Asking very honestly - obviously take it all with a grain of salt and there's no one size fits all - but... Is it really a bad investment to buy a house?

I have almost never run a financial analysis where people come out ahead buying a house. Having said that, that doesn't mean you shouldn't buy. It's just NOT an investment.

Reality is that in frum areas properties go up significantly and many many people use the house as their retirement. Take any person who bought a house in brooklyn lakewood or monsey within the last 25 years and you will see that besides for having a stable place to raise a family you also come out with tremendous appreciation. This is one area where frum guidance should differ from the rest of the world and you should by a house as soon as you can afford it. The people that waited during the 2021 gold rush are kicking themselves now while the people that hustled and bought a home are now up over 100% and have a tiny mortgage payment.

Not every frum yid lives in highly appreciated housing areas, and it’s also not necessarily true the housing will continue to appreciate. Even if it does, going in thinking of it as a good investment, is a bad idea. I’m not advocating for not purchasing a house, but rather, not considering it an investment vehicle.

Agreed, to be clear im referring to lakewood, monsey, and brooklyn, other areas I don't know the markets and how they trend.

Right but the platform is for frum yidden not just those three communities 🙂 and even in those markets, the attitude that they are doing it as an investment, or CV their primary investment vehicle, is only harmful

so where does this rationale of 'buy young' come from?

Great question! 1. A lot of people in our community make money off of people thinking real estate is an investment -> real estate agents, real estate investors, mortgage brokers, insurance salesman, all want you to own homes and push the frum community into thinking it. 2. A generation of older people that doesn’t understand opportunity cost. They look at a home they had for 50 years and see it went up 1000% and tell everyone they know how increadible it is and tell all their kids, but they don’t understand that the stock market went up 4000% in the same time frame and didn’t require tens of thousands of dollars of repairs over the years eating away at gains 3. Goyim sold the narrative in the 50s to create a dream to recover after the war impacted america, and we inherited the narrative by proxy.

haha that last caveat is on point

Right if you aren’t able to invest the difference, also buy a house, but the people that mostly need to hear this advice don’t usually yet have big tuition bills

I'm curious for the people who say because houses appreciate and therefore they are a good investment - how do they ever see value from that investment? Most people I know who bought houses and sat on them for decades, didn't sell the house and make money. They just kept living in it. How does the value going up help?

Are you factoring in rent increase over the same time period? Haven’t run these models, but between owning paying a mortgage for 30 years followed by just tax and insurance vs renting for 60, how would you be ahead by renting? At some point is there even a savings by renting that can be applied to investment comparison?

yes. historic insurance and taxes correlate very tightly with rent increases.

Wouldn't home maintenance costs also tip the balance?

correct, that's the biggest factor that ruins everything. maitnenance and average home improvements of a frum family wreck any chance of buying coming out a head.

yeah when you posted last week that the average "homeowner" cost would be like 17k a year my instincitve reaction was "no way!"... and hten I went through the numbers and its unfortunately pretty accurate

There’s just so much cherry picked data, I wish we would compare the cost of renting and buying the same home versus renting the two bedroom apartment vs 2800 sq ft home. Maintenance and utilities but also factoring in security deposit and moving costs. Any good websites to try a comparison?

I don't think tuition should be a calculation in housing. The goal is to be able to afford 100% tuition. (Of course for some individuals they will need to cheshbon it, but I don't think it should be a primary factor.)

no, but if youre calculating if renting or buying puts you ahead financially, and the calculation includes investing the difference, you have to calculate it assuming that that investment is going to be viewed as "discretionary" and might not end up being available for investing. I'm not saying you should try to cheat the system, but you can't run simulations about scenarios if they're not realistic

in an ideal world, i agree with you! iyh moshiach should come soon. @steep-dog-55906

now if you want to say you shouldn't be making rent/buy decisions based on what puts you ahead financially, but based on which leaves you more money to pay tuition with, then its a whole different conversation

Is anyone able to answer my above question about how the house appreciating in value practically puts a person in a better financial position, without actually selling the house? I'm still not sure how this is applicable outside of yerusha.

well eventually they'll sell, and that can fund their retirement. Or if they don't want to, they have equity they can borrow against. But in a lot of ways you're right, IMO. Many FI calculators do not include your primary residence in your "assets" , because you can't withdraw from it to live on

Cash out refi?

yeah, that's the equity they can borrow against. But thats still debt that will have to be repaid, rather than a 4% withdrawal from a stock account or whatever

And selling to actually make that money means either moving to a cheaper community (harder later in life when you're established) or downsizing (doable but some people hold onto the idea of being able to host their families for Shabbos or yomtov)

eventually almost everyone I know downsizes and moves to be near their kids, so that their kids can host them. Maybe not in their 60s, but by mid 70s

the 17k cost does not factor in not paying rent.

@thankful-angle-58448 the few people I know who did that bought bigger houses near their kids lol

Fairways enclave etc. are full. Those are all downsizers

yeah in that case they are not going to be able to live off the equity they've built up The real "financial improvement" that comes from buying early, IMO, is having the practical advantages of that home even later, when they owuld no longer be able to afford that same house

I'm late to the show but buy a house in a market like brklyn and made big was a gamble , my father in law was one of them but others who owned homes in East New York Brownsville didn't do so well . It's not a guarantee that you will make big

I knew one person who bought a long time ago. He took cash out several times for various reasons and ended up owning four times what he paid for it. Not recommended, but this is how it can help. If someone were confident rates would come down soon, I would suggest buying now and refinancing. I have refinanced numerous times bringing my payments down.

@few-oil-60644 thank you!!!

@few-oil-60644 do you have data on that, browsnville and east new york have also appreciated tremendously in the last 20 years. Not to the level of midwood or boro park, but still very very strong appreciation

i mean when the jews were forced to move out because of the change in neighborhood , they did not get great money for the house , if they still own the property today then yes then made a decent return

same with my family and the bronx when they were forced to move

could you imagine if they still owned it

i'm actually having trouble imagining how that could have been possible

Fascinating discussion. As a practitioner who works primarily with older people, I don't run into this discussion very often, but I can say that home ownership is about a lot more than an investment. IMHO, whether it makes sense financially would be almost impossible to figure out ahead of time because much of the appreciation will be specific to the location and future events that are impossible to know. We bought our house almost 20 years ago and it is currently worth about double what is was when we bought it. As an investment, that's not great at all (~3.5% /year). But as a lifestyle investment? Couldn't be happier. I don't know how the numbers would compare to staying in an apartment, but looking at Zillow we currently are paying (mortgage, taxes and insurance) about the same as a nearby 1 BR, 1 Bath apt. Our house is definitely bigger. B"H we have ample space to host guests, family, etc. over the years. Given what the monthly rent for our house would be (Zillow's rent estimate for our house is double what we are paying in mortgage/insurance/taxes), I'm not convinced over the long term we would have had more money in the bank having rented, although my gut tells me that with all the repairs and improvements done over the years we would not have more money with the house. But even knowing this I would make the same choice to buy. As far as other financial considerations are concerned, especially with respect to retirement, you have a range of results. Plenty of people we work with have most of their net worth in their house and this can be challenging since you can't buy food with pieces of house. On the other, I suspect many (most?) of these people would not have "saved the difference" anyway, and would likely be even worse off if they had rented their whole lives. Also, in terms of taxes, your home can get a $500,000 capital gains exclusion ($250,000 for single), and if you're never going to move, you can get equity out of the property through a reverse mortgage (although I've never seen one in practice). Downsizing can actually be harder than you would think financially, especially if you've been in your house for many decades, in which case the taxes (even after the exclusion, which hasn't been increased sine it was established in 1997!) can eat up the savings. Bottom line is there is no easy answer to the buy/rent decision and outcomes can vary widely.

A primary residence is NOT a good investment. Still, everyone should buy a house. Why? In short, human psychology. We are not computers, we don’t act purely logical and mathematical. 1. People will push themselves to make mortgage payments but not to put money into savings and/or investments 2. As mentioned above, tuition boards will not give you any discounts if you have extra money to invest every month 3. The stability of knowing that nobody can force you to move 4. When you rent you don’t want to invest money in the house and end up living in a worse condition than if you owned (most people). When you own you are more likely to make upgrades, renovate or expand. 5. And if you live in Brooklyn or Monsey it will be cheaper monthly as rent increases faster than insurance and taxes

Totally agree that if you are going to fall for the issues of human psychology that you should absolutely buy a house even if the numbers aren't favorable. For any of our clients though that we have investing instead of purchasing a house, we have software tracking all of their contributions for the difference between the mortgage payments and rent. We also have real solutions to problems 1,2, and 5 you mention I personally believe number 4 is a win for renting, since you are spending even more on your house which could have gone towards things you value more

Side note. I think all tuition boards should make frum.finance and YNAB a prerequisite for any tuition break

We are working with the first school now to implement that actually as a trial

One late thought on this. The size of available apartments is generally smaller than the size of available houses. If you want a certain number of bedrooms or a certain number of square feet, it gets harder with an apartment.