Home Ownership: The American Nightmare!

[ZenOps]

Haha!

6ES6nyJtKe0

Any of you technogeeks out there might recognize this guy, he does a good chunk of the Microsoft lectures for Canada - even though technically hes a Texan.

[Tik-Tok]

He's whining because he has no income tax, but has to pay a whole $5g for property tax? :nut:

[BoostinAround]

I could barely finish it, fuck that guy is annoying.

Guess what, no matter what it costs you to live SOMEWHERE.

[Masked Bandit]

I stopped watching about 10 seconds in. As soon as he said "It can no longer be claimed that your home is an asset" I was finished. Anyone that truly understands money already knows that you home never has been an asset. It's purely an expense.

[ipeefreely]

Originally posted by BoostinAround
I could barely finish it, fuck that guy is annoying.

Guess what, no matter what it costs you to live SOMEWHERE.


Originally posted by Masked Bandit
I stopped watching about 10 seconds in. As soon as he said "It can no longer be claimed that your home is an asset" I was finished. Anyone that truly understands money already knows that you home never has been an asset. It's purely an expense.
+1

He reminds me of Sloth....

HEEYYY YOOU GUYYSS!!!!
http://www.starstore.com/acatalog/goonies-sloth-12-01.jpg

:rofl:

[Kloubek]

Originally posted by Masked Bandit
Anyone that truly understands money already knows that you home never has been an asset. It's purely an expense.

Interested by this statement. My net worth is about 300k, and it is almost 100% due to the increase of value of the homes I've purchased. Without it, I'd be worth about 40k, and all the money I've paid into my mortgage will be down the drain.

I'd be interested to know how you feel one would be better off with a 40k net worth than a 300k net worth.

[Tik-Tok]

Originally posted by Kloubek

I'd be interested to know how you feel one would be better off with a 40k net worth than a 300k net worth.

Everyone I've ever argued with about this, says "Because you always need a place to live". Difference being (IMO), I can always go back to renting or just downsize to a condo and have both ownership, and a couple hundred grand in my bank.

Asides from that. Those of us who bought before the Calgary boom, are enjoying an unusual large surplus of net worth (the exception to the rule)

[Sugarphreak]

...

[Kloubek]

I don't think anyone in their right mind would claim that the value of the home (and therefore, your investment) isn't subject to market flux. And I'll take it one step further to say that many - especially in the US - pretty much ruined their lives by taking on such a poor investment at a bad time.

However, Masked Bandit claimed:
"Anyone that truly understands money already knows that you home never has been an asset. It's purely an expense."

...and I really want to know how he comes to this conclusion. I personally bought at the right times, and consider my home a huge asset.

Of course it is also a potential liability if the market were to crash. But like you said Sugarphreak... buy low sell high. The same as any other investment.

[Eleanor]

Originally posted by Kloubek
However, Masked Bandit claimed:
"Anyone that truly understands money already knows that you home never has been an asset. It's purely an expense."

...and I really want to know how he comes to this conclusion. I personally bought at the right times, and consider my home a huge asset.

Of course it is also a potential liability if the market were to crash. But like you said Sugarphreak... buy low sell high. The same as any other investment. So you sell off your house, where do you live? Unless you're moving or downgrading, you're forced to buy back into the same market.

[arian_ma]

Originally posted by Eleanor
So you sell off your house, where do you live? Unless you're moving or downgrading, you're forced to buy back into the same market. Maybe your HOME isn't an asset by your definition, but a house is definitely an asset.

You can still buy your HOME, the value can increase over x number of years, you can sell it (at a potential profit) and move to a new city and buy low again. You've made money on your asset.

[Masked Bandit]

Your primary residence (home) is a liability, not an asset. I never use the equity in our home when calculating net worth because you can't really spend that money, it's not yours. Sure you can get a Heloc against it but that is just creating a future liability (the debt).

An asset is something that either produces income or appreciates in value. Sure, over time the average house will appreciate in value however unless you're going to live out the rest of your days renting (future liability) you will never really be able to access & spend that money. With the interest on mortgage costs, insurance, taxes & maintenance a home truly is a liability (something that costs money).

Saying that you bought pre-boom and the value of your home has doubled isn't exactly accurate either. If you sell your house and buy something else you are still buying at the inflated rate. You're no further ahead. Equity in a home isn't worth equity in other vehicles (investments, cash, businesses, etc).

Equity in a RENTAL property is completely different. You can sell that property without realistically incurring other expenses & liabilities (buying another home, renting, etc).

That's not to say it's a bad idea to own a home. Most people see it as a worthwhile expense, just like a car.

[Masked Bandit]

Originally posted by arian_ma
Maybe your HOME isn't an asset by your definition, but a house is definitely an asset.

You can still buy your HOME, the value can increase over x number of years, you can sell it (at a potential profit) and move to a new city and buy low again. You've made money on your asset.

But once you've moved to a new city you don't really have the same thing, do you?

Selling your first home in Calgary and buying a similar home in say, Winnipeg is an apples to apples trade. part of the value of any property is it's location. The property in Winnipeg is lower because it's less desireable. It's not the same thing.

[Kloubek]

Sorry... I'm still not getting it. I mean, I get what you're saying - but your logic is entirely flawed, imo. It is like you're saying that just because the equity in a home is not liquid that it doesn't exist. But it does. No asset is liquid until it is sold. This rings true for a house, a rare comic book or an appreciating Picasso.

Let's drop home equity loans or home-based LOC out of the equation because you're really just transferring funds... not creating them. Never really a good idea to utilize this option anyway.

People need to live somewhere, and paying monthly is inevitable. The option is renting or buying.

Person A rents his/her entire life. They put $1000 into rent every month. By their retirement, they have zero equity built from renting. So they have nothing to sell off from their residency.

Person B buys their home. Over the course of the mortgage they also put in $1000 per month. Yes, they have extra expenses as well like a new roof every 25 years and a new furnace every 15. I get that. Say they bought their home for 300g and in 20-25 years it is now worth 500g. And let's favour your case here, and say they paid a whopping 100g in taxes and repairs over that timeframe.

In 20 years person B now has a 500g - 100g object that is paid off. They can now live *rent free* in this house from retirement to death, or perhaps they decide to sell. If they sell, they can now take that money and pay for rent for the rest of their life, along with vacations wherever they wish to go. Person A has nothing to sell and will pay for those things out of pocket.

I still don't see how owning a home cannot be viewed as an appreciating asset. Market fluctuations aside, home values will always increase over time. But more important than that - a percentage of every payment you make comes off your principle and directly affects your net worth. Just because it isn't liquid doesn't mean it doesn't exist... it is just tied up until being sold.

Let's take it to the extreme. Person C has 10 mortgages. They live in 1 house and rent out the other 9 to cover the mortgage expenses. He buys 10 houses at 300k and in 25 years sells all 10 off at 500k a pop. (That's exceptionally conservative, btw).

So what did he make. 2 million? Well imo that is enough reason to blow your thought of a home not being an appreciating asset out of the water. But in fact, he walks away with 5 million because the 300k mortgage of each house was paid off by the renter.

That 5 million is liquid. That 5 million contributes to this guy's net worth.

[Modelexis]

Originally posted by Tik-Tok
He's whining because he has no income tax, but has to pay a whole $5g for property tax? :nut:

Pretty sure he said "state income tax"
I'm sure he still pays income tax.

[Masked Bandit]

Originally posted by Kloubek
Sorry... I'm still not getting it. I mean, I get what you're saying - but your logic is entirely flawed, imo. It is like you're saying that just because the equity in a home is not liquid that it doesn't exist. But it does. No asset is liquid until it is sold. This rings true for a house, a rare comic book or an appreciating Picasso.

Let's drop home equity loans or home-based LOC out of the equation because you're really just transferring funds... not creating them. Never really a good idea to utilize this option anyway.

People need to live somewhere, and paying monthly is inevitable. The option is renting or buying.

Person A rents his/her entire life. They put $1000 into rent every month. By their retirement, they have zero equity built from renting. So they have nothing to sell off from their residency.

Person B buys their home. Over the course of the mortgage they also put in $1000 per month. Yes, they have extra expenses as well like a new roof every 25 years and a new furnace every 15. I get that. Say they bought their home for 300g and in 20-25 years it is now worth 500g. And let's favour your case here, and say they paid a whopping 100g in taxes and repairs over that timeframe.

In 20 years person B now has a 500g - 100g object that is paid off. They can now live *rent free* in this house from retirement to death, or perhaps they decide to sell. If they sell, they can now take that money and pay for rent for the rest of their life, along with vacations wherever they wish to go. Person A has nothing to sell and will pay for those things out of pocket.

I still don't see how owning a home cannot be viewed as an appreciating asset. Market fluctuations aside, home values will always increase over time. But more important than that - a percentage of every payment you make comes off your principle and directly affects your net worth. Just because it isn't liquid doesn't mean it doesn't exist... it is just tied up until being sold.

On that $300,000 home purchase that ran a traditional 25 year mortgage, you've paid about $600,000 in payments over the 25 years or double the original purchase price. Sure it's worth $600,000 now to sell but that's what you've put into it over the prior 25 years. It's net worth neutral. Sure you've got a property worth $600,000 but you PAID $600,000 to get it.

And you STILL have to live somewhere, unless you're dead and then your children (estate) receive the benefit of the sale of the property because they already have somewhere to live.

And once a house is paid off it's certainly not free to live there. You still have taxes, insurance, utilities & maintenance to pay. You still have to feed it every month albeit not as much as before.

Think of it this way. An asset is something that pays for other things, spins off additional cash / income on a weekly, monthly or yearly basis. A liability is something that costs money and has to be fed. Can your house buy you a new car? Nope. Not without creating an offsetting liabilty (debt on a Heloc for example). Sure you can sell the house but that also creates a future liability, either renting somewhere or buying another place. Buying a smaller place isn't the same because you have downgraded your residence.

At the VERY best it's forced savings, that's all. I still firmly believe it's a worthwhile expense but it's just that, an expense.

[Masked Bandit]

Originally posted by Kloubek




Let's take it to the extreme. Person C has 10 mortgages. They live in 1 house and rent out the other 9 to cover the mortgage expenses. He buys 10 houses at 300k and in 25 years sells all 10 off at 500k a pop. (That's exceptionally conservative, btw).

So what did he make. 2 million? Well imo that is enough reason to blow your thought of a home not being an appreciating asset out of the water. But in fact, he walks away with 5 million because the 300k mortgage of each house was paid off by the renter.

That 5 million is liquid. That 5 million contributes to this guy's net worth.

Ahhhh, and there's the difference I stated earlier. PROPERTIES can be assets, just not your primary HOME. Rental properties don't have to be replaced once sold therefore through appreciation in value along with the fact that someone else made the mortgage payments along the way they are most certainly assets (assuming you are selling for more than what you paid). But your primary HOME can't be sold without replacing it in some fashion (purchased or rented).

[Kloubek]

Ok - so my calculations were a bit off, considering you pay more for a mortgage than you do the value of a house.

But in my scenarios above, person A still has nothing, whereas person B has something they can sell of for 500 or 600g. You say person b now has the liability of renting somewhere now that they've sold the house - and of course, that is true. However, person A also has that liability, without 500-600g in their account.

[ercchry]

i dont think the renting vs buying argument is this black an white. you can make arguments for either side based on lifestyle choices.

but one thing that is for sure is that over time your monthly payments (which lets face it, the majority of people live their lives month to month in one way or another) when owning will decrease over time and your rent will increase over time.

the only way to win at the game is to own more than one property. one to live in, and another (or multiple) to cover the costs of both.

[Masked Bandit]

Originally posted by Kloubek
Ok - so my calculations were a bit off, considering you pay more for a mortgage than you do the value of a house.

But in my scenarios above, person A still has nothing, whereas person B has something they can sell of for 500 or 600g. You say person b now has the liability of renting somewhere now that they've sold the house - and of course, that is true. However, person A also has that liability, without 500-600g in their account.

Person A didn't spend $600,000 in rent PLUS taxes AND insurance AND maintenance over that 25 year period either. For that first 25 years the total money spent by person B is much higher than person A.

In theory, if person A were to rent and save the difference each month and invest it conservatively, at the end of 25 years he would have just as much liquid assets (cash) as person B. Of course we both know that in the real world there is no way someone is renting for 25 years and actually saving the difference so that is why I said at best, home ownership is forced savings.

I can't stress enough though that I still think home ownership is a perfectly acceptable expense. Hell, I do it myself. Pride of ownership is nice to have as well as the peace of mind knowing that some landlord isn't going to sell the place and kick me out. And for A LOT of people, the forced savings is about the only thing they have going for them.

[ercchry]

Originally posted by Masked Bandit


Person A didn't spend $600,000 in rent PLUS taxes AND insurance AND maintenance over that 25 year period either. For that first 25 years the total money spent by person B is much higher than person A.


the cash flow on my 2 year old rental says otherwise :poosie:

[G]

Originally posted by ercchry


the cash flow on my 2 year old rental says otherwise :poosie:

I think we get that you're a real estate mogul.

[ercchry]

Originally posted by G


I think we get that you're a real estate mogul.

... not yet :(

[Kloubek]

Well now in our debate we're down to the base question of whether it is more significantly more expensive to own. Do you really think someone who rents saves that much (if any) per month?

For my own house, my mortgage is $1400/month and I have minimal forced expenses because my house is new. Taxes are my only real requirement that I wouldn't have to pay if I rented. Let's say that's about $200 more a month.

There is no way in hell I'd be able to rent a house like mine for $1600 a month. Maybe $1800-$2000.

I know when I first started out in the real estate market in Kamloops I bought my apartment for $47,000. (Yes, that's right folks.) My mortgage was something like $450, plus $100 condo fees and about $50 a month in taxes. That too was cheaper than I could have rented a similar apartment for, and all other maintenance was covered by the condo board.

Now of course, these senarios are not exactly what everyone experiences. If someone was starting out fresh with today's prices here in Calgary, I'm pretty certain you'd be on the money (no pun intended) in saying that someone renting would pay less. Guess it all depends on the individual situation.

While I still feel it is generally financially advantageous to buy (certainly is for me) you have indeed shown me that it isn't always quite as beneficial as I previously believed it to be.

[G]

Originally posted by Kloubek
Well now in our debate we're down to the base question of whether it is more significantly more expensive to own. Do you really think someone who rents saves that much (if any) per month?

For my own house, my mortgage is $1400/month and I have minimal forced expenses because my house is new. Taxes are my only real requirement that I wouldn't have to pay if I rented. Let's say that's about $200 more a month.

There is no way in hell I'd be able to rent a house like mine for $1600 a month. Maybe $1800-$2000.

I know when I first started out in the real estate market in Kamloops I bought my apartment for $47,000. (Yes, that's right folks.) My mortgage was something like $450, plus $100 condo fees and about $50 a month in taxes. That too was cheaper than I could have rented a similar apartment for, and all other maintenance was covered by the condo board.

Now of course, these senarios are not exactly what everyone experiences. If someone was starting out fresh with today's prices here in Calgary, I'm pretty certain you'd be on the money (no pun intended) in saying that someone renting would pay less. Guess it all depends on the individual situation.

While I still feel it is generally financially advantageous to buy (certainly is for me) you have indeed shown me that it isn't always quite as beneficial as I previously believed it to be.

Let's say you got your mortgage at 3.5% for 25 years. So a monthly mortgage payment of $1400 per month would put your mortgage amount at about 280k. Since you said almost 100% of your 300k networth is in your house I assume you think your house in Kincora is worth 580k.

My friend built 2 years ago in Kincora Glen Rise with Centrex (2336 sqft) for ~$550k. His assessment last year was $488k which is about right. Most of the homes in that area are mid $400s to low $500. If you built in the same time period I assume you lost about 10% -15% as well. Real estate doesn't always go up. It is cyclical and depending on what part of the cycle you are in relation with your life it may or may not make or break you.

[Masked Bandit]

Originally posted by Kloubek
Well now in our debate we're down to the base question of whether it is more significantly more expensive to own. Do you really think someone who rents saves that much (if any) per month?

For my own house, my mortgage is $1400/month and I have minimal forced expenses because my house is new. Taxes are my only real requirement that I wouldn't have to pay if I rented. Let's say that's about $200 more a month.

There is no way in hell I'd be able to rent a house like mine for $1600 a month. Maybe $1800-$2000.



There are a couple of key expenses you're not considering.

Insurance - For an average family home you're looking at somewhere between $600 - $1000 per year (lots of variables). However if you are renting and only purchase tenant insurance you're about $200 a year.

Big, one time maintenance expenses - They don't happen every month or even every year but several times over the initial 25 years of home ownership you are going to have to pay for some pretty big repairs. Roof - $10,000. Furnace packs in - $4500. Water heater - $2000. Renovations for things like flooring, easily another $5000 - $10,000. On that new home of yours I'm assuming you had to pay for all the initial landscaping? Fence, deck & sod at a minimum are probably about $5000. This all somewhere between $25,000 & 35,000 or, averaged over the 25 years, another $1000 - $1400 per year.

When you sell the house in 25 years, you're going to call up our good buddy Jordan Lotoski of Remax (gotta support Beyonders) and he's going to apply the standard 7% / 3% on commission formula to the sale of the home and that's going to run you another $22,000 or averaged over the 25 years, $880 per year.

You're probabaly going to have to paint the place just before you sell it to get it ready for market, there's another $5,000 or averaged over the 25 years, $200 a year.

So, savings from renting:

Insurance - $400 - $600 per year.
Big Repairs - $1000 - $1400 per year.
Selling costs (inc. painting) $1080 per year
Total $2480 - $3080 per year or $207 - $257 per month.

Using your own example, $1600 a month for current costs plust the $207 - $257 per month of hidden, long term expenses puts you exactly right in the range you suggested for rental cost.

Disclaimer: I am a homeowner and prefer to stay that way versus renting.

[mazdavirgin]

Originally posted by ercchry
the cash flow on my 2 year old rental says otherwise :poosie:

Let us know how awesome your cash flow is after the place sits empty for a month or two while you are looking for new tenants.

[Masked Bandit]

Originally posted by ercchry


the cash flow on my 2 year old rental says otherwise :poosie:

Positive cash flow on a monthly basis today does not necessarily equal positive cash flow over the "life" of the home (next 25 years for the purpose of our discussion). There will be months when you don't have renters or the market shifts and rental prices have dropped due to too much supply and not enough demand. If oil hits $30 a barrel lets see if you can rent or sell that property! You'll still have to pay the mortgage though. Granted I think it's a pretty safe bet on your part. Obviously, over the long run, if managed properly, residential rental properties do make you money and that's why I referred to them as an asset. Someday this place will be paid off and you can sell it and keep the profits (less capital gains taxes).

[Masked Bandit]

Originally posted by G


I think we get that you're a real estate mogul.

All things considered he's got a good start.

[ercchry]

Originally posted by mazdavirgin


Let us know how awesome your cash flow is after the place sits empty for a month or two while you are looking for new tenants.

honestly, before we made the decision to keep the place instead of selling when we moved i factored that in... and the numbers over a span of 10 years is still very nice

real estate is a long term investment. as long as cold fusion isnt invented any time soon we will do just fine :rofl:

[G]

Originally posted by ercchry


... not yet :(

blah blah blah

[arian_ma]

Originally posted by Kloubek
Well now in our debate we're down to the base question of whether it is more significantly more expensive to own. Do you really think someone who rents saves that much (if any) per month?
I don't really understand your basis for this comment...

Originally posted by Kloubek
Now of course, these senarios are not exactly what everyone experiences. If someone was starting out fresh with today's prices here in Calgary, I'm pretty certain you'd be on the money (no pun intended) in saying that someone renting would pay less. Guess it all depends on the individual situation....but I like this one.

[Sugarphreak]

...

[Kloubek]

Originally posted by G


Let's say you got your mortgage at 3.5% for 25 years. So a monthly mortgage payment of $1400 per month would put your mortgage amount at about 280k. Since you said almost 100% of your 300k networth is in your house I assume you think your house in Kincora is worth 580k.

My friend built 2 years ago in Kincora Glen Rise with Centrex (2336 sqft) for ~$550k. His assessment last year was $488k which is about right. Most of the homes in that area are mid $400s to low $500. If you built in the same time period I assume you lost about 10% -15% as well. Real estate doesn't always go up. It is cyclical and depending on what part of the cycle you are in relation with your life it may or may not make or break you.

I was going to go into financial specifics, but decided against it. Let's just say I think the true value of my house will be about 475k once we finish our basement, and I should have actually said about 2/3 of my net worth is tied up in the home rather than nearly all of it. I do have RRSPs and investments of the like. You're wrong in one part though: Our house is on the same street as your friend, but we actually bought at 375k... and that included a lot of upgrades we had them perform. We certainly did ok on it... provided the market doesn't crash here too like it did in the US. If it does, I'll be singing a new tune. Mind you, I think many Canadians would be too....

Masked Bandit: While I disagree with a couple points, I get what you're saying. Discrepancy in insurance is another one I hadn't thought about, quite honestly.

[Masked Bandit]

Originally posted by Kloubek


Masked Bandit: While I disagree with a couple points, I get what you're saying. Discrepancy in insurance is another one I hadn't thought about, quite honestly.

Not a giant surprise that it was easy for me to come up with that one ;)

[masoncgy]

I would never buy in Calgary at today's prices. Unsustainable. I've been watching the market there closely for several months as I have been looking to relocate back and the increase in prices have me looking at renting instead and waiting for the inevitable price drop that will show up once the market cools off again, as it will.

A new buyer would be a fool to buy in today without a sizeable downpayment and a commitment to stay in the home for several years. It's far more expensive to buy than it is to rent the same place and you have no flexibility if life throws you a curve ball at the same time that the market cools off, sort of what I am experiencing now on the Island.

Sales here are down 40% and prices are down 10-15% year over year... and this is supposed to be the place where everyone wants to be. lol. I've actually shelved my relocation plans and pulled my house off the market after 7 months of chasing the prices down and not receiving even one single offer.

Unless you're into real estate for a very long term, it's no longer a good investment. The days of dramatic prise increases and quick flips are over. It's been said that once your cab driver starts talking about an investment the smart ones have already left. That's exactly what I see happening right now.

*sigh*

[kvg]

^Also watch what happens when the baby boomers really start down sizing, retiring, dieing and the market has far more supply than demand. Unless we get alot of immigration to North America it will be an interesting ride IMO. Man do i hope I'm way off the mark.

[masoncgy]

^ No one wants to admit that housing is a cooked investment since it's such an emotional topic. It is though. There's no way that today's current prices in the hot markets can be sustained over the long term. Hell, I'm in what I consider to be a 'non-hot' market and as I've mentioned, the prices are falling and sales are virtually non existent.

Something like 70% of possible home owners already own real estate in Canada.

High prices are fueled by cheap money. Once that runs out, there's nowhere for prices to go but down. The economy will eventually come around and rates will rise.

Some predict a US-style crash here... others predict a continuous slow melt over the next several years... either way there are very few people who actually believe we can avoid a correction of some sort.

[ercchry]

wait... are you actually generalizing canada as a whole?!

[masoncgy]

We tend to rise & fall together, look at 2008-09 for an example. Real estate tanked everywhere. Many places across the country are already in decline, even Vancouver, it won't be long until the party ends in the few last holdouts.

My .02. :dunno:

[BigMass]

You’re talking about house prices and how hard some people have it on a forum made up of people that live in a bubble akin to a heroin addict being hooked up full time to in IV drip. Calgary is the last place on earth to talk about economics based on a relative global reality. The last meaningful recession Calgary experienced was 30 years ago. Most people on this forum weren’t even born then. You expect 21 year olds fresh out of school making 100k/ year and living with record low interest rates, cheap money and cheap debt to sympathize, understand or even care what’s going on in the outside world? Calgary is all about $500k homes, $150k / year salaries, BMW M3s and Hublot Watches. Nothing wrong with that as long as the US Fed keeps interest rates at %0 so that heroin iv drip can keep going.

[ExtraSlow]

Agreed, Calgary, and most of Alberta, are in a situation that makes it hard to understand the realities outside our borders.

[ZenOps]

I think it could be worse for Canada.

If the US stops consuming natural gas and oil because all the poor people have run out of money - then we are going to be hit hard.

Billionaires can only consume so much volume. Our resource sector does technically rely completely on volume - cater to the masses, the poor huddled masses yearning to heat their homes and keep their gastanks filled.

If we can switch over to filling the gastanks of China instead of the US, that could work as well.