The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
I live in a "hot" real estate market, my house has appreciated nearly 50% in 2 years. It's entirely possible that it will depreciate 20% or more over the next year.
Anecdotally, since I purchased my house in the summer of 2016 in the PNW, it has appreciated nearly 50%. That's a 6 figure increase just because of the area I live in, and I've done virtually nothing to the home
50-100 year old homes with no maintenance? They probably have had the roof replaced two to four times, windows replaced, siding replaced, furnace/ac replaced several times, egress window wells replaced multiple times, and that's just the beginning. They depreciate very fast and even a 10 year old home without proper upkeep will look shabby.
Either way appreciation tends to be pretty close to inflation on average, so you are generally not making 8.75% on top of inflation. That does happen in very specific markets but definitely not in most areas.
I own a home for the lifestyle. But I could do far better as a financial investment is concerned.
I don’t believe you could apply linear depreciation to most buildings in a realistic sense when most homeowners live on average in their homes around 7 years.
I do not think it is reasonable to assume a random piece of land will appreciate at 3% per year over a period of 30 years. Not to mention the maintenance and renovation costs on a $1M home.
Maybe in the most popular areas, it would sell for 1.03^30 = $2.4M after 30 years, but in the vast majority of the US, that has not historically been the case.
Houses typically appreciate at better than 4% a year over 20 year time frames, although this is very location dependent. If they had bought in almost any city in the US with a population over a million they could have done much better.
Yes, but if you're looking at them as an investment then you need to look at the overall picture. Just looking at prices over time is interesting, but it doesn't give the financial picture from the perspective of a homeowner because it ignores taxes, maintenance and repairs. Once all that's factored in the picture tends to get a lot less rosy.
For example, over the past 25 years the average price of a US home has grown by about 14% in real terms. I'm too lazy to calculate out what that would be as an annual percentage rate, but it's definitely lower than the average US property tax rate, which I believe is a smidge under 1%. So already, even without considering other expenses, houses tend to be gradual money losers on average.
Agreed. I've always considered this a bit of a myth.
Most houses only appreciate if you spend time, effort, and money to properly maintain them. On top of maintenance, in most places, you'll have to pay annual taxes.
When I go to sell my current house, I may break even - essentially living free. However, I certainly don't expect to come out ahead.
Homes appreciate on average 3-5%, where as the money saved on rent - taxes, interest, and maintenance is somewhere between 3-5%.
that's 6-10% (which is about the best you can expect from stocks over the long run)+ the other benefits of owning a home. I for one rented 2/3 of my rooms for an additional 12k$/year income (60k over 5 years).
This may hold true, in certain areas, if you keep the same house for 30 years. I read somewhere that the average American home changes ownership every 11.9 years.
I did a quick calculation on the percentage ROI after 1 year of owning a $300K house.
home cost: $300,000
10% down payment: $30,000
30/yr mortgage @ 6%: $1,618.79
tax at 1.25%: $312.50
maintenance/misc: $200.00
actual mortgage payment: $2,131.29
investment after 1 year (($2,131.29 * 12) + $30,000) = $55,575.48
appreciation after 1 year at 4%/yr: $12,000
percentage ROI: ($12,000/$55,575.48) = 21%
what index fund are you going to see a 21% return on investment from? did I make a horrible mistake?
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