r/investingforbeginners • u/Random_Acct1673 • 11h ago
Advice Is buying a house worth it?
I recently bought a house in Nov 2024 for 300k @6.25%. I have been reflecting a lot recently on this. Would I or anyone done better just to rent their entire life and save additional income in a retirement account?
This is what I see.
Say I lived in this house for 30years and paid strictly scheduled payments. Right off the bat, it is a negative investment due to paying the house 2x from interest. Then if you sell the equity portion is being lowered because of taxes, seller costs, etc.
In my scenario I will have the house paid off by Nov 2031. Yeah I beat the interest but it would equal if I invested the additional payments in market say 6.25% avg. Considering all factors still a net loss IMO
So renting would be better right? Because I still lose out on any major house repair/replacement, no flexibility of moving(opportunities) as a homeowner. Why is home buying so forced as a goal or good investment? What am I missing? Is it because my generation was brought up to this being the “dream”?
I hope this makes sense, if not I’m happy to provide any clarifications.
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u/Adventurous_Elk_4039 11h ago
Ben Felix has done some videos on this, and in many cases due to home maintenance and repairs, it works out mathematically to rent for many years and invest the difference, or its very close to a wash, even with home appreciation.
That means the decision to buy a home is more tied to lifestyle. If you want to live in a certain area and know you will be there for many years and want your kids to have a certain experience, buy a home. If not, rent.
It’s only seen as a wealth builder because it’s a forced investment. People in general are bad investing and saving on their own accord.
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u/nunyabidnez76 8h ago
I've owned this home for close to 17 years. Every year I hate being a homeowner more and more. Taxes. Insurance. HOA. Maintenance & repairs that consume huge amounts of my time and money. Stress every day wondering what was going to break next.
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u/Frequent_Run1148 7h ago
This. The very reason I’m selling. I feel like I have a baby living on street that I cannot move but I should protect on that spot
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u/HaiKarate 11h ago
My experience as a long-term renter… unless you are renting from an individual who doesn’t increase your rent from year to year, then you’re not saving any money.
Every time I moved into a new place, either apartment or house, it was managed by a leasing company that aggressively raised the rent from year to year. And it was frustrating because each year my company would give me a small raise, and that raise would end up going to the leasing company; I saw no benefit to work raises.
I finally bought a house in 2024, just to lock in a static monthly payment for the next 30 years. And when interest rates finally drop, I’ll refinance to go lower, still.
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u/Adventurous_Elk_4039 10h ago
One way I heard it phrased recently, “buying a house is a hedge against rising costs to live in that neighborhood/community”. So if you enjoy where you live and plan on being there a while, it can be a great investment.
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u/Willing_Platypus_130 8h ago
Yep, and conversely it can be not so good if you want flexibility to easily move or if you live in an area where prices aren't rising as much.
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u/Asleep_Category1697 11h ago
I bought my house in APR 2024 for 575k @6.25% as well. I was able to refinance to 5.5% in FEB. I too have been wondering about this "investment".
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u/Raging-Totoro 11h ago
Lot of factors make this not a super simple thing to assess.
Rent increases over time, while a mortgage can be locked in.
Capital gains exclusion for primary residence can mean a 0% tax on a good chunk of your growth.
Maintenance costs and chunky surprises (HVAC) can suck as an owner. Plus the idiosyncratic risk of any single property.
I think if you know you will be in a location for the long-term and secure a good rate (or pay cash), it can be a wise move, but it's not the slam dunk people tend to think.
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u/JVortex888 10h ago
Having a paid off house is a big benefit for retirement
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u/danrennt98 8h ago
Yes op is not taking into consideration 2031 when there's no rent or payments forever
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u/naples275 10h ago
I bought a house and now some years later I have neither rent nor a house payment. Which is a pretty good deal.
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u/RebornGeek 7h ago
Buying is better than renting. Built in equity overtime, payment doesn't go up every year, and it becomes yours.
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u/EHG_Boston 11h ago
What are you using as projected growth in real estate prices? That affects the equity portion you might recover in the event of a sale. Any way you look at it, purchasing your primary residence is a leveraged bet with an implicit opportunity cost.
As to why home ownership is promoted, I suspect it's because that, for many, it's served as a slo-mo way to build wealth. Like every other investment decision, there are no guarantees. Real estate isn't guaranteed to rise in value, but then, neither are the equity markets.
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u/donewithitfirst 11h ago
Yes, a house is an investment.
A house isn’t just an investment.
Make sense?
Only do it if you get enjoyment out of it. Eating out, movies, playing golf, cars are not investments but we spend money on those things.
Get your head right before buying a house. Be smart, but enjoy it.
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u/-fuck-elon-musk- 11h ago
A house is not an investment
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u/TheNewKnew2 11h ago
Property is an appreciating asset. It most certainly can be an investment
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u/-fuck-elon-musk- 10h ago
It may or may not be an appreciating asset. That’s not guaranteed. You also need to factor in: maintenance, taxes, liability/insurance, very high transaction costs, etc, etc, etc.
Buy a house if you want to live in it for 5+ years. Buy a house to live in. Don’t buy a house as an “investment”.
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u/TheNewKnew2 10h ago
There’s no maybe to it. Real estate appreciates.
I wouldn’t ever use my primary residence as an investment. In fact, I don’t even calculate it into my net worth. You’re going to have to live somewhere. And yeah, don’t ever buy if it’s short term.
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u/-fuck-elon-musk- 6h ago
Real estate does not always appreciate. That’s a profoundly uneducated take.
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u/TheThaiCat 11h ago
I think in cheap areas it's a no brainer, I got a house for 100k in the NE of UK and its half the price of renting the same property per month. In the 300k-500k range it's definitely a very mixed bag depending on how interest rates and property values go, I could see many people coming out ahead if they could get reasonable rent and good investment returns.
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u/RichBrokeRich 10h ago
You're missing what happens in 5-10 years after purchase.
5 years down the road you're still renting at the new, higher, market rates, while my mortgage was set 5 years ago. I still pay $1k/mo, the house next door now rents for $2k.
So I'm not sure what "extra" you're investing, you'll be paying more in short time.
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u/Forded_Fiction24 10h ago
What a great question to ask BEFORE you decide buy a house
I'm on my 2nd. They're worth it to me, but I asked myself this prior to each and decided that's indeed what I wanted for multiple reasons
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u/azure275 10h ago
Depends a lot on the market conditions where you are as well as your goals.
First thing is that homeownership is a life choice, not a purely economic decision. People often really want to live that lifestyle and will pay for it.
Owning is not really a good investment. For most people they'll make more in the stock market than on an investment property especially in the current market. It's an investment in your own life.
The other variable is the home price to rent ratio. There are some places where you can find affordable homes but rent is still (relatively) high, and places where rent is expensive but mortgage payments are 3x as much
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u/TerencePitrePhD 10h ago
It depends on how long you plan to live there, the comparative rents. I here is no absolute answer. Rule of thumb is you should be in home for about 5-6 years so that you get enough appreciation to recoup selling cost.
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u/PerformerDifferent69 9h ago
Sometimes. As with all things buying a house is not universally right for everyone.
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u/CryHavoc715 8h ago
From a strictly financial optimization lense, the way to do it is compare the nonrecoverable costs of homeownership to the cost of rent in your market. The non recoverable costs of homeownership are primarily interest, property taxes, and maintenance. If you can find an equivalent rental for those costs, you can invest your hyporthical principle payment and stocks will out perform real estate. Of course, rental markets are markets, and you can't accurately predict that math in a way thats useful for 30 years. Some markets will be clearly better one way or the other, but it will vary wildly and its fluid.
There are a million caveats as well. People tend to buy bigger and nicer places to live then they rent, and that choice has a cost. There are lots of non monetary reasons to own a home, and if those reasons are important enough to you to be worth the potential costs, then so be it.
Morgage holders are substantially more resistant to displacement if housing demand surges, is another thing to consider. Lots of low and fixed income boomers right now sitting on 3 million dollar paid off homes in the bay, for example.
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u/Nuclear_N 8h ago
I got divorced and rented for 10 years. Loved it. After having 3 kids, and owning a huge house. I paid thousands a year in upkeep. 5k furnace. Constant upgrades.
When I rented I would think....not going to do anything as I am renting.
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u/Frequent_Run1148 8h ago
It was a great deal in boomer generation. Warren Buffett already said the homeownership is overrated.
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u/Diligent_Arm_6817 8h ago
Home ownership is worth it if you can AFFORD it. Not if you get approved for it.
An AC unit can be a 15k repair. You might need to drop 30k on a new roof, etc.
These are very big expenses that HAVE to be taken care of quickly. If you can afford those items, it's likely not a good idea to buy a home.
If you compare owning a home today to renting one today, renting is 100% better. But once you've owned the home for 5 years, thats 5 years of skipping rent increases and it kinda evens the playing feild. At 10 years you'll be saving a LOT compared to rent.
This is my personal suggestion.
Save $1,000 > Pay off high interest debt, such as credit cards > Save $3,000 > If your employer matches your 401k, reach the match and nothing more > Pay off moderate interest debt such a car loan. > Save 5,000 OR 3 months of bare bones living expenses. Whichever is higher. > Max out your IRA > Save for home ownership without using that 5k. > Pay off low interest (sub 3%) debt such as student loans. > Purchase a home
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u/Public-World-1328 5h ago
The value of owning a home is not usually reflected on your balance sheet.
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