the woods, but since a house like mine seems to be staying at the same rate for the past year it seems that rents have not risen at all.  The avg price of a home still hovers in the $570K range so even with a 20% down the buy is still out of line with rents.  

I wouldn't buy a super old house, though here is one I would buy in a heart beat if I had the means, it just underwent a huge reno, they bought it for $260K and now are asking $699K, it is an huge lot right on the main street in Leesburg, VA.........that house would be pure emotion and desire to be right off the W&OD trail and in the heart of Old Town.  Oddly enough there is a house two doors down that is brand new and huge and tricked out and they tried to sell it for 1mil for the past year and now the sign is gone and it is just sitting there with nothing happening.........probably bank owned by now.    

Wow 1775!  The earliest I have seen here is 1950s.  Here the equivalent house near our down town built in the 1950s. link  5 years ago that house would have been in the 600Ks.

To get the price to rent ratio I take the estimated price of my home and divide it by my rent. Since we have an average home and rent for our area it is a good estimate of the ratio. 

Excessive in the % of the original price.  Following trend lines should make you better off.  He spent a whopping 78% of the orginal sales price in 13 years on renovations alone.  I don't know about you, but I would say that is definitely excessive.

Now I know Southern NJ tends to be a bit more conservative then Northern NJ, but maybe we should rub off a little more on them.

Wow...there seems to be a lot of sensitivity over this issue.

I only met that if you look at buying a home from purely a financial point of view, it won't always make sense to buy/own.  But, many people who have bought houses and take care of them aren't constantly thinking about how much money is going down the drain or that their house is worth less now than it was 2 years ago.  They are emotionally attached to the house.  That's all I meant.  

 rnikifor: I don't know what your true intention with that comment was, and I do agree with you on the investment part, I do however take issue with the constant need for people to use emotion and words like memories and home as if to imply that only good memories can be had from someone who owns a home.

so jim youre saying if he had bought his house in 2005 and spent the same amount it wouldn't have been excessive only because the price of the house had more than tripled unrealistically??

*should be a "?" after excessive, and "is it excessive" before the the ? mark
   

No, you are reading into it too much.  If you need to put that much money into a home to make it..."how you want it", then you had better be ready for the reality that you aren't going to realize that money.  So like I said...that is excessive.

I sold a new construction home that the builder was building for himself originally.  He had put too much "taste" into it.  Some people don't like stone, or some don't like dark hardwood, or other things.  The point was...go find a different home if it is going to take close to the original sales price amount to fix it up.

what would be different if he bought the home for 500K and only had to spend 130k to fix it?? it would only be 32.5% of the buying price but still 13K a year over a ten year period...same amount.

doesn't the whole scenario just mean that the home was much cheaper back then than it is now??

are you saying 78% is excessive or 130k is excessive??

isn't it better to buy the house at 165K and spend 78% to fix it than to buy it at 500K and spend 32% to fix it??

Too much logic joseney21.

"No, you are reading into it too much."

Jimmy he is not doing that all.  He is simply calling you on this statement, which is quite simple and hard to read too much into.  You're own definition of why you called it excessive:

"Excessive in the % of the original price."

rnikifor: I didn't mean to pick at ya, I was trying to pick at why there is an emotional attachment put on a "home" WTF it is a roof over your head, I asked my mom about this and she said that she never looked at the home we grew up in as anything but a roof over our heads first and second as a investing in herself and not "throwing money away on rent", of course she ended up netting only $6K from the sale of that home, the cost to own it was certainly more than that over the years, so IMHO she got duped into the build equity speil, so therefore both arguments seem to be getting more washed out for me.  The only reason I can see for me to buy is if I want to stay in a particular area for a long period of time, and since many hoods will be changing very dramatically over the next few years, like the McMansions becoming virtual ghost towns and the prices dropping and loosing their luster, it will be interesting to see which places and areas in town stay nice and those that look like crap and will further loose value.  

Off to go play tennis for a few hours, look forward to seeing what happens while I am gone.

I understand your point, and I definitely understand your thinking.  If you really want to get into all of the logistics of "cost vs. value" on comparable homes in comparable price ranges, it's going to be a very long conversation.

The point is, there are price ranges, and within those price ranges, there is only so much work you should do before it would be better to step into the higher price range of a home.

Unless the place was an absolute "handy-man special", he shouldn't have put that much into the property.

I may have been jumping the gun, because he didn't say anything about comparable homes in the neighborhood.  But the rule of thumb in home repairs is..."don't put in a dime when you will only get a nickle".

Another Article from WSJ

This should explain what I mean with "cost vs. value".

Jim,

I totally understand what you are saying.  Here is a perfect example. This house is by the freeway and was purchased for $774K in 2004.  Looks like the owners came in and put in super high end stuff.  Travertine, marble, fountains, granite.......  These are things that should go into a $2-3M house in the hills.  They are obviously factoring in the amount they paid into the price. 

llink

RightO akka.  What do you think that home comps out at?