Why is buying a house such a good investment rather than a waste of money?
So I’ve been thinking about buying a house for a while, and although I think buying one straight out in cash would be good (I could never do that), it seems like the traditional way is a waste of money.
Heres the way it goes through my head.
I live in seattle area, and about the lowest you can find a house around here is 220K. Well That equals about a 1200 a month just for the loan, which equals about 1000 a month your pissing away in interest. Plus property taxes about 2.5K a year, not to mention about 100 in PMI, and 100 in home owners insurance.
Just that there totals about $17K per year being pissed away in taxes/interest/insurance. And thats the cheap house, a median 400K house would be twice that. Yes I know houses apprecite, but how likely is it to appreciate over the $17K you pissed away. I can just rent a equal house for half the cost of that wasted money, sure its a waste, but not as much of one. How do you ever get ahead this way with so much wasted money?
I understand houses appreciate in value.
Well, the way I see it is sure, the house might appreciate in value, but say in 10 years you’ve wasted probably close to 200K in interest and property taxes. Doesn’t seem like the house is going to appreciate 200K in those 10 years.
People say that at the end they have something they own, and to show for it. However its my understanding that over the course of a 30 year loan, you pay 3 times the value of the house in interest (not to mention property taxes). So if you bought a house for $333K, that means you’ve paid a million dollars, just on the house, not to mention the taxes and insurance. That’s probably 1.1 million you paid for it. Its not going to appreciate enough to cover those losses is it.
Or what if someones house appreciates 40K in 5 years. Don’t they realize that sure it appreciated 40K, but they wasted $60K in interest / taxes / insurance.
I want to be proven wrong. I want to understand. I just don’t see how you get ahead.
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December 15th, 2008 at 9:33 am
Wow, only $2500 for property taxes on a 220k house? That is dirt cheap if you ask me. Anyways, if you don’t want to pay all that interest, save up money so you can pay more up front and borrow less to buy the house. In any event, houses are usually good investments because instead of paying rent on something you will never own, you will ultimately own the place free and clear, OR it will appreciate enough to warrant selling it and make a profit on it so you can buy a bigger place. If you think it is a waste to pay PMI and interest, then don’t buy a house with less than 20% down, no one is forcing you to do so, so don’t do it. You can save money up first and then buy a house once you have the funds to do it in a way that won’t result in paying lots of interest. But taxes and home owners insurance are going to be an expense regardless. But that would still be cheaper than rent.
December 17th, 2008 at 6:07 pm
First the house can appreciate in value making it worth more than its purchase price. However, in today’s market that may not be likely. Second you do get an income tax deduction for all interest paid on a mortgage. Depending on your income/tax bracket this could be a considerable amount of money. Third, some of the money is indeed paid towards the principle of the loan, this equity grows over time whereas a rented property is of no value to you at the end of the lease. Lastly, paying on a mortgage regularly and on time is a great way to improve your credit rating. The better this rating the lower interest rate you can get on car loans and credit cards. This can save you an enormous amount of money over time.
December 18th, 2008 at 10:38 pm
People buy houses for many reasons other than strictly for “investment.”
December 21st, 2008 at 11:53 pm
Hey there, you should check out this site, it might be able to answer your questions better.