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Conventional wisdom in the frum community seems to...
# housing
a
Conventional wisdom in the frum community seems to be “buy buy buy”! Figure out how to make it work. Is that really the best advice? What if the delta between the rent and mortgage is so big that you can invest significantly into other investment vehicles? It Obviously varies based on area cost of living, but what are some principles to think about?
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m
It is not the best advice. For each person rent vs buy is a whole cheshbon you need to make. There are lots of pros and cons.
There are lots of rent vs buy calculators online. You also need to consider flexibility.
a
Do you agree that it is more or less the common advice?
m
It's the common advice. I've been trying to fix that confusing very hard.
It's like a cult of home buying. Financial advice that says always do X is almost always wrong.
It's a cost benefits analysis.
I'm losing tons of money buying instead of renting, but my family needed the space. If we didn't have kids yet I'd still rent.
a
To me the biggest reason to buy is not financial, it is the “anchoring” concept. Being able to fully settle down
m
Yeah basically it's a lot of emotional components. And that's okay.
The biggest misconception in the frum community about buying is that it's an investment. It is NOT an investment.
Unless you're renting out part of your house, buying a house is a liability, not an investment.
a
Perhaps the only “investment” aspect is the ability to borrow on the cheap when you need the money later. Obviously better to save for the wedding but second best is to be able to borrow at very low rates
m
But you would have that at even lower rates by borrowing against a stock portfolio which would be where that money would be if you didn't buy a house.
a
Good point
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Especially a 401k. You pay yourself the interest
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Though it’s not a margin loan. You actually have to take out the money
m
Why aren't you at a hey teves farbrengen.
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a
Im out of town. Should go check out the local yeshiva in Chicago now
Probably popping
s
@mysterious-tomato-10057 why isn't housing an investment? Isn't a mortgage generally considered "good debt" because a house is an asset that (generally) appreciates (or at least doesn't depreciate)?
a
Isn't the number closer to 3-4% appreciation avg? Vs 7% in the market. Plus closing costs, maintenance costs etc
Just closing costs could take a few years to break even on
s
I actually have no idea what the number is for houses but I'm not saying it's a better investment than the market in the purest, financial, sense of the word. Rather, I mean it's different than, say, financing a car because a car depreciates, and it's also different than just leaving your money in the bank because that also loses value. In a house, you're gaining value while also getting the benefit of using the house, as opposed to if you would just throw all your money into the stock market, you can't use that money while the value is going up
Even if it's not the most lucrative investment that you could make in financial terms, is it not still an investment?
a
I like the point about the utility. The question is how much you pay for the utility
m
what part in your mind are you considering an investment? a mortgage itself could be good, neutral, or bad debt depending on the terms. At face value the purchase of a home and acquiring debt is a net zero (besides for closing costs) since you have acquired both an asset worth X and a mortgage worth -X. So the question is what happens next. A house is a liability bc something can go wrong. Also, living in a house, you will want to make it nicer and fix things, and things will break and lots of other costs, so you start losing money from that perspective. The only part of a home purchase which is considered an investment technically is home value appreciation (which is unlike a car which depreciates). BUT the problem with appreciation is (1) it is speculative and (2) you probably still are spending more money fixing things up than the house is growing in appreciation
for example, in my real estate investing I don’t consider appreciation as part of my calculus when deciding to buy a property. Rather, its icing on the cake. Since it may or may not happen. So I would want to see like a 12% rate of return before buying assuming 0 appreciation.
so ignoring speculative appreciation, there is no part of a home purchase that is an investment. Its an asset usually coupled with healthy debt. But an asset is not the same thing as an investment
if you rent out your basement, now its an investment bc it makes money.
a
Why are you considering the appreciation purely speculative, and completely discounting it? If you look at data for the last 50 years, there will on average be appreciation. The market is also speculative
Or are we just fighting over the term “investment”
s
I hear your points and I appreciate you taking the time to give such a thorough answer😁
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m
Yeah it will appreciate, i’m not discounting it entirely, I just don’t want to rely on it
@acoustic-sunset-40897 you can’t compare one home to the entire real estate market, just like you can’t compare one stock to the entire stock market. Where is kodak today? What about Xerox? You aren’t perfect and might have bought in a bad area.
Same reason why I would never tell a client to buy a single companies stock, it’s too speculative
if you could by a percentage of every house in America, THAT is an investment 😆
s
I was literally in middle of typing up something to that effect haha @mysterious-tomato-10057
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m
basically, don’t buy the house hype. Its a normal purchase with normal cost benefit analysis.
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n
One point I would add is that buying in established frum areas tends to have much higher rates of appreciation than America at large. Jews drive prices up to insane levels. And that appreciation is a return using the down payment as a basis (less the absurdly low interest from recent years). But @mysterious-tomato-10057 I agree that it's not necessarily a given.
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c
To the point that homes are appreciating assets. This is completely false. It takes a significant amount of money to keep at home at it's current value. You should expect to spend 1-4% of a homes value on maintainance each year (averaged out over the years). When you buy a personal home you arent running the numbers to make sure its profitable, you usually buy based on where you want to live. Which is fine, but your pri.ary residence is an expense, not an investment. The second point is that you need somewhere to live so if you do sell you need to go and buy elsewhere. Third point, historically the actual return on real estate is low (like 2% after inflation). The only benefit is leverage.
a
I think the reason why it is common advice is because when you do run the numbers, for your typical frum family, it is a good rule of thumb. for reasons already mentioned such as needing the space, or not having to move every 2-3 years. Another point is, looking at the my grandparents who passed the last decade, their Brooklyn homes were the primary asset that they left over and the appreciation there is undeniable.
Incidentally, or maybe not so incidentally, they all had 2 family homes with tenants + rented basement & rented garage…
m
👍 agreed @nutritious-raincoat-28876 and @curved-toothbrush-84425
@acceptable-angle-23240 I think its common advice because (1) there are a lot of Jews that profit off of people buying houses - mortgage lenders, real estate agents, sellers, and more and (2) poor financial education For example, in baltimore, the vast majority of frum people who boughts homes that come to me should 100% absolutely not bought homes. It was a financially terrible move. Most people are taking out 3% down payment loans, paying hundreds of dollars a month in insurance to back that loan they shouldn’t have gotten. All that to say, i think its not a good rule of thumb for a typical frum family since a typical frum family doesn’t seem to have a down payment…
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t
There are a number of studies showing that it's not a great investment. You'd be better off investing the downpayment and paying rent. It's more of a lifestyle choice. It can be very good if you bought somewhere right before it appreciated, say Monsey twenty years ago or Miami three years ago, but it can also be pretty sad, say Chicago or Detroit twenty years ago. I think the big reasons are: • houses are generally larger than apartments, at least in Chicago the largest apartments are smaller than almost all houses and there are few houses for rent. • you own it so you have more freedom to do what you want, i.e. decorating, remodeling, ... • you do build up some equity that you can draw on later, maybe think of it as forced savings.
n
@curved-toothbrush-84425 1-4% sounds awfully high to me. In my area (Passaic-Clifton), $500k is probably the low-end for a house currently, so let's take that as an example. $5–20k/year on maintenance? What am I not thinking of that you are? Primary residence is definitely an expense, but as compared to renting a house, buying a house would seem to generate a return, whereas renting would not. I'm pretty sure my monthly payments are roughly the same as a house rental in my area (yes, I'm extrapolating), and the appreciation is waaaay higher than my maintenance costs. And let's not forget that some of my payment converts to equity. I imagine the standard real estate studies do not look at frum areas. I don't think they are representative of the housing market as a whole.
@mysterious-tomato-10057 without planning, agreed. But there's a time and place for mortgage insurance, just like 0% apr cc. I've played with both and come out way ahead, BH, but it requires forethought and planning. Certainly the goal shouldn't be to pay mortgage insurance for 8 years, or whatever the default is.
@thankful-raincoat-91160 but we need to compare apples to apples. Obviously living in a house vs. an apartment is a lifestyle choice and more expensive (penthouse suites notwithstanding 😀). But buy vs. rent should be compared given the exogenous lifestyle choice.
m
@nutritious-raincoat-28876 I am talking about people, which are the majority, that are not planning so much that many of them don’t even understand what PMI is… I paid PMI for my house bc it was a 3% charge instead of 10% market gains, but these people don’t know what the PMI percentage is nor are investing instead of paying down, they are just letting life happen to them instead of planning.
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i bougth my house for 360k. i definitely spend more than 5k a year on house related things, paint, lawn, appliances breaking, home owners vs renters insurance. I think 1-4% is generous.
in real estate investing, we always use 1% maintaince as the floor for estimations.
n
@mysterious-tomato-10057 Growing up, it took me a while to realize that most people hate thinking and analyzing to make an intelligent decision. It was a real aha moment for me... So yes, I agree 100% #taxes digression: I'm one of the few "crazy" people who are happy when owing taxes after filing and sad when due a refund. Last year I owed over $5k federal with no penalty and was over the moon 😂 Regarding maintenance, yeah, I painted before moving in, replaced half the roof, put in a french drain, all in ~4 years, but I still can't imagine it averaging over $5k/year. Also, the french drain is really an improvement. Certainly it increases the sellability and doesn't depreciate.
m
lol i prob pay 1k a year just on landscaping related costs.
n
Yes, Passaic is even more than that, and combined with the insurance premium let's just say $2500/year. But that leaves $75k/30 years (ballpark roof/boiler life) just to get to 1% on a $500k house. I'm having a hard time with that. What am I missing?
Full disclosure: I never really thought much about this. Honestly looking for the answers.
m
I’m confused, with all those numbers, how do you not see 5k maintaince as obvious? Like I just had to have someone come by to look at my gas heater and it was 500 bucks lol
or a wire in the wall burnt last year which cost me 2k to fix.
in the next 10 years i’ll have to redo my hardwood floors, which will be at least 5k
you also live in it and will naturally want to upgrade things ]
a
I’d imagine a lot depends on the age of the house. How about a cast iron sewer line replacement?
m
yeah it is a range, with 1% being the industry standard average, obviously a brand new house would have nothing to maintain.
even just my time pressure washing the drive way could probably by considered 1k lol
n
Fair enough. I thought plumbers were expensive here, but it sounds like @mysterious-tomato-10057 you take the prize 😂 @acceptable-angle-23240 yup, that's a fortune. Brand new houses can also have problems, especially cheap construction. Okay, I'm comfortable with 1%. 4%, nisht
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m
The other calculation people use is 1$ per square foot, which is probably a little more accurate.
for me that is the same number though
c
The 1-4% is just a rule of thumb. Living in a MCOL area will put it closer to 2-2.5%. Living in a HCOL area will put it closer to 1%. But if you live in Indiana and bought a 2,500 sq ft house for 150k then 4% makes more sense
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m
ooo maybe you can make this a google sheet we can all comment on and copy from as a template? we can make it a resource we can all point to and contribute back to
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c
m
yasher koach!!
pest control seems high, i do mine myself though
use a greenworks snow blower and it’ll last more than 10 years bc its all electric 🙂
same with leaf blower and lawn mower
i’m just a greenworks fan boy so ignore me haha
missing refrigerator
c
Added refrigerator and freezer.
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m
Adding to the bookmark bar in the general channel
w
I lived for years in a housing market where the cost of monthly mortgage payments was hundreds of dollars cheaper than rent for comparable sized dwellings. So there does exist such a thing. $100/yr on misc. tools seems like a lot to me. That probably depends on how much DIY stuff you do. Some of the other numbers also sound dependent on living standards.
m
I definitely spend 500 to 1000 on misc tools, but I fix most things myself. Most recently had to buy a nail gun. Saved myself buying an air compressor though by borrowing 😀
Including lawn care equipment, and lots of other power tools to fix stuff.
w
Yeah... so I recently upgraded my screw driver to a ratcheting screw driver. That was about as heavy duty as I've gotten in a few years.
this is fine fire 1
c
If you arent buying tools, are you paying people to do things for you?
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n
Yeah, fixing things myself is a huge money saver based on conversations with people in my area who don't DIY. Even just DIYing my Sukkah cost me ~$200 instead of ~$1000+. Paid for every tool I used with plenty left over.
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w
@curved-toothbrush-84425 Other than totally gutting and redoing our kitchen, which includes electric and plumbing work that I won't be doing myself no matter how large my tool budget is, I don't do or have other people do very much. I assemble things when I buy them. That's why I think some of these numbers depend on your standard of living. I have neither built a deck nor paid someone to build a deck. My kids have fun raking the leaves with a rake. I would give other examples of things I haven't done but don't even have such lofty ideas of what it is that I am not doing.
n
I think the intention was more for things that break. E.g. my oven broke. A little googling and fiddling with a multimeter, a $20 part on Amazon, and about a half hour of work saved me from ~$200 repair bill. Oh, and the satisfaction? Priceless 😂
w
And you spend over 1k a year on things like that? I replaced the struts on our minivan when the trunk wasn't staying open. I patched a hole in our drywall. Those things happen occasionally and cost like $75 /yr. I don't need any power tools for any of them.
n
1k/year? Highly doubtful, but I must have missed that number. Is that in the sheet?
c
@witty-engineer-80805 its $100/yr, not per month.
m
yeah its 100$/year, I just said I personally do probably closer to 1000$ bc i’m including landscaping powertools in there, but 100$/year is a good estimate. I would probably say its a little higher but I wouldn’t say everyone is like me DIYing 1000 bucks a year.
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