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Jonathan Clements; Don't Buy A Home As An Investment
I have a friend who rents a house in an upscale community, on the ocean, in Connecticut. If he wanted to own this home he'd have to qualify for and carry a million dollar loan. He would also have to cough up $20,000 for property taxes per year.
He moved to CT to enroll his kids in a high performing public school verses sending them to a private school. Private school would easily be twice what he pays in rent. He pays $2,000/ month.
Public school's in CT are primarily funded through property taxes so, in a sense, the landlord in subsidizing his kid's schooling.
JC seems to have omitted a couple of other tax effects. The gain he got on each of his sales was tax free ($250K/$500K gain exclusion on sale of residence). On the other hand, had he had a loss, he would not have been able to write it off.
That tax benefit (of zero tax on cap gains) has to be added in when computing the total return (after tax) of home ownership. I agree with the conclusion - that home ownership, strictly by the numbers, is not a great investment. But one still needs to get the numbers right.
The other omission, less serious, is at the end, where he talks about the transaction costs in NYC, and says that they are high, especially the sell side. He omits mention of the "mansion tax" on the buy side - this adds 1% to the buyer's cost when any "mansion" (property over $1M) is purchased. These days, "the average price of an apartment in Manhattan now exceed[s] $1M". NYPost, March 20, 2014.
WHO ever said home Ownership was an investment? the guy that said a car, a boat ,or any possession was an "investment", you buy it for a purpose.... to live in...(per above) With one (great) Advantage when you sell it you get Cash at closing, most of which would be tax free.....with Rent for "living" arrangements you get nothing after you move out...easy choice for most of us for economics and comfort of living.....
(from the article) "Don’t get me wrong: I’m all in favor of home ownership." Duh? Are they really paying him to write this garbage?
You live under a dry roof for 30-40 years. Raise a family there. Never have to pay rent or put up with a pesky landlord. Never fret over arbitrary tenant rules, rent hikes or landlord's failure to maintain his property. All the while you're slowly building what banks call "home equity" - very useful down the road to draw on for everything from sending kids to college to investing in new opportunities that arise.
Those aren't tangable "returns" on your investment?
Umm, that is what I always heard in my younger days. "Buy, don't rent, it's an investment." So I guess the answer to your question is everyone said it. You act surprised??? Maybe or maybe not this is not true today, but owning your own home has always been seen as an investment.
Comments
He moved to CT to enroll his kids in a high performing public school verses sending them to a private school. Private school would easily be twice what he pays in rent. He pays $2,000/ month.
Public school's in CT are primarily funded through property taxes so, in a sense, the landlord in subsidizing his kid's schooling.
That tax benefit (of zero tax on cap gains) has to be added in when computing the total return (after tax) of home ownership. I agree with the conclusion - that home ownership, strictly by the numbers, is not a great investment. But one still needs to get the numbers right.
The other omission, less serious, is at the end, where he talks about the transaction costs in NYC, and says that they are high, especially the sell side. He omits mention of the "mansion tax" on the buy side - this adds 1% to the buyer's cost when any "mansion" (property over $1M) is purchased. These days, "the average price of an apartment in Manhattan now exceed[s] $1M". NYPost, March 20, 2014.
With one (great) Advantage when you sell it you get Cash at closing, most of which would be tax free.....with Rent for "living" arrangements you get nothing after you move out...easy choice for most of us for economics and comfort of living.....
Duh? Are they really paying him to write this garbage?
You live under a dry roof for 30-40 years. Raise a family there. Never have to pay rent or put up with a pesky landlord. Never fret over arbitrary tenant rules, rent hikes or landlord's failure to maintain his property. All the while you're slowly building what banks call "home equity" - very useful down the road to draw on for everything from sending kids to college to investing in new opportunities that arise.
Those aren't tangable "returns" on your investment?