Yep zero percent loan, no maintenance and no transaction cost ROI including inflation seems legit.
Don’t bring all the relevant variables into this… let me see what I want to see dammit…
inflation is actually why you’ll make a killing on real estate. if inflation were to turn up. u just made a fuckton of money if you borrowed at a fixed rate. and if you are pimping it out, you can raise rents on the suckers.
consider a 100k investment.
100k invested in market. you can prolly lever up 50k for 150k. if inflation was 15%, you prolly made 25%. or 187k for 87k profit.
now lets say you use an fha loan. 100k as a 3.5% down payment. meaning you can borrow 2.7m for a $2.8m investment. if inflation was 15%, lets assume real rate return was 0%, so your nominal is 15% as well. well you just made 428k. far superior in dollar amounts. even if you subtract interest rate, maintenace whatever. you will still come up.
Hi, I’m here about the apprenticeship. I want to make 428K.
to greenie’s point, hormones > dollars. most women want to nest and have a place of their own to make changes to. happy wife, happy life. also, shelling out the dough now might mean avoiding divorce, and shelling it out then haha.
also, i would never be able to find a long-term rental for the type of home i own in my city. just doesn’t exist. if it’s for rent, it’s a temporary thing and i’ll have to move to a $hithole with kids in tow at some point. that’s when the wife might want to move on, haha.
Thanks for all your input Greenie. We are looking forward to buying a house that we can stay in for a while. Just need a little more time to be comfortable spending that extra dough to get to the next level of homes if you will
I get that, but if someone gives a 5% nominal price increase in homes the ROI still needs to be in real terms.
I work at a large real estate PE fund. If we could take nerdys figures and syndicate LP shares to investors, and the homeowner kept 1% GP share, now we are talking, boys. 
Why you are assuming 5% growth anyway? I don’t see zero interest rates like in 7 of the past 10 years. People just can’t afford to buy the same house for the same price in 2018 as they could in 2016. Sure, sellers will be butt hurt and not cut prices by 10%, but the reality is much fewer buyers for the same price than there were before.
Anyway, another thing that has not been mentioned is that buying a house means you’ll buy a ton of sht that was not previously necessary. The house you buy is usually going to be nicer than the one you rent, and you’ll be more sensitive to upgrades or furnishings. If I bought a nice house now, for instance, I’m pretty sure wife will go out the same day and buy the whole Williams Sonoma catalog.
this is market dependent though. if i buy in certain areas of detroit or new orleans 50 years ago my return is -100% but if i buy in SF or NYC my return is much better than the 0.3% average. i think if you’re buying in a technology or health care oriented city that is expected to grow over the foreseeable future, you have a better than average chance of doing well versus buying a rural area or a disruptable area. obviously entry price matters a lot but i would imagine there is extreme return disparity across every country and city.
i mean, it is common sense that housing prices should not go up much more than inflation over the long-term unless there are land constraints. take the cost to build the house (cost of labour + materials, which is somewhat business cycle dependent), take the cost of the land (depends on demand for the land/location) and add a reasonable profit margin for the builder/developer (which is business cycle dependent) and you have the price of your house. if you’re paying way, way over the average mid-cycle cost to build your house plus a reasonable profit paid to the developer/builder, don’t buy.
this is why the US housing crash was so bad. people were paying 2x+ the average mid-cycle cost to build a house in some rural area because building costs were temporarily high and demand for land was improperly high. when the cycle turned, the cost of labour plummeted, the cost of materials plummeted and everyone realized most locations didn’t deserve much of a land premium.
i seen it
Yeah, probably not a great idea to go against the ol’ bid rent theory. This is why I shutter at even the mere thought of purchasing a home in a rural, flat growth area, from a financial decision standpoint.
However, I would argue that most of those people who made the poor choice to build in those areas are probably both from those areas, their parents, and grandparents also. And additionally, let emotion play a huge factor in deciding to build homes under those conditions.
I personally like to visit rural areas for the nature aspect, but when it comes to buying, if when I do, it will be waterfront or urban property only. My friends and family all contest, “But it’s so expensive” or “your taxes will be insane”. Sure, but I view the premium as insurance against declines in demand
Others have covered everything I’d say already, so I’ll just add Welcome to the Midwest! Unless you’re living in St. Louis. If that’s the case I’m honor bound to hate you.
Glad to be here! Ppl are nice here 
Are you a Cubs fan?
Seriously. Buying my house is the first thing I’d undo if I had a magical “undo button”. Not only from a financial perspective, but just the lifestyle aspect. I enjoy traveling and coming home to a broken window (no break in, I assume neighbors kids), to surprise pest damage, to having to do the yard, and my favorite, having to appear in municipal court to contest a BS ticket from the city regarding “weeds and overgrowth” that wasn’t true.
If I’d have stayed renting I’d probably have paid more or less the same as my monthly mortgage + tax + insurance, but with none of the hassles. Also the equity in the house including the downpayment, I probably could have stuck it in an S&P index fund and done just as well.
Hi Greenie. Long time no see. The problem with this argument is that people move way frequently than a 30 yr note would assume. 538 published this a couple of years ago: https://fivethirtyeight.com/features/how-many-times-the-average-person-moves/ I recall seeing another study that the median time spent in a home, for somebody in their 20s/30s is about 7 years. So I don’t think it’s realistic to assume that a home somebody buys when they’re 31 will be the same home they’re living in 30 yrs later, or hell, even 15 years later.
Greenie could be assuming that you are transporting the equity into the new home. However, each time you move you lose 6% off the top to the realtor. For a 300k house, thats 18k, or 30% of your initial equity, OOPS! Any way you slice it, when all costs are taken into account, homeownership (in the vast majority of zip codes) is significantly more expensive than renting over the long term. I thought of everything in my analysis, including mortgage interest tax deduction. When monthly rent is 20% less than PI&T, it should be obvious that this is true. If more people had brains, instead of saying “analystdude, renting is throwing your money away” they might say, “analystdude, renting is a bargain, do it for as long as is feasible”.
Lifestyle will lead me to purchase, but it is a luxury.
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Admittedly, I live in a small town of about 110,000 people. And since I live right in the middle, I can get pretty much anywhere I want to be in fifteen minutes or less. (If I lived in a big city, I’d see life through a different lens.)
And I have no plans to upgrade. If I’m lucky, this will be the first, last, and only house that I ever own. I live in a great house in a great neighborhood. I have over 3k square feet, four bedrooms, two living areas, and my own office. I also have an outdoor kitchen with three grills to play with.
But remember–I pay $2,150 per month for my house. That includes insurance and taxes. If I added an extra, say, $600/month for repairs & maintenance, my total cost to own is $2,750.
As I look on Trulia/Zillow, to own a house comparable to mine, I’d have to pay well over $3,500/month. Maybe even in the $4k-5k range. To stay in my $2,750/month range, I’d have to have a significantly smaller house (about 40% smaller). If this is true, then renting is definitely “throwing money away”. (Granted, this is anecdotal evidence. Rent prices vs. “own prices” may be different in St. Louis, or wherever OP is.)
And even then, renting doesn’t solve any of the problems that OP mentioned. You can still be house poor if you rent (and you’re more likely to stay house poor, because rent prices will increase with the cost of living). And renting house doesn’t make the wife’s commute any more bearable–the distance between A and Z is the same, whether you rent or own.
Let me add this fact (that IsThereAny already mentioned) - being a vet, I bought my $250k house for zero down. Due to increasing home values in the Permian Basin, I could sell it now for $425k. In other words, I put nothing into it and made $175k in eight years. What’s the ROI on that? (I realize that leverage also works in reverse, but that hasn’t happened for me–yet. This is also assuming that we include home equity in our net worth. But I digress…)
Also, as MLA mentioned, there are some places where long-term rent situations just don’t exist. You can’t rent a house and expect to live in it long-term. Where I live, unless you’re in an apartment building (inhabited by college kids and “indigent” people) renting is generally a short-term thing. Plan to move every couple of years. (And moving sucks.)
And if you do rent for a couple of years, who’s to say that your situation will be better in a couple of years? I know you think you’re going to get a raise and your wife will get a job that’s only five minutes away, but that situation could change quickly. And you’re back to having the same problems (house poor, long commute, economic uncertainty).
Again, this is just my opinion, having seen the world through my eyes. If you can find a house that you like that is 20% cheaper to rent than to own, and you can reasonably expect this to be true for whatever your time horizon is, go for it.