Is Home Ownership Overrated?

By
Real Estate Broker/Owner with Global Property Systems Real Estate DOS NYS #10491202606

Derek Jeter's summer home, Greenwood Lake, NY.After being forced out of my home on the Hudson River by Hurricane Sandy and finding myself in a rental apartment  I've been rolling around the question, "Is owning a home really a good investment?" Robert Shiller, a Yale professor and co-founder of the Case-Shiller Home Price Index, is famous for making provocative comments on house prices. He recently delared on a Bloomberg TV interview that home ownership was "a fad...that took hold in the early 2000's."

Home ownership, in my view, was never a fad, even in the go-go days of the early 2000's. My parents whole heartedly embraced home ownership as both a dream and an investment. They owned our home and we lived in it for 27 years. They both worked, paid it off early, lived in it for years without mortgage or rent payments, and sold it at a profit of 460%. I think even Mr. Shiller could appreciate an investment like that.

There are several reasons I see for owning a home as an investment, probably the biggest investment a person can make. Owning replaces an expense, rent. Renting offers no potential for a return on your investment. Some experts state that over the last thirty years, renting has been cheaper than owning, and that if you invested the difference between your rent and your mortgage payment you'd be better off financially. The problem with that argument is that this isn't thirty years ago. In today's market, renting is MORE expensive than owning. And the reality is, very few people actually would invest that extra money if they had it.

The other big advantage to home ownership is its tax implications. Cashing in $250,000 in profits on Microsoft stock carries with it a substantial cost in capital gains taxes. Selling a home, while not as liquid, is excluded from capital gains taxes up to the $250,000 limit. If you and another person owned the home jointly but filed separate returns, each could exclude up to $250,000 in capital gains.

But here's the wrinkle I've been thinking about, now that I'm a lot closer to retiring age than I am to voting age. I think it makes sense to own the home that's where your heart is, and rent the home near where you work. In other words, buy where you would likely retire. Use it as a vacation home, a summer place, or rent it out for added income. In today's economy, where fifty is the new unemployed and where today's employee could be transferred or, worse, looking for work tomorrow, investing in a second home as a "retirement" place seems like a good idea if you can swing it. It carries all the benefits of owning a home, and will always be there as a fallback when you need it.

What do you think? Is home ownership overrated? Remember, you can't live in your IRA. Owning a home as an investment makes financial sense for many Americans today.

 

Originally posted at To own or not to own; that is the question

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Rainer
125,732
Ron Aguilar
Real Estate Buying Advice - Salt Lake City, UT
Mortgage & Real Estate Advisor since 1995

home ownership is not for everyone it's for those that can use the benefits. Many first time homeowners can qualify for FHA but may not be ready if you look at all factors but try saying that to a Realtor.

Jul 24, 2013 07:16 AM #54
Rainmaker
340,970
John DL Arendsen
ON THE LEVEL General Contractor, Crest Homes Factory Built Housing Dealer & Developer & TAG Real Estate Sales & Inves... - Leucadia, CA
Contractor, RE Brk, Factory Built Home Dealer/Devl

I fit the model you described in this post to a T. We continue to own the home we raised our children in for the past 34 years. In '04 we leveraged equity from it to build our beach casita. We built it with the condition that the owner of our "Wee Mobile Home Park" would convert it to a condo and sell us the lots and that while we were waiting for the condo conversion to take hold and the RE market to improve allowing him to realize a better gain on the sale of the lots he offered us a 30 year lease with an automatic 10 year extension.

All is good! We built not one but two casitas with an overall investment of 450k for both. We've had years of enjoyment out of our little "Casita de Aire y Sol" and will continue to own it until we graduate to that big "Casita de Aire y Sol" in the sky. That stated, however, at this station in my life, 68 years old, I'm not to motivated to exercise my option to spend another 200k just so I can say that I own it when my monthly lease is only $950 and I don't have to pay any maintenance on the grounds, HOA fees or property taxes. 

In this scenario I couldn't agree more; Owning is very overrated. Great post!!

Jul 24, 2013 07:50 AM #55
Rainmaker
90,466
Sheri Sperry
Re/Max Sedona - Sedona, AZ
(928) 274-7355 ~ MCNE, SRS, CRS, Past-Pres. SLREP

Vanessa - Because I live in a tourist locale and bought before my husband retired, we fit the mold you are talking about.  Many of my customers are doing just that.  They are buying now and either enjoying the vacation time or they are buying and renting their retirement home.  Most don't want to get caught waiting.  

Jul 24, 2013 07:55 AM #56
Rainmaker
245,848
Vanessa Saunders MBA MIMC CIPS FIABCI
Global Property Systems Real Estate - Nyack, NY
From Manhattan to the Catskills of New York

John your little Casita de Aire y Sol looks wonderful! Wow I wonder if our village here in Piermont NY would allow us to do something like that now that they have ordered that our lovely sandstone and brick cottage be torn down after hurricane Sandy. We cant possibly afford to wait for all the variances necessary or to pay for the tear down and rebuild costs. The worst part is that FEMA turned us down as we are self employed and can't prove income (taxes not acceptable!) I LOVE this idea, what a cool community. I am so fearful of anything near tidal waters these days though, it sadly wouldn't work for me. But you are so right in your thinking, Home is where the heart is, leased or owned! Cheers! Vanessa

Jul 24, 2013 08:04 AM #57
Rainmaker
828,915
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

You raise some interesting points. I guess I've never considered wanting to move away from home to retire.If I had wanted to live anywhere else in the world, I've have moved there long ago. 

And while a home is a good long-term investment, I don't even think of it as that. I think of it as a place that's ours. This is where we make the rules and do as we please. (My attitude on that is one reason why I'll never understand why people buy homes with a HOA.) 

Jul 24, 2013 08:07 AM #58
Rainmaker
245,848
Vanessa Saunders MBA MIMC CIPS FIABCI
Global Property Systems Real Estate - Nyack, NY
From Manhattan to the Catskills of New York

I'm so thrilled to receive all of your differing points of view on this conversation. It does seem that many (especially baby boomers) are thinking of their futures and investing in property in one way or another. This is also borne out by the numbers who are buying or renting overseas see, my earlier AR blog about global migration here:

Again, thanks for taking part in this interesting conversation.

Cheers! Vanessa

Jul 24, 2013 08:11 AM #59
Rainmaker
885,497
Lottie Kendall
Today | Sotheby's International Realty - San Carlos, CA
Serving San Mateo County and San Francisco

Hi Vanessa -- you've written a great post that I'd like to share with folks here in California. No way do I consider home ownership a 'fad.'

Jul 24, 2013 08:29 AM #60
Rainmaker
245,848
Vanessa Saunders MBA MIMC CIPS FIABCI
Global Property Systems Real Estate - Nyack, NY
From Manhattan to the Catskills of New York

Hi Lottie, thank you! I'd be thrilled for you to share this blog with the folks in CA!! Cheers! Vanessa

Jul 24, 2013 08:45 AM #61
Rainmaker
329,907
Carolyn Roland-Historic Homes For Sale In Delaware, Cecil County, and S. Chester County
Patterson-Schwartz Real Estate - Wilmington, DE
Carolyn Roland, GRI, CRS

I am 100% behind home ownership for those able to do their own maintenance. Both my sons own homes, and the one in Buffalo has just received 4 offers in 2 days on a home he has lived in for 8 years and has done a lot of the maintenance and improvements himself. He could end up with about $100k over what he paid for it. Not that it's good to lose a job and have to transfer overseas for another job, but the home ownership star was shining over his house!

Jul 24, 2013 08:51 AM #62
Rainer
185,262
John Dotson
Preferred Properties of Highlands, Inc. - Highlands, NC - Highlands, NC
The experience to get you to the other side!

Home ownership is a privilege, not a right - and certainly not a fad.

After living in rentals for 16 years of early married life, I can attest that controlling your own destiny is a fabulous feeling, but you have to be able to afford it!

Jul 24, 2013 09:00 AM #63
Rainmaker
245,848
Vanessa Saunders MBA MIMC CIPS FIABCI
Global Property Systems Real Estate - Nyack, NY
From Manhattan to the Catskills of New York

Oh Carolyn I wish you all the best with your son moving overseas. I am an ex-pat myself and now from personal experience how hard it is to leave family behind. The good part is hopefully you will get to see much more of the country that he moves to than being a mere tourist. As a member of FIABCI and holder of the CIPS designation I help a lot of corporate relo clients move worldwide. Please let your son know I'm here to help him if he needs some sage advice and a local contact. Cheers! Vanessa

Jul 24, 2013 09:03 AM #64
Rainer
107,230
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

Great post.  However, a home is not an invetment.  It is a home and if you are lucky it will appreciate.  If you are lucky enough to be able to pay it off, it can be a real savings.  But still it is your home and will always be better than a rental as you can make it yours.  I love your idea of renting where you work and buying a vacation home where you want to retire.

Jul 24, 2013 09:20 AM #65
Rainmaker
1,266,874
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Home ownership is the way to go.  Then investing in real estate once you are in a home of your own.

Jul 24, 2013 10:16 AM #66
Rainer
285,951
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

I agree completely with Ric, #65. Your primary residence is a liability, your second or more properties are investments, so buy as much real estate as you can and leverage your cash and resources.

Jul 24, 2013 12:09 PM #67
Rainer
62,577
Gloria Matthews
Principal Property Brokers - Vancouver, WA

Homeownership has never been a FAD...  lets see,  who owned or homesteaded grandpa's farm.

Who's land was owned and sold to developers over the last 100 years?   when was it a FAD?

It was made easier with the 30 year mortgage.  why 30 years?   well this goes back to the industrial revolution (dont think that was a FAD either), and the notion of having a job and retiring.   If you purchased your home in your 20's and raised your family in it... worked 30 years.. your home would be paid off when you retired and your income /earnings potential declines.

This was re-emphasized or re-ignited in the 50's, with the white picket fence and the post war boom era.  I do think at this time the appliances group got busy on their marketing band wagon, to promote home ownership and appliance buying...and then added the 2 car garage

We can keep the progression going, to the 3 car garage, 3 tvs ...and 3 acres but all those things ride on homeownership..  Only recently has the CAR and the Electronics overtaken the core value of home ownership, where those things come first..  now thats more "FAD"  because home ownership is a foundation for yourself, your family and community.

The goal being having a free and clear home in 30 years when you reach 60

home ownership is not a fad

Jul 24, 2013 12:10 PM #68
Rainmaker
690,887
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Homeownership is clearly not a fad or over-rated.  People have been owning homes for thousands of years.  Not only is a decent long-term investment - especially compared to paying rent, but it also helps stabilize families.  The tax implications are yet another thing.

Jul 24, 2013 12:19 PM #69
Rainmaker
392,274
Tni LeBlanc
Mint Properties, Tni LeBlanc (805) 878-9879 - Santa Maria, CA
JD, MA, REALTOR, CalBRE # 01871795

I like your idea of renting for work and buying for your retirement. 

 

Makes sense in this new world.

Jul 24, 2013 01:26 PM #70
Rainmaker
278,279
Travis "the SOLD man" Parker; Associate Broker
Team Linda Simmons, Enterprise, AL 36330 - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

We've been thinking about building a home in the country on land that my wife has. About a 15 minute from here, and a 30 minute drive to the office (which I only go to a couple of times a week anyway - THANK YOU INTERNET).

Jul 24, 2013 05:18 PM #71
Rainmaker
573,123
Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000
Hawaii & California Real Estate Broker
Just look at the faces of first time homeowners, proud. A place to have their possessions that they can stay forever if they want.
Jul 25, 2013 08:26 AM #72
Rainmaker
271,843
Paddy Deighan JD PhD
Aston McLaren Inc - Vail, CO
Paddy Deighan J.D. Ph.D

I think that home ownership is very wirthwhile IF someone is going to stay in an area for a period of time. if someone is going to move in a few years, it is best to rent...especially if the mortgage interest deduction goes away

Jul 30, 2013 03:15 PM #73
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Rainmaker
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Vanessa Saunders MBA MIMC CIPS FIABCI

From Manhattan to the Catskills of New York
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