On homes: yes, assuming you buy with a mortgage, these are short-term risky, but they are also long-term safe. This also means they are short-term high-expected return and long-term lower return. On average home prices rise at just slightly above the inflation rate (in my area a little faster right now, about 3%). So when I bought a $335k house with 5% down (<4% interest, 30 yr mortgage), that means my equity (initially ~17k) rose by close to 80% in the first year. Factor in closing (read: transaction) costs and it’s still an expected 50% return. But that will fall to 3% over 30 years once my equity rises to 100%. And in my case, the mortgage payment + taxes was already hundreds of dollars less than my previous rent (and the mortgage payment will never go up), interest and property taxes are tax deductible, and my state has programs to significantly reduce the costs of PMI. I stared at a lot of spreadsheets before pulling money out of my brokerage account to buy a house.
Very true. I did. I forgot to mention that; The rule of thumb people give seems to be to assume you’ll spend 1% of the home’s value per year on maintenance. I assumed 2%, on the assumption that at first there would probably be lots of little things cropping up and I have no handy skills at all.
An excellent list, agreed on all points.
On homes: yes, assuming you buy with a mortgage, these are short-term risky, but they are also long-term safe. This also means they are short-term high-expected return and long-term lower return. On average home prices rise at just slightly above the inflation rate (in my area a little faster right now, about 3%). So when I bought a $335k house with 5% down (<4% interest, 30 yr mortgage), that means my equity (initially ~17k) rose by close to 80% in the first year. Factor in closing (read: transaction) costs and it’s still an expected 50% return. But that will fall to 3% over 30 years once my equity rises to 100%. And in my case, the mortgage payment + taxes was already hundreds of dollars less than my previous rent (and the mortgage payment will never go up), interest and property taxes are tax deductible, and my state has programs to significantly reduce the costs of PMI. I stared at a lot of spreadsheets before pulling money out of my brokerage account to buy a house.
Yes, but don’t forget to put the expected costs of home repair in the spreadsheet (repair costs are implicit in rent).
Very true. I did. I forgot to mention that; The rule of thumb people give seems to be to assume you’ll spend 1% of the home’s value per year on maintenance. I assumed 2%, on the assumption that at first there would probably be lots of little things cropping up and I have no handy skills at all.