Cohousing-L Mailing List: Homes as Investments

[Elizabeth Magill (pastorliz]

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!

-Liz
(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?
www.mosaic-commons.org



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
> investment.
>
> 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
> investment).
>
> 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
> ----
> Sharon Villines
> Takoma Village Cohousing,Washington DC
> http://www.takomavillage.org
>
>
>
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