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This is talking in the Slowlane context of the "Schmo" family living in ABC neighborhood for say 30 years and "hoping" their XYZ home will appreciate relative to the actual renting costs. I'm skeptical of homes as investments to build net worth like I'm skeptical of Wall St to build net worth (unless you're a day trader or flipper). Here are the reasons why:
1. Home prices are based on demand and actual building costs, right? Demand is basically economic growth and wage growth--stagflation or a recession could always occur, and homes aren't exactly liquid like stocks--you can't get out of a home if you see trouble.
2. Homes are tangible, but tangible assets tend to have wear and tear--cars are depreciating for this reason. So the home itself is depreciating.
3. Homes aren't cheap, so you have to get a mortgage most of the time, but mortgages have interest which cuts into any return. Interest rates for homes aren't non-negligible--I think they're at inflation for prime borrowers or maybe higher.
4. Homes have plenty of fees-property taxes, commissions to brokers, insurance, etc. You need to rent a home to fight these costs in my opinion, but if you're living in the house you can't exactly do that.
So would a home actually appreciate?
I'm skeptical—when you’re renting you don’t get a depreciating house, you don’t have to pay for any repairs (though the landlord passes the costs down to you), renter’s insurance is dirt cheap, etc. I’m no actuary but a ton of factors have to go your way for your personal home to get a positive return for you relative to renting, especially if you want to use the equity to fund your retirement.
1. Home prices are based on demand and actual building costs, right? Demand is basically economic growth and wage growth--stagflation or a recession could always occur, and homes aren't exactly liquid like stocks--you can't get out of a home if you see trouble.
2. Homes are tangible, but tangible assets tend to have wear and tear--cars are depreciating for this reason. So the home itself is depreciating.
3. Homes aren't cheap, so you have to get a mortgage most of the time, but mortgages have interest which cuts into any return. Interest rates for homes aren't non-negligible--I think they're at inflation for prime borrowers or maybe higher.
4. Homes have plenty of fees-property taxes, commissions to brokers, insurance, etc. You need to rent a home to fight these costs in my opinion, but if you're living in the house you can't exactly do that.
So would a home actually appreciate?
I'm skeptical—when you’re renting you don’t get a depreciating house, you don’t have to pay for any repairs (though the landlord passes the costs down to you), renter’s insurance is dirt cheap, etc. I’m no actuary but a ton of factors have to go your way for your personal home to get a positive return for you relative to renting, especially if you want to use the equity to fund your retirement.
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