Home is a lousy inventment

[benchmark]

My wife is planning a rebuild of our house, and I'm trying to convince her that the ROI isn't there -- only 10-20% after 1.5 year of construction. I came across this recent article by Ken Fisher, and showed it her. She is still not convinced :(

 

https://www.usatoday.com/story/money/columnist/2018/02/18/why-your-home-lousy-investment-when-you-think-its-great/340516002/

[Joe689]

Agree.  I always looked at it as a savings account.  A savings account that you get to live in and increase happiness.  Most might agree that a home will bring more happiness than investments/cash.  I guess this might mean home = family.  If you are single, you might have different opinion.

 

Between low interest mortgage, or home equity, you still keep some liquidity. 

 

This savings account will track inflation.

 

Then when you get old, downsize, and cash out your savings and buy a 40ft boat in Florida and blow it.

 

It is good to have savings. 

[StubbleJumper]

My wife is planning a rebuild of our house, and I'm trying to convince her that the ROI isn't there -- only 10-20% after 1.5 year of construction. I came across this recent article by Ken Fisher, and showed it her. She is still not convinced :(

 

https://www.usatoday.com/story/money/columnist/2018/02/18/why-your-home-lousy-investment-when-you-think-its-great/340516002/

 

 

 

My only advice is that you need to consider the house investment in the context of the next best option.  It seems like you are trying to do that by comparing the rate of return on a house to that of the stock market.  I would instead encourage you to compare the rate of return on a house to that of a divorce.  The house will come ahead nearly every time.  ;)

 

 

SJ

[bookie71]

I think you are missing the point, "A happy wife makes for a happy husband"

[netnet]

I think you are missing the point, "A happy wife makes for a happy husband"

I always said it with a rhyme: "happy wife equals happy life!"

 

 

[benchmark]

I think you are missing the point, "A happy wife makes for a happy husband"

I always said it with a rhyme: "happy wife equals happy life!"

 

It's a big investment and a huge time sink, we'd have to get a rental house for 1.5 years, that's why I'm not too keen on it -- though i think she'll get her way in the end :)

[netnet]

I think you are missing the point, "A happy wife makes for a happy husband"

I always said it with a rhyme: "happy wife equals happy life!"

 

It's a big investment and a huge time sink, we'd have to get a rental house for 1.5 years, that's why I'm not too keen on it -- though i think she'll get her way in the end :)

I would not make a financial argument if your really don't want the remodel.  How much does she want to living with plaster, dust, having to move and how much does she want to be a general contractor (or is that your 'job')  That same money could be a trip around the world or a stock market investment.

 

Have her talk to someone in the midst of a remodel.

 

And after all that, the required response is whatever you want honey.

[boilermaker75]

"She's so fine, there's no tellin' where the money went," Robert Palmer.

[John Hjorth]

...And after all that, the required response is whatever you want honey.

 

It's never going to happen here. I'm looking around though.

 

 

[rkbabang]

I think you are missing the point, "A happy wife makes for a happy husband"

 

Exactly.  The point is that a house isn't an investment.  If you are extremely fortunate you will break even or not lose too much. A house is where you live.  You do what you (or more likely your wife) wants to do to make it the place you want to live in.  If you are ever trying to calculate ROI on your home then you are missing the point entirely.  You don't live in investment property.

 

[rukawa]

Why not compromise....redo kitchen. Usually there are a few rooms you use most...focus on those.

 

My mom wanted to redo kitchen and it cost $30000 which is not horrible. They had a perfectly good kitchen before but her sister did it and then she had to do it.

[Jurgis]

People doing expensive remodeling are driving the economy.  ;D

So thank your wife for doing it for all of us.  8)

 

 

[fareastwarriors]

I think you are missing the point, "A happy wife makes for a happy husband"

I always said it with a rhyme: "happy wife equals happy life!"

 

It's a big investment and a huge time sink, we'd have to get a rental house for 1.5 years, that's why I'm not too keen on it -- though i think she'll get her way in the end :)

 

1.5 years? You could basically build a new house in less time than that. 

[Spekulatius]

I think you are missing the point, "A happy wife makes for a happy husband"

I always said it with a rhyme: "happy wife equals happy life!"

 

It's a big investment and a huge time sink, we'd have to get a rental house for 1.5 years, that's why I'm not too keen on it -- though i think she'll get her way in the end :)

 

The folks above said it already, the intangible side of this makes for a good ROI. but with such a; extensive remodel, selling your house and buying another one might be cheaper. Unless the remodeling part is what your or more likely your wife enjoys.

[Guest cherzeca]

if you talk to realtors/decorators, many will tell you that house buying/redecorating can make or break a marriage, and they may also tell you that they can predict which in advance.  it either creates stress or solidifies.

 

i always looked at uses of money sequentially:  invest in your career (mostly time); invest in a house to have a home; invest in kids education (through the nose, private school k through college); invest in retirement.  we really didnt have start putting away for retirement until 10 years before retiring because we had so many other things we wanted to take care of first.

 

still in our home, which has appreciated 5X over 30 years.  don't consider that a retirement asset though.  lot's of psychic benefits to the home beyond ROI at least for us

[CorpRaider]

I thought perhaps you should sell and buy.  Then again, the realtors would get you for ~14% of your gross, not mention all the other potential fees and costs...maybe I should invest in Redfin?

 

Pretty sure Prof. Shiller has some data showing US housing is only flat with inflation over the long term (zero real returns).

 

Some other researchers recently published a study claiming globally it has been a good investment (housing stock).  But people have criticized their methodology and the impact of maintenance costs and taxes and stuff.  Then again, I can't remember what Prof. Shiller did with implied/avoided rent lodging costs.  He probably dealt with it reasonably because he's the shiz.

 

 

[benchmark]

1.5 years? You could basically build a new house in less time than that.

 

Yes, it's a complete rebuild.

 

I thought perhaps you should sell and buy.  Then again, the realtors would get you for ~14% of your gross, not mention all the other potential fees and costs...maybe I should invest in Redfin?

 

Pretty sure Prof. Shiller has some data showing US housing is only flat with inflation over the long term (zero real returns).

 

Some other researchers recently published a study claiming globally it has been a good investment (housing stock).  But people have criticized their methodology and the impact of maintenance costs and taxes and stuff.  Then again, I can't remember what Prof. Shiller did with implied/avoided rent lodging costs.  He probably dealt with it reasonably because he's the shiz.

 

Thought about renting out our current house (with a bit of touch up, the rent will cover the mortgage), then buying a different house. However, I can't convince myself to pay the sky-high price (in SF area), though interesting enough, this calculator seems to say that buying isn't a bad option:

 

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

 

 

 

 

 

[rolling]

My wife is planning a rebuild of our house, and I'm trying to convince her that the ROI isn't there -- only 10-20% after 1.5 year of construction. I came across this recent article by Ken Fisher, and showed it her. She is still not convinced :(

 

https://www.usatoday.com/story/money/columnist/2018/02/18/why-your-home-lousy-investment-when-you-think-its-great/340516002/

While I agree that buying a house is not a grat investment (moneywise) that article has 2 very important flaws in in those return calculations:

1- you can not ignore rent. It would be the same as ignoring both dividends and buybacks in the stock market. The final return is totally different, especially because the saved rent can be invested (they already discount the mortgege payment, you would be discounting twice)

2- 7,5% interest rate is a very different thing from a 1,5-2% interest rate (not sure what is the number in the us currently). With such a different discount rate you might reach the conclusion that houses are much cheaper now than they were at the time they used for those calculations (so they pretended to use a favourable comparison but used un unfavourable one)

 

That said, the objective of buying a home is not on the returns, if you do not lose money you should be happy.

[tombgrt]

When basic needs are met, all extra's are a luxury and should be weighted against other options. For example, I think everyone can agree that replacing a 10 year old kitchen is generally a luxury and not a necessity. If you think about a home as something where money is no issue, you should think about a lot of expenses in that way. Yet many people cut other expenses fiercly to spend as much as possible on their home.

 

Research has shown over and over that we adapt very quickly (a matter of weeks) to newfound wealth or poverity. But somehow many believe throwing more money into your home is a great investment to raise your medium and long term hapiness level. Even if that was the case, you have to weigh it against other 'hapiness raising investments'.

 

We are renting and paying the equivalent of a 2.4% rental yield gross. Rental price locked in for another 7 years but we are free to get out at any time. We are the first renters, no previous inhabitants as it is newly built. House in perfect condition. If we want to buy something like it, we have to pay a 7% tax, other costs and a yearly recurring tax, dropping the yield considerably. Over time you incur costs as an owner. We do not have to fear rising interest rates or liquidity problems. Risk free rate is 1% in Belgium. If it doubles, many are fucked investment wise and I could profit from it if I decided to buy. I have to put in insane assumptions in the NY Times calculator to make buying the better option. So who really has the intangible benefit in a lopsided housing market where owning a home is viewed as Valhalla?

 

I'm sure the situation is not as extreme in other countries. But that is part of my point: If you don't look at the financial side of your home; you risk making mistakes. And you can't just assume past performance will continue ad infinitum. Absolute thinking is stupid.

[Spekulatius]

Thread went off topic, this is not a rent versus buy decision for OP. if I were Op, I would consider the alternative to sell your current home and buying another one vs rebuilding it.

 

I am not sure where Op lives, but the cost to buy and sell in the US is 6% realtors commission, which can easily be reduced to 5% without sacrificing service. This would save about 1 1/2 years of rent and there is only one move (if timed properrly) vs 2 ( into  rental place and out of). So, if you can buy a house that is similar to what you want and the pricing makes sense, then it might be better to do that. Only OP (and OP‘s wife)  can do the math and weigh the intangibles.

[DooDiligence]

I'm going to build a large deck along the back of my house (probably next Fall; we'll see how labor rates go between now & then.)

 

It will create a ton of value because it'll serve as a stage for performers, and should lead to the formation of some kind of management / production company.

 

A tangible capital expenditure which results in, add on, intangible assets (not the balance sheet kind) & maybe a shallow moat.

[BG2008]

I think telling your wife that the ROI on renovation is low is a mistake to start out with.  Unless your wife has drank the value investing cool aid like all of us on this board, reasoning with her from a ROI perspective is setting yourself up for disappointment. 

 

I would never lease a Acura MDX myself.  I think an Acura TL with totally fine despite having a newborn.  But the Mrs. wants to be able to take one car to go to dinner with the in-laws.  In a happy marriage, you're not going to get everything right.  But the major things are important.  They go something like this:

 

1) Happy wife

2) Agree on same values - savings, kids, tight family etc

3) Don't do crazy things - bet the farm on whatever crazy investments is

 

I think your objective should be to understand why your wife want it.  If she cooks a lot and wants a nice kitchen so that you can have your close friends and family over for memorable dinners and gatherings, that ROI is actually much higher than whatever hard numbers you can measure.  If you just can't afford the project, be honest and upfront.  Just make sure she's not going to change her mind and want something else.  I also think you'll have a better chance of talking your wife out of the project if you genuinely paid attention to why she wants the project.   

 

Remember, Buffet paid $30,000 cash for his house and never regretted it.  BRK.B has done 2,400,000% since 1965.  So if you viewed it from that perspective, it can get depressing.  If the grand wizard thinks it's okay, then I think it's alright.  10 years ago, I would've been more ROI focused.  Now that I have a newborn, I understand why you want to buy into a nice neighborhood etc. 

[LC]

We need to start a marriage advice thread ;D

[BG2008]

We need to start a marriage advice thread ;D

 

Well, it is the most important investment.