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Seattle Bubble Forum Archive • View topic - Rate of Return on a house

Rate of Return on a house

Buy a home to live in. Invest your money somewhere else.

Moderators: synthetik, The Tim, Lake Hills Renter

Rate of Return on a house

Postby T, V & Mr. B. » Wed Feb 21, 2007 10:56 am

Hey, here is a great site that calculates the rate of return on your investment should you buy a home.
http://finance.yahoo.com/calculator/real-estate/inv-04
I plugged in numbers comparable to any home that I would look at here and assumed a 3% increase in value over 20 years, which is the average over a period of time. It came up with a -0.9% Not very good for an investment I would say.
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Postby twistjusty » Thu Mar 29, 2007 12:01 pm

I've calculated the Compound Annual Growth Rate on my house based on the price I bought it for, and where I think it's currently worth (adding the difference between original appraisal and original price).

That CAGR, in Seattle Bubble land, is 7%, from year of purchase to the present date. I used the following formula:

(Current Value/Base Value)^(1/# of years) - 1

Yes I live in Seattle proper, in a SFH, in a school cluster where children do very well -> outstanding compared to all other clusters (averaging 80-88% WASL passing in reading and math), and where I can walk to parks, shopping, community centers, and libraries. The stores I walk to do not have iron bars on them. Nor do my windows rattle from the traffic on the freeway. But it's not where childfree professionals want to live, and it's currently not affordable, even at 7% CAGR, to many families of young children.

Yes I know there are Seattle/Bellevue/Tacoma/Everett zip codes that are currently hot and overvalued.

I suspect I am not living in one of those zip codes.

So, 30% depreciation of house price, or a 30% reduction of that CAGR, would put my overall home appreciation rate at 5%, just 2% or maybe 1% beyond inflation. I would still have over $100K equity in the home if that happened, so am not chewing my cuticles over it.

Have any other homeowners used my method of determining what their house is currently worth?
"A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand." -- Dorothy L. Sayers
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so

Postby george » Sun Apr 22, 2007 11:52 am

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Postby twistjusty » Mon May 07, 2007 7:14 am

"A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand." -- Dorothy L. Sayers
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Re: so

Postby meshugy » Mon May 07, 2007 7:39 am

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Postby deejayoh » Mon May 07, 2007 8:31 am

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Postby meshugy » Mon May 07, 2007 9:34 am

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Postby deejayoh » Mon May 07, 2007 10:10 am

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Postby meshugy » Mon May 07, 2007 10:37 am

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Postby aldreth » Mon Jun 25, 2007 11:36 am

yah bounced right back down too.
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Postby Peezi » Sun Aug 26, 2007 12:32 pm

I've been looking to buy for about 7 years now, never have pulled the trigger. Let me tell you whats happened to me in the last 7 years.

Moved to Seattle.
Got a job.
Started renting, have a roomate. Rent for 2 BR 2 Bath and 1 car attached garage condo = $1150 month. So I was paying $575 a month (half the rent)
I spent my last pennies for 1st months rent and deposit. My roomate had no $$ so I paid for his up front.

As of today...
Still rent the same place, I've gotten my landlord to LOWER the rent twice, my roomate (same person) and I now pay $900 a month, which equates to $450 each.
Still have the same job, this company paid for my MBA and CPA and now I am about to go back for some sort of IT degree/certification (switched jobs, I went from accounting to IT).

In the last seven years I have gone from oweing 30k in student loans and 19k for a Jeep Wrangler Sahara I bought to being debt free!! (woot!) Also worth noting...
I have 90k in my company matching 401k.
I have 50k in my savings account earning 5% annually (currently).
I have 60k in my stock investment account, 40k currently invested.

Thats 200k, plus I still own my Jeep. So tell me, was I better off renting, or should I have bought something. Could I have even done it? :?: Remember, I only had a couple thousand dollars to my name back then, and 49k in debt.

I'm thinking I was better off renting, I even have a 50 inch plasma, a queen sized bedroom set, and a nice living room set. :P

My real estate agent dumped me, saying I cost her to much to continue to show houses, so I got my buddies brother enlisted, he agreed to only make offers on houses, that I would set up showings on my own. He also said he'd only charge me a 1.5% commish max, so if he gets 3%, I get 1.5% back. I don't plan on buying anytime soon, maybe this time next year, probably January - March 2009, to build up more cash savings for at least 20% down payment.
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Postby rose-colored-coolaid » Sun Aug 26, 2007 1:02 pm

I think what's important is that given your lifestyle choices, you are doing just fine. With your holdings, you could survive for a long time if you lost your job, and frankly most Americans cannot say that right now.

That said, could you have more paper equity today if you had bought in 2000 or 2001? Probably. If you leveraged to the hilt and bought the most expensive house you could just before the most massive housing bubble in US history, you would have done quite well for yourself. Of course, nobody knows if the same would be true if you held onto the same hypothetical house for another 2 or 5 or 10 years.

Also, you've done something you couldn't have done with a house. You have diversified your savings. You have some put away exclusively for retirement (401k) and other money you can spend when you like. Your investments you are managing for gains while your savings are available if you want to buy a car, take a vacation or like I said earlier if you are laid off. That's all pretty great. Meanwhile buying a house would be putting all your eggs in one basket.

Here's a healthy attitude. You could do better if you took all that cash down to Vegas and placed it on black 14, but even if you win, that doesn't make the move an investment or a wise decision.
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