Options for Home Downpayment?

[Cowboy89]

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.

This. I think the biggest difference between real eatate and stock/bond/money market, etc investments psychology is due to the fact that pretty much everyone has experience in buying/renting/building a residential property. Real estate gives people a tangible asset that they seem to think they have enough of a connection to feel comfortable or knowledgeable enough to invest in.

Whereas in reality most people are just leveraging multiples of their net worth in one asset in one market that has a history of much lower historical returns, has very little liquidity and adds refinancing risk.

[Dan02]

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.

haha, no offense, but clearly given how much time you spend on CP you either don't value your time as much as you suggest you do or you give surfing a hockey website(not to mention the other sites you visit) a pretty damn high value.

It's a stupid argument in this context, you're like the friends I had who passed on contracts during the recession because it wasn't as much money as they thought they should be making, so while I worked and made slightly less then I thought my time was worth, they sat at home with their thumb up their ass and made nothing. I see so many people make that same mistake and I know in the past I did to, using the exact same justification you did.

You're only loosing value in your free time maintaining your house if you have something of higher value you could be doing at the same time. So you tell me how much value are you loosing by luring the guys over with some beer one weekend to help you rebuild a deck/fence? Yeah, it might cut into your web surfing time or TV watching.

The only people who spend weekend upon weekend maintaining their homes are the people who do it as a hobby not your average homeowner.

[Rerun]

Originally Posted by yads

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.

The fact is that if you rent you are paying all that too... its just hidden in your monthly rent charge.

Thus if you rent, after five years of paying all those fees which are included in your rent, you end up with 0 profit. If you buy a house, you will end up with the appreciated value.

Didn't some millionaire once say that land is the only thing they aren't making more of? Invest in land and property. You can't go wrong.

[amorak]

Originally Posted by Rerun

The fact is that if you rent you are paying all that too... its just hidden in your monthly rent charge.

Thus if you rent, after five years of paying all those fees which are included in your rent, you end up with 0 profit. If you buy a house, you will end up with the appreciated value.

Didn't some millionaire once say that land is the only thing they aren't making more of? Invest in land and property. You can't go wrong.

Detroit says hi!

[yads]

Originally Posted by Rerun

The fact is that if you rent you are paying all that too... its just hidden in your monthly rent charge.

Thus if you rent, after five years of paying all those fees which are included in your rent, you end up with 0 profit. If you buy a house, you will end up with the appreciated value.

No one is arguing that you should rent if, your monthly payments would be the same or less if you bought. However, 99% of the time, it would cost you more on a monthly basis to purchase a home, when you factor in, mortgage, taxes, maintenance, and renovations.

Didn't some millionaire once say that land is the only thing they aren't making more of? Invest in land and property. You can't go wrong.

And yet the city keeps expanding and expanding. Yup they sure aren't making anymore of it. Don't get me wrong, I'm not denying that RE can be a great way to make money, but treating your primary residence as an investment and for a lot of people it's their primary investment is ludicrous.

[chemgear]

Originally Posted by Rerun

If you buy a house, you will end up with the appreciated value.

Invest in land and property. You can't go wrong.

Wait, what?

Ummm what about Nevada, California, Arizona, Florida, heck the US in general. Or Tokyo, Concrete Equities, Shire Investments?

[anyonebutedmonton]

Can someone please clarify what type of tax implications the capital gains on your primary residence hold?

I am under the impression you don't pay tax on the gains like you would any other investment. This can have a pretty staggering effect when you compare the returns, no?

[Rerun]

Originally Posted by anyonebutedmonton

Can someone please clarify what type of tax implications the capital gains on your primary residence hold?

I am under the impression you don't pay tax on the gains like you would any other investment. This can have a pretty staggering effect when you compare the returns, no?

I believe that if you live in a house for a year, you don't pay taxes on it..... which is exactly what I'm going to do when I win the 2.3 million dollar house which is the grand prize in the Foothills Hospital lottery.

Then..... I'll sell it and retire to some cheap ass South American country where I can buy a hacienda on the beach for peanuts and have servants that I only have to pay $5 per day to look after me, my house, and my mistress...

[The Yen Man]

Here's my take on the whole housing / renting and whether it's better to invest in stocks. It's all about what you're comfortable with and how you want to invest. In theory renting and investing the money may get you more ahead than say buying a house. But how many people who rent actually use that money on sound investments? Most people I know who rent blow their money on toys, going out to eat, beer, etc. Having a house basically forces you to save so you have equity down the road.

And I'll be honest. I'm just not a stock guy. I don't like the stress. To me, spending my time constantly probing the stock markets, reading business news, and stressing out over everything that can affect the stock market is worse than working at my normal job. I just want to unwind when I get off of work, not get into greater stress.

So really, either way (housing or stocks) is a risk. It just depends on what people prefer.

[anyonebutedmonton]

So if that is true it really does have an advantage over the rent and invest option, no?

I do not own a place, I rent, but I have always been of the opinion that the benefit you get from owning is that you get to live in your investment when you buy. I can't live in other types of investments.

I just think there is a value to owning where you live. You get to make decisions on things rather than just having to put up with them as a renter. Some people may look at upkeep and maintenance as a waste but I would much rather be outside building a deck with my buddies that I can then enjoy for the next how many years, than inside watching TV...

[Winsor_Pilates]

Originally Posted by Pastiche

Historically supported? By what? The last 5 years?

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

I'll try and dig up some numbers, but I've read before that over the last 20-30 years the annual return on RE comes out to about 8-9%. The last 5 years of course are even better, but I'm not just talking 5 years.
Also, it's estimated that something close to 90% of millionaires make their fortunes with significant initial investment in Real Estate.
From personal experience, I know a ton of people who have made great returns in Real Estate, and almost no one who has in stock, so that' effects my opinion as well, although not statistical fact.

But I'm not knocking equities anyway, just stating my preference for Real Estate. I find wealth in equities is heavily based on suckers. Most people are too uneducated on where to put their money and just lose it, while the very few who have a lot of knowledge on it make all the money.
Real Estate offers something more understandable and tangible, and at worst you've at least got a house.

[Winsor_Pilates]

Originally Posted by Pastiche

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.

That sure works. Wouldn't it be better to be a renter who has made hundreds of thousands from the sale of a home, than a renter for life who has just not bought?
Either that, or you sell high, buy low like any other investment. Or you pay off your mortgage and just not have a cost of housing for the rest of your life.
Seems like 3 good choices to me.

[hmmhmmcamo]

Originally Posted by Winsor_Pilates

Most people are too uneducated on where to put their money and just lose it, while the very few who have a lot of knowledge on it make all the money.

I totally agree

Real Estate offers something more understandable and tangible, and at worst you've at least got a house.

I TOTALLY disagree

This is the thing I don't understand with real estate these days.

We've had a front row seat to watch the bloodbath that is going on down in the US and yet people still talk about real estate as being a can't lose thing!

I know, I know.....it's different here.

[pepper24]

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.

I read an article recently that long term stocks are better investments than real estate. Real Estate beat inflation by a few percentage points while if you invested in the market over the same period you would have been several points higher. I'll see if I can track the article down.

Real estate in the past few years isn't the norm based on historical averages. 2004 to 2008 was ridiculous boom that wasn't and isn't sustainable. The original owner of your place is the winner. You buying the house this past summer based on historical stats are probably not going to win. That being said you need a place to live etc. and if it wasn't your first house you were already in the market. If not, then that's the fact of life and tough to time the housing market.

You can also leverage on stocks though if you aren't an expert probably not a great idea.

[pepper24]

Originally Posted by Winsor_Pilates

I'll try and dig up some numbers, but I've read before that over the last 20-30 years the annual return on RE comes out to about 8-9%. The last 5 years of course are even better, but I'm not just talking 5 years.
Also, it's estimated that something close to 90% of millionaires make their fortunes with significant initial investment in Real Estate.
From personal experience, I know a ton of people who have made great returns in Real Estate, and almost no one who has in stock, so that' effects my opinion as well, although not statistical fact.

But I'm not knocking equities anyway, just stating my preference for Real Estate. I find wealth in equities is heavily based on suckers. Most people are too uneducated on where to put their money and just lose it, while the very few who have a lot of knowledge on it make all the money.
Real Estate offers something more understandable and tangible, and at worst you've at least got a house.

Your preference for real estate is losing you money!

http://www.forbes.com/2005/05/27/cx_sc_0527home.html

Where's a better place to put your money: the stock market or real estate? These days the accepted wisdom (at least at cocktail parties) says to pick real estate. But is the accepted wisdom right?

It is--in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index dipped nearly 6% during that same period.

But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

[Winsor_Pilates]

Originally Posted by hmmhmmcamo

I TOTALLY disagree

This is the thing I don't understand with real estate these days.

We've had a front row seat to watch the bloodbath that is going on down in the US and yet people still talk about real estate as being a can't lose thing!

I know, I know.....it's different here.

I see what you're saying, and don't think it's a "can't lose thing". The problem in the US is more to do with the mortgages being taken on then property values dropping.
If people take on mortgages for properties that are comfortably in their budget, they won't end up in that situation.

Originally Posted by pepper24

Your preference for real estate is losing you money!

But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.
[/I]

LOL, well that settles it. I guess I should go back in time to 1980 and make that long term investment for 1000% return.

[Rerun]

Everybody is talking about what a bad investment real estate has been in the USA. Guess what folks.... most of us don't live in the USA.
I doubt you will find anywhere in Canada where re investment has crashed like it has south of the border. Our financing regulations are way different. Totally different kettle of fish.

I'd be interested in seeing what the stats are for Canadian real estate values and Canadian stocks over the past 20 years say.

Plus... when I sell my primary residence, I don't have to pay Capital Gains tax on it. Plus you don't have to be an investment guru to understand real estate like you do the stock market. IMHO, stock investment is a suckers game. Mostly only the rich insiders make the big money. By the time the average Joe hears about a good investment, its way too late.

I'll stick with a house that I can see and live in, property that I can stand on, and a place thats all my own and nobody can kick me out of (if I pay my bills).

I doubt you will ever find one millionaire who is a renter but I bet you will find millions who are real estate investors.

[Regorium]

Financial advisors still disgust me.

I know several financially savvy people on CP have been advocating buy for the last 4 years at every single point in time. At the top, halfway down, at the first rebound, at the bottom, and again now. This isn't just targeted at CP people offering advice, but at the whole industry in general.

Do you ever listen to yourselves and wonder how ridiculous you sound to people that see your opinions over a longer period of time?

You might sound smart saying "If you bought X at the bottom you're up 1200%", but it's less smart when you've advocated buying that same stock when it was worth 20 times the bottom several months before.

[Deegee]

Originally Posted by Rerun

I doubt you will find anywhere in Canada where re investment has crashed like it has south of the border. Our financing regulations are way different. Totally different kettle of fish.

The company I work for deals primarily in Central Alberta and we have witnessed a sharp change in real estate prices.

We are aware of a property that CMHC has valued at $275,000 (just recently), and we have had our member get an appraisal on the property and it has come in at $175,000 in the Three Hills area. I wonder how many other properties CMHC is artificially inflating in value with their postal code appraisal process.

We know of a property that was worth 2.8 Million outside of Cremona during the boom and has just reappraised at the 1.4 Million area.

We are aware of another property outside of Drumheller that was valued at $165,000 during the boom and has just reappraised at $75,000.

Those are significant price differences in short periods of time. I imagine it is not as different in the city, but in rural Alberta the price differences have been significant.

[Slava]

Originally Posted by Regorium

Financial advisors still disgust me.

I know several financially savvy people on CP have been advocating buy for the last 4 years at every single point in time. At the top, halfway down, at the first rebound, at the bottom, and again now. This isn't just targeted at CP people offering advice, but at the whole industry in general.

Do you ever listen to yourselves and wonder how ridiculous you sound to people that see your opinions over a longer period of time?

You might sound smart saying "If you bought X at the bottom you're up 1200%", but it's less smart when you've advocated buying that same stock when it was worth 20 times the bottom several months before.

While I "disgust" you I'm still going to take the time to respond. Feel free to show one example of where an advisor has posted that you should be buying at the top here. I can't think of a single time when an advisor has said this, but would be happily proven wrong.

Since you seem to attack my post earlier about the 1200% retrn you should know that was a statement of fact. I didn't tell anyone to buy anything and instead was saying that If you had purchased at that point this was the result. I'm not sure how that was misunderstood!

As far as the "do you know how ridiculous you sound" comment just feel free to put me on ignore. Frankly I know that the service that I and fellow advisors provide to clients is valuable, worthwhile and in many cases completely necessary for people. It extends far beyond which stock to buy at which time and instead helps people change their entire financial picture for the better.

Lastly let me say that most of the comments in this thread aren't talking about any stock in particular. Instead the comparison is between the index Asa whole and the real estate market as a whole...a point which also seems to be lost in translation.