Options for Home Downpayment?

[cmyden]

Originally Posted by hmmhmmcamo

I'm going to get flamed for this but here goes...the amount of rent that can be charged has more to do with local income levels than current property values. If not, rental rates would have shot through the atmosphere too, but that hasn't happened.

I agree with that completely. That's why the price/rent ratio is (imo) a valuable indicator.

It factors in supply/demand on both sides (renting vs owning, a person's two options), and takes the local economy into account, income levels, etc, and takes everything into account equally except for one factor, and that is speculation which is only prevalent on the side of ownership.

[gottabekd]

Originally Posted by Bouw N Arrow

Hold on.. a cost saving with renting?? Since when? Renters ALWAYS get raped.

To me, this is a very good reason to rent.

Hmm...that requires some explanation.

In Calgary, so many seem convinced that owning is the only way to go. So much so, that the bottom of the market is still at elevated levels. So may people have been grabbing places with 5% down and historic low interest rates, that there might be trouble when interest rates start climbing up. This means some might feel the pinch, and sell. With an increase in houses on the market, buyers have more power to demand lower prices. And if prices are lower, that may put more people underwater in their mortgages, making them sell, etc. As a non-owner, that scenario works for me!

Myself, I plan on renting for a few years, and see how the real estate market looks in a couple of years. Even though rents are lower than they have been, they aren't exactly dirt cheap. Comparing the costs of owning the same place vs. renting, yea, owning usually comes out ahead if you hold on to the place for a few years. But the problem is, I wouldn't want to buy the same type of place I might rent. So if I'm buying, I'm buying bigger than my current needs. And in that case, the rent vs. buy comparison is so close that the flexibility of renting is worth it to me.

All I'm saying is since as long as I can remember, I always thought, and was always told, that renting is a terrible waste of money. Now that I'm a bit more educated in the ways of the world (and finance), I can see that everyone needs to look at their own situation, add up some numbers, and make an educated decision.

[Winsor_Pilates]

I find some of the "rent is better for investment" crowd to be quite ironic.
They love to claim RE prices are bubbled because of "speculators", but then also have no problem "speculating" that they could invest their saved money at 8-9% elsewhere, while RE may increase at 1-3%.
Any argument can be made if we can just make up numbers and throw them into some comparison calculator.

In the real world, far more people have had profitable investment through real estate, and far more people have been screwed going after these other investment options.

At the end of the day, either way can work if you invest wisely and get a bit lucky, but RE seems like a far more likely bet IMO (admittedly biased, but historically supported).

[Pastiche]

At the end of the day, either way can work if you invest wisely and get a bit lucky, but RE seems like a far more likely bet IMO (admittedly biased, but historically supported).

Historically supported? By what? The last 5 years?

Long term returns on equities are always higher than real estate.

[Slava]

Originally Posted by Pastiche

Historically supported? By what? The last 5 years?

Long term returns on equities are always higher than real estate.

I would love to see a shred of evidence to support his argument here as well. I haven't looked, but over the longer term I'm not even sure that real estate has beaten bonds or GICs.

[chemgear]

Originally Posted by Slava

I would love to see a shred of evidence to support his argument here as well. I haven't looked, but over the longer term I'm not even sure that real estate has beaten bonds or GICs.

What like this? I wouldn't call it "proof" - because people will believe whatever they need to. Interesting regardless.

http://money.cnn.com/galleries/2007/...mag/index.html

Speaking of hype/automagical numbers for Canada:

http://www.canadiancapitalist.com/re...ate-returns-2/

Personally, I'm not as keen on REI as you have ALL your baskets in the same basket. Heck, most of the time they're in the SAME city/location. (This is coming from somebody that does has a rental property btw, just more invested elsewhere.)

At the end of the day the biggest issue is that I value my time, REI can be a big black hole that way. But perhaps I'm biased on the other side of the spectrum.

[Slava]

Originally Posted by chemgear

What like this? I wouldn't call it "proof" - because people will believe whatever they need to. Interesting regardless.

http://money.cnn.com/galleries/2007/...mag/index.html

Speaking of hype/automagical numbers for Canada:

http://www.canadiancapitalist.com/re...ate-returns-2/

Personally, I'm not as keen on REI as you have ALL your baskets in the same basket. Heck, most of the time they're in the SAME city/location. (This is coming from somebody that does has a rental property btw, just more invested elsewhere.)

At the end of the day the biggest issue is that I value my time, REI can be a big black hole that way. But perhaps I'm biased on the other side of the spectrum.

I scanned that quickly, but I'm pretty sure that we are arguing the same thing here. I am not saying that you can't make money with Real Estate, but I am firmly of the belief that there are other investments that you can make more money with, and with less risk.

[Rerun]

Originally Posted by Slava

I would love to see a shred of evidence to support his argument here as well. I haven't looked, but over the longer term I'm not even sure that real estate has beaten bonds or GICs.

I don't know but I wouldn't be surprised if, on average, real estate has a higher return than stocks or bonds.

Plus, with real estate you get to easily leverage your money.

Fyi, the house I bought last August of 2009 for $440,000 was originally built and sold for $280,000 in 2004.

Say the original owner put a down payment of 10% ($28,000). On their original investment of $28,000 they made a profit of $132,000 (not taking into account RE fees) in 5 years!

There is no way I could invest my money into stocks or bonds and make a 471% return on my money in 5 years.

[yads]

Originally Posted by Slava

I would love to see a shred of evidence to support his argument here as well. I haven't looked, but over the longer term I'm not even sure that real estate has beaten bonds or GICs.

Yeah this is for US and it's pretty damning for primary residence as an investment crowd.


Your primary residence shouldn't be treated as an investment, I'd imagine after borrowing costs, taxes, renovations, and maintenance owning barely comes out ahead if at all. That said, it's tough to put a price on pride of ownership.

[Suave]

Going from boom time to boom time in Calgary (1980-2010), you have a yearly ~2.5% rate of return on your investment. This based on average price in 1980 being ~$220,000 and a 2010 price of $450,000.



http://calgaryrealestatemarketblog.f...ices_large.png

[yads]

Originally Posted by Rerun

I don't know but I wouldn't be surprised if, on average, real estate has a higher return than stocks or bonds.

Plus, with real estate you get to easily leverage your money.

Fyi, the house I bought last August of 2009 for $440,000 was originally built and sold for $280,000 in 2004.

Say the original owner put a down payment of 10% ($28,000). On their original investment of $28,000 they made a profit of $132,000 (not taking into account RE fees) in 5 years!

There is no way I could invest my money into stocks or bonds and make a 471% return on my money in 5 years.

This is ridiculously lol. So you're ignoring, property taxes, CMHC fees, transaction fees, and borrowing costs, and the fact that, said growth happened during the biggest bubble in real estate history.

[Pastiche]

At the end of the day the biggest issue is that I value my time, REI can be a big black hole that way. But perhaps I'm biased on the other side of the spectrum.

This is huge.

I value my time dearly. The idea of spending weekend upon weekend building a new deck, putting in new insulation, etc. is a huge cost to me. Now that's just my own personal preference. But I think alot of people go into buying a house without actually thinking how much their time is worth to them. You end up saving money renting if you monetize your free time.

[Sylvanfan]

Originally Posted by Rerun

I don't know but I wouldn't be surprised if, on average, real estate has a higher return than stocks or bonds.

Plus, with real estate you get to easily leverage your money.

Fyi, the house I bought last August of 2009 for $440,000 was originally built and sold for $280,000 in 2004.

Say the original owner put a down payment of 10% ($28,000). On their original investment of $28,000 they made a profit of $132,000 (not taking into account RE fees) in 5 years!

There is no way I could invest my money into stocks or bonds and make a 471% return on my money in 5 years.

Sure you could if you picked the right stock, even the right sector. If someone bought a huge portfolio of Oil and Gas stocks in 1999 by 2004 they had made a huge amount of money on those.

Plus thats not a great example as the timing falls pretty much within the bubble where real estate grew. I don't think that same house is going to appreciate at the same rate to the point where a 44 grand in vestment in that house is going to appreciate to 220 grand.

For any Albertan who bought real estate prior to 2006 those people did see the value of their house appreciate substantially. But that boom is the type of thing that happens once every 20 to 25 years.

[Pastiche]

Originally Posted by Rerun

I don't know but I wouldn't be surprised if, on average, real estate has a higher return than stocks or bonds.

Plus, with real estate you get to easily leverage your money.

Fyi, the house I bought last August of 2009 for $440,000 was originally built and sold for $280,000 in 2004.

Say the original owner put a down payment of 10% ($28,000). On their original investment of $28,000 they made a profit of $132,000 (not taking into account RE fees) in 5 years!

There is no way I could invest my money into stocks or bonds and make a 471% return on my money in 5 years.

Beyond the myriad of costs that you ignore one key factor needs to be highlighted.

Even if you made X% profit on a house as your primary residence, how do you realize those gains when you sell considering you now no longer have a residence. Either you substitute for another home that is now very expensive in a hot market or you go back to renting and pocket the profits. The only people really benefitting from your home's appreciation would be your kids when you die. Not a bad thing but it's not like you can run around bragging about your capital gains when you sell your house only to go buy a new one at a inflated price.

[Slava]

Originally Posted by Rerun

I don't know but I wouldn't be surprised if, on average, real estate has a higher return than stocks or bonds.

Plus, with real estate you get to easily leverage your money.

Fyi, the house I bought last August of 2009 for $440,000 was originally built and sold for $280,000 in 2004.

Say the original owner put a down payment of 10% ($28,000). On their original investment of $28,000 they made a profit of $132,000 (not taking into account RE fees) in 5 years!

There is no way I could invest my money into stocks or bonds and make a 471% return on my money in 5 years.

Well this is just simply not true. You can leverage into stocks or bonds and people do it all time. In fact you can leverage into stocks or bonds and pay interest only with no margin call...and then write off the interest you pay. So in the end your costs are actually less than the costs of a mortgage.

The other factor is that over the longer term (i.e. no picking the five years that happen to coincide with a real estate boom) the average real estate return in Canada as a whole is about 4.1%. That is not factoring in any other costs, just the pure return. I hardly find that inspiring.

Lastly, leverage is great and all...but that is the one way to get into real trouble in investing in general. Its great for the right situation and right person to pursue, but not something that everyone should be undertaking. It can definitely magnify your gains, but can also magnify your losses and that has to be considered no matter how that leverage is justified.

[Slava]

Originally Posted by Sylvanfan

Sure you could if you picked the right stock, even the right sector. If someone bought a huge portfolio of Oil and Gas stocks in 1999 by 2004 they had made a huge amount of money on those.

Plus thats not a great example as the timing falls pretty much within the bubble where real estate grew. I don't think that same house is going to appreciate at the same rate to the point where a 44 grand in vestment in that house is going to appreciate to 220 grand.

For any Albertan who bought real estate prior to 2006 those people did see the value of their house appreciate substantially. But that boom is the type of thing that happens once every 20 to 25 years.

If you bought Ford or Office Depot at the bottom last March you are up by about 1200% if memory serves. I'm just not sure that anyone would walk into the bank, put down $25,000 for a $450,000 loan and invest it all into either of these stocks at that point. For some reason that stirkes people as being totally ridiculous, yet the very same idea invested into one house seems like a great investment plan. One of the quirks of human psychology I suppose.

[sa226]

Originally Posted by Slava

If you bought Ford or Office Depot at the bottom last March you are up by about 1200% if memory serves. I'm just not sure that anyone would walk into the bank, put down $25,000 for a $450,000 loan and invest it all into either of these stocks at that point. For some reason that stirkes people as being totally ridiculous, yet the very same idea invested into one house seems like a great investment plan. One of the quirks of human psychology I suppose.

Thats an interesting way to look at it, and its worth discussing, but you can't live in Ford or Office Depot. A house is an investment AND a roof over your head. Unless you live with your parents for the rest of your life, you're going to have to pay for some sort of shelter anyways. Then it comes full circle back to the rent vs own argument.

[chemgear]

Originally Posted by Pastiche

This is huge.

I value my time dearly. The idea of spending weekend upon weekend building a new deck, putting in new insulation, etc. is a huge cost to me. Now that's just my own personal preference. But I think alot of people go into buying a house without actually thinking how much their time is worth to them. You end up saving money renting if you monetize your free time.

There was a guy who worked at our firm who had just 3 properties I think. He was always on the phone chasing down home fixes and renter issues at the office. The best was when a renter had let the toilet go running - used more water in a few weeks than a normal house in like 2 years.

[Slava]

Originally Posted by sa226

Thats an interesting way to look at it, and its worth discussing, but you can't live in Ford or Office Depot. A house is an investment AND a roof over your head. Unless you live with your parents for the rest of your life, you're going to have to pay for some sort of shelter anyways. Then it comes full circle back to the rent vs own argument.

Right, and I own my home so I am in agreement with you there. I'm just putting this out there from the pure investment perspective.

[Sylvanfan]

One thing about stocks is that they are much more liquid than real estate. You can always sell company stock that day if you want to cash out. Whereas with real estate you honestly don't know when you can cash out.

I'll always remember a thing I read about how home ownership is higher in area's with higher unemployment rates.

That said, I'm going out to look at houses later today. I've accepted that I'm going to be one of society's poor people and even if I was wealthy via the stock market, it's the most boring thing on earth in my opinion as I own all this stock that I more or less have to keep and watch grow, boast about how I have all this wealth that no one ever see's and be like 65 years old and broken down when I do finally get to enjoy it. At least with a house I can do whatever the hell I want with it over the last 40 years of my life. As opposed to being ripped off royally paying some one to carry me around as a 67 year old man so I can travel the world and enjoy my wealth.