Homes as Investments
From: Elizabeth Magill (
Date: Sat, 14 Feb 2009 19:58:39 -0800 (PST)
I find that most suggestions on how to figure the affordability of a house fail to presume that there is a cost to live SOMEWHERE. And, perhaps, a higher cost to live where you want to live.

I think that this takes into account Sharon's concern that she be able to move and buy a new home AND the earlier statement that we would do better not to consider that a home is strictly an investment.

Or maybe not, I'm not really a finance whiz.

I'm buying the home of my dreams for about $450,000. I'm putting $90,000 down (20%) and so will have a mortgage of $360,000.

I consider the monthly payments the cost of living where I want to live. In the same way I consider my monthly grocery bill the cost of eating. I don't expect a financial return on the groceries, nor on my monthly heating bill, nor on my monthly cost to live... that is mortgage/rent. (In my case its mortgage, but why is that not the same as rent?)

So, the INVESTMENT then is $90,000. So to "break even" I need to be able to sell the house for the amount I owe, plus $90,000. (I know, some of you are arguing, that actually I've got to make SOME increase in the $90K, because of inflation. But still...) So, say 5 years from now I finish my degree and get a job in west podunk, near WP cohousing. I still owe $333,944 on my house, so I need to sell it for at least $423,944 to get back $90K to use as a downpayment on my next house. That is, the house can be worth 6% less and I'll still "break even". If the house is still worth $450,000, then I'll get back $116,000, or 29% more than I invested. (someone can do that whole compound interest thing to see what I wudda made in the stock market if the stock market was doing well those 5 years)
I use that $90K, or $116K as my downpayment for WP Cohousing, of course.

In 10 years, the house needs to sell for $389,233 (that is 86% of the original cost) for me to get $90K out of it. And, since housing prices are down, $90K will probably be good to buy me the next house (this time in East Timfield Cohousing). If it is STILL worth $450,000 then I'll get $150,767 back after paying off my mortgage. Which would be a pretty decent downpayment on my next $450K home.

Of course if the market falls apart, I could, indeed, lose the $90K. If I really have to move in year 10, and my house is worth less than $300,000, then I can't pay off the loan. That is bad. But of course, if I'd invested that money in the stock market and had to get it out to pay bills that same year, that'd probably be bad, too.

All of this presumes that one of the benefits that I get from a home is a place to live, in a neighborhood where I know my neighbors. I pay for that every month. But of course right now I pay for a place to live where I don't know my neighbors. So cohousing seems like a great deal!

(The Rev.) Elizabeth M. Magill
Mosaic Commons.
Where I move in as soon as I can get the mortgage paperwork done.
Don't you want to be my neighbor?

On Feb 14, 2009, at 5:27 PM, Sharon Villines wrote:

On Feb 12, 2009, at 9:29 PM, John Faust wrote:

The house-as-investment view seems at odds with an underlying
motivation for
cohousing: the restoration of community in our lives.

I think there are two different meanings to "investment" that are
getting confused here.

Developers build real estate projects and either invest their own
money or the money of others, or both, to finance the project. While
they may have an interest that goes beyond simply making money, they
don't intend to live in the project. They expect to get their money
back once the project is built. Before the project is sold out, they
are at risk of losing all the money, breaking even, or ending up with
more money than they started with.

Most cohousing projects forbid or strongly discourage this kind of

For a person who is buying a house to live in, investment means sweat
equity as well as financial investment. In cohousing the only real
option is to buy, but in other situations households can choose to buy
or rent. Most people buy if they can because they believe it is a
better investment of their money.  The income tax code favors buying.
The lower interest rate on mortgages encourages mortgages over cash
purchases even if one has the cash. Many neighborhoods refuse to build
rental homes.

A home is the largest investment that most people make in their lives.
IRAs and other cash retirement plans may be larger but for many people
their homes are their retirement funds. They sell the large home in
an  urban area and buy a small home in a small town.

Unless people invest somewhere, usually in real estate or in cash
savings that are invested, they have nothing to live on if or when
they can no longer hold a salaried job. Or to send a child to college.
Unless you put money under your mattress, it's invested, if only in a
savings account. And even if you get no return (that's called a bad

If one's job moves to California, one must be able to move too. That
means being able to get the cash from somewhere. Not all moves are
either planned or voluntary. Being able to cash in one's investments
is necessary for most of us.

Sharon Villines
Takoma Village Cohousing,Washington DC

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