Why do homeowners have to make profit for their houses?
j_a...@yahoo.com
have to spend for the domicile? It is against all the tenets in
Economy 101.
(1) There is no free lunch (including living) in U.S. or anywhere in
the world.
(2) The price of either tangible or intangible products is determined
by supply and demand.
(3) Nothing goes in one direction only in the Universe.
Contrary thinking:
(1) If buying house always makes money, why are there so many realtors
and mortgage brokers? Why are they keeping buying houses for
themselves as many as they can (because it is totally legal)?
Reverse thinking:
(1) For a house already in the market for 30 years, do you really want
to buy it (old, small, in less-favored location, high cost to fix
problems, etc.)? It will be the similar condition 30 years from now
what your new house looks like, no matter how you well-maintain it.
(2) For a homeowner who has already owned his/her house for 30 years,
would he/she really make much money after factoring in the maintenance
cost in all these years?
j_a...@yahoo.com
Contrary thinking:
(1) If buying house always makes money, why are there so many realtors
and mortgage brokers? Why AREN'T they keeping buying houses for
Rod Speed
> Why do homeowners expect to make money on their houses,
Because the bulk of them have done over time. Normally more than
they ever do with anything else with the exception of their total wages.
> while renters have to spend for the domicile?
Because they are too stupid to be able to grasp the advantages of ownership.
> It is against all the tenets in Economy 101.
Nope.
> (1) There is no free lunch (including living) in U.S. or anywhere in the world.
Yes there is if you're happy to 'live' under a bridge etc.
> (2) The price of either tangible or intangible products is determined by supply and demand.
Its MUCH more complicated than that in practice.
> (3) Nothing goes in one direction only in the Universe.
There is a general trend in the direction of higher house
prices over time tho in all except ghost towns etc.
> Contrary thinking:
> (1) If buying house always makes money,
Only a fool claims that.
> why are there so many realtors and mortgage brokers?
Because plenty dont live in the one house for their entire lives.
> Why are they keeping buying houses for themselves
> as many as they can (because it is totally legal)?
Because they believe they will be better off than not doing that.
Thats true quite a bit of the time as long as you dont get too carried away.
> Reverse thinking:
> (1) For a house already in the market for 30 years, do you really want to
> buy it (old, small, in less-favored location, high cost to fix problems, etc.)?
Yep, its one way to make decent money.
And in some countrys thats tax free money too.
> It will be the similar condition 30 years from now what your
> new house looks like, no matter how you well-maintain it.
Thats just plain wrong depending on its construction.
> (2) For a homeowner who has already owned his/her house
> for 30 years, would he/she really make much money after
> factoring in the maintenance cost in all these years?
Yep, if its well constructed in the first place, the maintenance cost is peanuts.
I build mine properly in the first place and the only maintenance
has been a single replacement of the hot water heater in that time.
And a renter has to pay that anyway, its built into the rent.
Rod Speed
> Correction:
Because most of them are in the business of making money on each sale instead.
Frank
<j_a...@yahoo.com> wrote in message
news:30384bbb-2e11-4483...@l42g2000hsc.googlegroups.com...
> Why do homeowners expect to make money on their houses, while renters
> have to spend for the domicile? It is against all the tenets in
> Economy 101.
Do you not expect a return on your investment?
Actually its much cheaper to rent than to own in places like the Bay Area.
Right now, it cost twice as much to own than rent in the Bay Area. I have
renters who are also landlords.
>
> (1) There is no free lunch (including living) in U.S. or anywhere in
> the world.
> (2) The price of either tangible or intangible products is determined
> by supply and demand.
> (3) Nothing goes in one direction only in the Universe.
>
> Contrary thinking:
> (1) If buying house always makes money, why are there so many realtors
> and mortgage brokers? Why are they keeping buying houses for
> themselves as many as they can (because it is totally legal)?
>
Would you like to make part of the 6% commission on residential and 10% on
commercial real estate with not that much effort? So do all the realtors. I
know realtors with 50 or more investment properties, would that be "keeping
buying houses for themselves?"
> Reverse thinking:
> (1) For a house already in the market for 30 years, do you really want
> to buy it (old, small, in less-favored location, high cost to fix
> problems, etc.)? It will be the similar condition 30 years from now
> what your new house looks like, no matter how you well-maintain it.
> (2) For a homeowner who has already owned his/her house for 30 years,
> would he/she really make much money after factoring in the maintenance
> cost in all these years?
Not the condition of the house as much as location, location, location. If
in the wrong location, no matter how cheap it is, it still not cheap enough.
I know a little rundown house purchased for $50K a little over 30 years ago
and now is worth $1.5 million and still a little rundown. The couple who
bought that house make minimum wages. Most renters could easily done the
same thing but they don't. That would be "tenents in Economy 101" relative
to renters.
George Grapman
> <j_a...@yahoo.com> wrote in message
> news:30384bbb-2e11-4483...@l42g2000hsc.googlegroups.com...
>> Why do homeowners expect to make money on their houses, while renters
>> have to spend for the domicile? It is against all the tenets in
>> Economy 101.
>
> Do you not expect a return on your investment?
>
> Actually its much cheaper to rent than to own in places like the Bay Area.
> Right now, it cost twice as much to own than rent in the Bay Area. I have
> renters who are also landlords.
I know a person who rents an apartment in SF and owns out of state
rental property. The rent from the out of state 6 unit building covers
his mortgage there and his rent here.
Logan Shaw
> Why do homeowners expect to make money on their houses, while renters
> have to spend for the domicile? It is against all the tenets in
> Economy 101.
>
> (1) There is no free lunch (including living) in U.S. or anywhere in
> the world.
> (2) The price of either tangible or intangible products is determined
> by supply and demand.
> (3) Nothing goes in one direction only in the Universe.
These things are all mostly true, but not entirely. While nothing
goes in one direction *forever*, the human population of the earth
has been steadily increasing for thousands of years. It may plateau
eventually, but as long as it keeps growing, that works to a real
estate owner's advantage, because the amount of available land is
staying the same.
You can see the effect of this directly on home prices. Detroit
is a city which is actually shrinking in population, in fact its
population is shrinking faster than any other city's. And what
are its real estate prices doing in the "housing bubble"? Not
coincidentally, they're also dropping the fastest of any market
in the country.
> Contrary thinking:
> (1) If buying house always makes money, why are there so many realtors
> and mortgage brokers? Why are they keeping buying houses for
> themselves as many as they can (because it is totally legal)?
There are indeed real estate brokers who do this. It's not uncommon
for house flippers to be a partnership of two or three people, with
one of them being in construction and another being a real estate
agent, or something like that. This works out well because they do
not charge themselves fees (or labor for the construction), and so
save giving that money to someone else.
However, you're right that while it is not uncommon, it's not really,
really common either. Why is that? Simply put it's because real
estate can make you money, but there are *better* ways to make money.
The historical average return of the stock market is higher than
that of real estate (although real estate is pretty competitive),
and stocks are a lot easier to maintain. You don't have to repair
the leaky roof of a share of stock.
Another advantage of stocks over real estate is that real estate is
one of the least liquid investments out there, topped only by things
like collectibles (you have to hold onto that Corvette for 30 years
before it becomes a classic and its value goes up a lot). If you are
forced into selling real estate at an inopportune time, you'll have
to take a very low price. Stocks are not that liquid either, but
they're not as bad as real estate. You can diversify pretty easily.
You can buy stock in a bunch of different companies in different
industries and even different parts of the world. Mutual funds
make this easy.
So basically, people don't invest in real estate all that often
because other forms of investment work better. That doesn't mean
real estate can't be profitable. It's just that most people want
to invest in the *most* profitable thing.
> Reverse thinking:
> (1) For a house already in the market for 30 years, do you really want
> to buy it (old, small, in less-favored location, high cost to fix
> problems, etc.)? It will be the similar condition 30 years from now
> what your new house looks like, no matter how you well-maintain it.
Yes, but if you live in a growing city, the land will be worth a lot
more. What was "way out in the suburbs" when you bought it can be
considered "close in to town" when you sell it 30 years later. In
some cases, the land is worth so much more than the house that in a
desirable location, you can make more money overall by tearing down
the house, building a completely new one, and then selling it than
you can by simply selling the house.
> (2) For a homeowner who has already owned his/her house for 30 years,
> would he/she really make much money after factoring in the maintenance
> cost in all these years?
I think that's a complex question. It depends on a lot of the specifics
of the situation. In an area with strong long-term growth, you can
make a pretty good profit. Yes, you have to do maintenance, but you
also have to consider that some of these monthly costs are offset by
the fact that you have to live *somewhere*. Even if you did not own
a house, there would still be monthly costs. Then there are questions
of interest on the loan, mortgage tax deductions on your income taxes,
local property tax rates, and things like that. A lot of maintenance
you can do yourself for cheaper, but then you have to figure in what
your time is worth. Or maybe you enjoy working on your home, and
being able to personalize it and fix it up is actually a net benefit
to you, something that you enjoy like a hobby.
- Logan
Frank
> one of the least liquid investments out there, topped only by things
> like collectibles (you have to hold onto that Corvette for 30 years
> before it becomes a classic and its value goes up a lot). If you are
> forced into selling real estate at an inopportune time, you'll have
> to take a very low price.
That goes for everything including stocks.
Stocks are not that liquid either, but
> they're not as bad as real estate.
Close out a stock position, via an internet account or a live broker, have
the money in you hands from New York to California via snail mail in about 7
business days. Liquid enough for me.
You can diversify pretty easily.
> You can buy stock in a bunch of different companies in different
> industries and even different parts of the world. Mutual funds
> make this easy.
>
You could also diversify real estates in single family homes, apartments,
commercial buildings, and REITs makes it just as easy.
> So basically, people don't invest in real estate all that often
> because other forms of investment work better. That doesn't mean
> real estate can't be profitable. It's just that most people want
> to invest in the *most* profitable thing.
>
Sure they do, if they own a house or a condo, they are invested. More
millionairs due to real estate than anything else.
Roger Shoaf
30% from the high. If you became a homeowner at the top of the market, you
have taken a loss already.
Other causes for loss might be a tenant that trashes your house and sticks
you with rent unpaid. Funny thing the bank still wants their mortgage
payment, the county still wants their property taxes, and prospective
tenants still want to see a clean well maintained offering.
As far as realtors and mortgage brokers not keeping houses, you have to keep
in mind that a real estate agent is just a hired gun. They provide their
marketing skills, advertising etc in hopes of earning a commission. If the
property doesn't sell, they get nothing.
A mortgage broker puts together people wanting to borrow with people willing
to lend, and takes a piece of the loan from where ever they can get it.
they have no interest in e the property that is offered for sale or that is
sold.
As far as older homes go, there are advantages. The landscaping is in and
mature. The houses tended to be bigger and built out of better materials.
You tend to have larger lots and fewer restrictions (CC&Rs).
You might have nice things like real hardwood floors, a full basement or
other things that distinguish them from the newer cookie cutter homes.
Of course there are older homes that have serious issues, but this is why
you get an inspection.
If you are a tenant and the water heater goes out or the roof leaks it is
the landlords problem, if you own the place it is your problem.
Generally speaking however those who own and hold make out pretty well if
their property is in a desirable location.
--
Roger Shoaf
If you are not part of the solution, you are not dissolved in the solvent.
<j_a...@yahoo.com> wrote in message
news:30384bbb-2e11-4483...@l42g2000hsc.googlegroups.com...
Logan Shaw
>> Another advantage of stocks over real estate is that real estate is
>> one of the least liquid investments out there, topped only by things
>> like collectibles (you have to hold onto that Corvette for 30 years
>> before it becomes a classic and its value goes up a lot). If you are
>> forced into selling real estate at an inopportune time, you'll have
>> to take a very low price.
>
> That goes for everything including stocks.
All investments have some degree of liquidity, and no investment is
perfectly liquid. What I was saying is that some are *more* liquid
than others, and real estate is near the extreme non-liquid end of
the scale.
> Stocks are not that liquid either, but
>> they're not as bad as real estate.
>
> Close out a stock position, via an internet account or a live broker, have
> the money in you hands from New York to California via snail mail in about 7
> business days. Liquid enough for me.
Apparently there are two common definitions of "liquidity" out there.
From http://www.investopedia.com/terms/l/liquidity.asp :
1. The degree to which an asset or security can be bought or sold
in the market without affecting the asset's price. Liquidity is
characterized by a high level of trading activity.
2. The ability to convert an asset to cash quickly. Also known as
"marketability".
The meaning I intended was #1, but you're talking about #2. So I
was trying to say that of all the types of investments, real estate
is one where it's especially true that if can't control when you
have to sell, you should expect to lose a lot of value compared
to the sale price you could get if you did have more control about
when to sell.
>> So basically, people don't invest in real estate all that often
>> because other forms of investment work better. That doesn't mean
>> real estate can't be profitable. It's just that most people want
>> to invest in the *most* profitable thing.
> Sure they do, if they own a house or a condo, they are invested. More
> millionairs due to real estate than anything else.
Owning the house you live in is half investment and half utility. I
own a lot of canned goods and athletic socks, but I don't call those
an investment. I bought them because I plan to use them. You buy a
house partly as an investment, but usually you by it mainly so you
have a place to live and store your stuff. A lot of people could
sell their home and get a lot of money for it, but if they did that,
they wouldn't have a place to live. So they'd need to find a place
to live, and how would they pay for it? Well, there's all that money
they made from the sale of their last place; conveniently, it's
probably just about the right amount to buy a comparable new place.
Perhaps what I should've said is that beyond their own residence,
relatively few people people look at real estate as their first
choice in something to do *purely* as an investment.
- Logan