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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (1293)	1/1/2002 11:25:37 PM
From: GraceZ	Read Replies (3) \| Respond to of 306849

A house is never just an investment vehicle if you live in it and it is more than just a living expense, it can be a savings vehicle. Whether to rent or own has a great deal to do with the individual and where that individual lives, the price difference between renting and owning as in your example (some people are in fact better off renting in some markets) and in figuring that you have to take into account the individuals tax bracket (does it push them into itemizing and is there a significant difference from the standard deduction), the rate of return on their other investments (are they sticking their cash in a 1.5%passbook or making 20% a year investing in something else?)and what kind of cash they have to put into the deal. The beauty of real estate is that you can use OPM to buy it. Like any leveraged investment, if the price appreciates the leverage effectively gives you higher return on your cash, but the leverage works against you if it goes down in price. The other thing you have to take into account is how disciplined is that person to saving money? A house that is mortgaged forces people to put that amount of money towards payments every single month and as depressing as a 30 year mortgage can seem in the beginning in terms of principle vs. interest it does eventually get paid off and the P&I payment isn't subject to inflation, rent is (although rising taxes and insurance can reduce the effect). The sad fact is that at the end of a great many American's working years, a house is the only significant asset they have. Houses don't always go up. I know this first hand because I sold a house four years ago for the same price I paid for it 10 years earlier and considered myself lucky to get that. I also saw several of my neighbors who had to move before their homes appreciated have to go to a closing with their check books after paying a mortgage on a house they no longer lived in for over a year while it sat empty waiting to be sold. This is the sad part of buying a house at a short term top. If they had lived in their houses until now, they would have been rewarded with gains, but things don't always work out that way in the short term. Most people keep their houses around six to ten years, so your experience can vary widely if you pick the wrong time to enter. How do you know when its the wrong time? You can't know for sure, you can only guess. I have a sister who has always lived in what I consider to be very expensive housing. Every time she and my brother-in-law have bought a house I'm sure that they have just bought at the top and are about to get bagged, the prices seem outrageous to me. Yet every single house they have bought they have more than doubled their investment within eight to ten years and in one case they quadrupled it. They buy near high demand areas right before that area becomes high demand and they put in all the bells and whistles that the high income person demands in a house. The price starts out outrageous and gets even more outrageous. They've made a pile in real estate and they never use leverage, they pay cash. This was what I was referring to when I stated that there are a lot of people who are not using income (and debt)to buy a property but other assets, like cash.