Comment by JoelMcCracken

Comment by JoelMcCracken 2 months ago

17 replies

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the reasons are myriad.

Because in a general way you can't say "I want X that will work perfectly until time Y". Instead, Xs are made my a process. That process can cost more or less: more meaning better quality ingredients, higher quality processing, tighter quality controls, whatever. This all yields end results are on a spectrum of quality - a likelihood that the item will last Y time within Z margin of error.

As chain is only as good as its weakest link - many systems will fail with a single broken element. And every time one of those elements breaks, I have a new problem with which to deal. Spend my precious free time figuring out how to do it myself? Try finding someone who will fix it for me, and hope they aren't going to just rip me off?

The example of a home lasting long is especially wild to me. In the US at least, the home is one of the major mechanisms of increasing wealth over lifetime and inter-generational wealth. People frequently buy homes in order to build equity. Having homes that only last a few decades means that they are worth significantly less, and/or require significant repairs and remodels after relatively short time. I know that when I bought my home, which was made circa 1920, I was really happy that, while old, I could be fairly confident it wasn't about to fall over.

WalterBright 2 months ago

> In the US at least, the home is one of the major mechanisms of increasing wealth over lifetime and inter-generational wealth.

I just don't buy that. Most people who do that seem to ignore the heavy costs of owning a house in the meantime: taxes, repairs, maintenance, insurance, commissions, upgrades, lawn care, pest control, utilities, alarm systems, etc.

I've serially owned houses over the decades. Sometimes I'll look at what I sold them for, when, and compare with their current zillow value. The return on every one is less than if I'd invested the money in the stock market, and that's NOT counting all those major ongoing costs I listed. It's just on the price.

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  • zeagle 2 months ago

    The wealth is also generated by multiplying purchasing power by leveraging against an asset with a mortgage (e.g. when else does a regular person get a $XXXk loan).

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  • mapt 2 months ago

    You're neglecting the cost of actually living in a similar dwelling. What would renting an identical house in the same neighborhood cost you?

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    • WalterBright 2 months ago

      Let me put it this way. None of the houses I've bought were bought as an investment. I bought them as places to live in and enjoy. I've lost money on two of them, quite a bit.

      Keep in mind that if your house burns down, your generational equity goes up in flames.

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      • mapt 2 months ago

        That's orthogonal.

        The point is that your question should not be "have I made a profit on these houses relative to an index fund" like a speculator.

        Your question should be "would I have made a profit on these houses relative to an index fund if I had kept them rented out to tenants 100% of the time at market rates?".

        The core to living in a residence you own shouldn't be the asset value, it should be the living. If you're neglecting the market rate for that quality of life in favor of focusing on asset appreciation, you're approaching homeownership in a backwards manner that is ultimately destructive.

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  • JoelMcCracken 2 months ago

    I mean, it’s not a foregone conclusion that you’ll do better than otherwise. You could buy when prices are high and sell when prices are low. There is an ongoing calculus also about how long you need to live in a house before you end up saving money; it’s something like, if you sell your house within 5 years buying, assuming prices are equal, you’ll loose money bc of various purchase costs.

    I pay less for my mortgage than I did for my apartment, probably approximately 85%. That was last in 2016; in general, I understand that locally rent prices have gone up since then. Of course my mortgage hasn’t, but let’s set that aside. Also, my house is much better than my apartments were, so.

    Anyway, the issue is that you have to live somewhere, rent vs mortgage. That’s the difference to consider.

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    • WalterBright 2 months ago

      Nothing is a foregone conclusion when investing. And yes, you need a place to live. And the mortgage is only part of your cost to live there, see my previous post.

      I just had to fork out a big chunk for a new roof, and another large expense removing a very large tree that decided to lean towards the neighbor's house.

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astrange 2 months ago

> In the US at least, the home is one of the major mechanisms of increasing wealth over lifetime and inter-generational wealth.

That's mostly because of land values, not building values. And it's largely not a natural occurrence, but it's due to NIMBYism and property tax regimes designed so that young people will pay for all the services used by retirees.

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  • JoelMcCracken 2 months ago

    This is wild. If what you said is true, then there would be no appreciable value to be extracted by flippers. Their entire schtick is built around what you are saying being untrue.

    I’m sure you have reasons for believing this, but I cannot fathom it.

    Put another way, look at what empty lots sell for, and compare that to what a similar lot with a (not dilapidated) house sells for, in areas where the land values would be similar.

    The only exceptions I could imagine perhaps being the places with crazy property values. But, the US is large (so, not just San Francisco)

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    • heelix 2 months ago

      The 'move in' appeal comes into play. While the land/location may be great - places with the lime green toilet and 70's shag carpet will require renovations to be considered current. The flippers are doing the work - usually the unusually dated bits - for less than what the buyers would think that remodeling would cost. (and they are often correct) That delta is why flippers can make it work. At a certain price point, folks expect a house to be finished.

      We picked up a house that needed updates. A few miles from work (were I to drive in) and on a lake. When we looked at the house, it showed terribly. We had replaced our bathrooms and a few other 'major' things in our previous house, so what might scare some folks is a few hundred to a few thousand at home depot and some possibly long weekends. Chunk by chunk, we've been making the house the way we want it.

      I should be doing some drywall this long weekend. Way to dang cold to go out and pick up supplies.

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    • astrange 2 months ago

      I'm happy to believe that flippers are mostly deluding themselves.

      > Put another way, look at what empty lots sell for, and compare that to what a similar lot with a (not dilapidated) house sells for, in areas where the land values would be similar.

      In Japan the first one sells for more.

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      • JoelMcCracken 2 months ago

        Interesting. I can’t speak to how it works in other countries; in the USA so much context is loaded into home ownership. I don’t know the Japanese “sticks and carrots”.

        The one factor I could imagine is if cost of land is so expensive that anyone who could afford it is going to be wanting to do a ton of customization anyway.

        Are you talking about rural Japan, not just e.g. Tokyo? What systems exist in Japan that make the building worthless?

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  • MichaelZuo 2 months ago

    Isn’t this circular, since by definition non-retirees pay for retirees…?

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    • astrange 2 months ago

      That's not by definition, although it is how social security works.

      Retirees have assets but not income (or they have low income). Younger people are the other way round. So depending on how governments use income taxes vs sales taxes vs property taxes it changes who pays for things.

      California is the worst about this because of Prop 13, which basically means if you don't move then your property tax is much lower than it should be and newer residents pay for you.

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      • MichaelZuo 2 months ago

        Who else would pay for retirees, if not the non-retirees?

        Most of their assets are paper value, because they are located in stocks, their only home (and they have to live somewhere), etc… that if sold en masse would simply get pennies on the dollar or require expenditures elsewhere.

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