Cohousing-L Mailing List: Housing: Investment or Expense?

[Dan Suchman (71756.2661]

This message is in response to that of Jim Snyder-Grant, dated 3/3/95, which
states in part:

>Bob raised some good points about what market-based pricing does to cohousing 
>in expensive neighborhoods. I will have one of the smaller houses in New View, 
>and because of that I will need to have a downpayment significantly above 20% 
>to cover the appraisal gap. This happens to be OK with me -- I'd rather put my 
>resources into getting a smaller monthly payment -- but this can discourage 
>small house designs & small house buyers in these types of developments.

>As long as people think of housing as an investment, and not a cost, this will 
>continue.

I'm not sure what Jim mean by "market-based pricing", why it would operate
differently in expensive neighborhoods, or what alternatives he has in mind.
Nonetheless, I would like to address the issue of housing as an investment.

Despite the hype of late night "info-mercials", and get rich quick real estate
schemers, home ownership  rarely results in substantial profit (at least not the
kind likely to make a homeowner rich).  Except in relatively anomalous cases
(e.g., property purchased from a "distressed" seller at a bargain price, or
periods of extreme rapid local appreciation in land values), home ownership is
rarely a "money making" venture if all factors (such as lost investment income
on the downpayment, maintenance, taxes, insurance and costs of buying and
selling) are taken into account.  In most cases, the economics of owning a home
are somewhat better than renting the same home at market rates.  Although this
is not always the case.  The usual savings of owning (the difference between the
cost of owning and the cost of renting) could be viewed as "profit" on one's
"investment".  However, during "flat" periods of little appreciation (or even
declining values)  and occasional gluts of houses for sale/rent (such as when a
major employer closes shop or transfers employees out of town), renting can
actually be a better deal!  And lets not forget the advantages of liquidity and
mobility inherent in renting.  Those feature have value to many.

I recently created a spreadsheet that performs a fairly sophisticated financial
analysis of home ownership, and allows the user to play with the many variables
(including, for example, rates of interest on loans, rates of appreciation, tax
brackets, investment opportunity costs, closing costs, brokerage fees, tax rates
and insurance costs).  The spreadsheet was created in WordPerfect for Windows
ver. 5.2.  I would be happy to email a copy in .UUE format to anyone interested.
In the alternative, I'd be happy to mail a printed copy to anyone willing to
send me a SASE with 29 cents postage.

Dan Suchman,                            P.O. Box 11378
Winslow Cohousing                               Bainbridge Island, WA 98110
                                        Telephone/Fax:  (206) 842-9700