Investment for Noobs

[Ksandra]

Aks if you haven't bought five houses by now I will be severely disappointed in you.

[Aksannyi]

Yep, I sure did.

Spoiler: show

[Headspace]

Amateur. Could've had a hotel.

[Coren]

Ruke is correct here.

If you actually crunch the numbers, you can rent a home and invest the "nest egg" you'd otherwise put down as a down-payment, save on paying interest towards on a mortgage, and in the long run you end up doing just as well as if you owned property.

Does this include the fact that you can itemize your mortgage on your taxes but can't deduct rent payments?

Never mind the fact that in general, renting blows. Shitty landlords are a dime a dozen...

[RKenshin]

I'd still say that, in most cases and in the ultimate long term, you're going to be better off with a mortgage as opposed to renting. Particularly with interest rates the way they are right now, and the tax advantages are rather considerate. This website provides one of the most thorough comparisons I've found:
http://www.nytimes.com/interactive/2...=fb-share&_r=0

But, that's a very different subject from most of this thread.

It's one thing to say buying a home is a better long-term financial decision than renting, and it's another thing to say that buying a home(s) is a better long-term investment than the market.

[aurik]

Not exactly. A mortgage payment is lower than renting for the same house. Maintenance and taxes offset that cost to be about the same. The advantage is that some of your monthly living expenses are recovered in the form of equity. It can truly pay off in the long run when you consider your monthly payment is set in stone (i.e. won't be affected by inflation.) and that every month more of your monthly living expenses are recovered. You don't need a huge down payment for all loans either. The S&P index is an invalid comparison unless you're squatting somewhere and can invest all of the money you'd otherwise spend on a mortgage payment. test's logic is totally flawed although buying a home can be still be a good financial decision. It can also be a terribly bad idea though.

Eh only if you're getting fucked on rent. Ultimately, owning a home or owning index funds are just investment vehicles. The difference is that the person who owns a home is very, very restricted in how he can adjust to changes in the market. That induces extra risk because it's very hard to react to say a localized economic downturn which is going to kill your investment. At the end of your 30 year mortgage term you *might* end up with something worth more than what a comparable investment would be, but when you're signing that paper today you have absolutely no guarantees that will be the case.

Renting and investing instead allows you to be a lot more flexible. For example, you can change jobs / cities / life circumstances with very little overhead when renting.

[Mojo]

How do you expect rent to be cheaper than a mortgage? If you're talking about renting an apartment or condo instead of a house, you can also buy those too. The margins are different for every area but with current mortgage rates it's cheaper to buy nearly everywhere. Also, I don't think it's technically correct to say a house is an investment unless you plan on renting it out. It's more like an asset. Comparing real estate to index funds would only make sense if you planned on renting it out, otherwise it's a meaingless comparison. You're either paying rent (no possibilty of recovery) or a mortgage (some money is recovered as equity). If a mortgage payment ends up being cheaper than rent, then it is financially better (aside from how it may affect your life otherwise, as you pointed out, which can make it a terrible idea.)

[Acevalefor]

Hijack!

I have an assignment to invest $100,000 (fake, unfortunately) into up to 5 stocks. Has to be a company traded on the NYSE. I wanted to invest in a solar power company (Siemens just opened a new plant here), A car company making electric vehicles (Tesla?) , and 3 others that I have no idea where to go. Any suggestions for a 12 week return?

edit: This assignment is pass/fail based on participation. Loss/Gain does not matter as long as I actively buy and monitor my stocks.

[archibaldcrane]

TSLA and SolarCity are both on the NASDAQ, not the NYSE. There are no fully electric vehicle manufacturers on the NYSE. There are a few solar companies on the NYSE, http://en.m.wikipedia.org/wiki/List_...stock_exchange

[Boyiee]

Hijack!

I have an assignment to invest $100,000 (fake, unfortunately) into up to 5 stocks. Has to be a company traded on the NYSE. I wanted to invest in a solar power company (Siemens just opened a new plant here), A car company making electric vehicles (Tesla?) , and 3 others that I have no idea where to go. Any suggestions for a 12 week return?

edit: This assignment is pass/fail based on participation. Loss/Gain does not matter as long as I actively buy and monitor my stocks.

alibaba

lol

[Acevalefor]

alibaba

lol

That was great. I laughed. My wife didn't get it.

Archi, that is disappointing. I really wanted to put money in Tesla.

Edit: Good news! I just logged in to start the assignment, and due to multiple requests from classmates, the instructor opened it up to NASDAQ as well! The companies I invest in still have to be headquartered in the US though.

[archibaldcrane]

TSLA and SCTY have both taken recent dips and are likely solid buys right now too.

[Acevalefor]

TSLA and SCTY have both taken recent dips and are likely solid buys right now too.

25k in each. Now for 3 more...

[Coren]

Go buy some apple and wait on it to rebound after this morning's shitty news about iOS8 sucking. Then just hope the bending thing doesn't get worse.

(Please note: I have no idea what I'm talking about, but it sounds logical in my head!)

edit: 1337 post! that definitely means to go buy some apple!

[aurik]

How do you expect rent to be cheaper than a mortgage? If you're talking about renting an apartment or condo instead of a house, you can also buy those too. The margins are different for every area but with current mortgage rates it's cheaper to buy nearly everywhere. Also, I don't think it's technically correct to say a house is an investment unless you plan on renting it out. It's more like an asset. Comparing real estate to index funds would only make sense if you planned on renting it out, otherwise it's a meaingless comparison. You're either paying rent (no possibilty of recovery) or a mortgage (some money is recovered as equity). If a mortgage payment ends up being cheaper than rent, then it is financially better (aside from how it may affect your life otherwise, as you pointed out, which can make it a terrible idea.)

A house / property is ultimately just a thing, just like stock is just a thing. It's silly to think that one kind of investment is somehow magically better. It *could* be, if you take good care of it (time + money) and the area flourishes (luck), but the same could be said of an investment portfolio.

When you are renting, there are two main things you need to factor in when you're talking about long-term: you aren't paying the juice on the loan -- which, on a 30 year loan ends up being like 90% of the principal over the course of the loan -- but also, the down payment can instead be invested. Sure, at the end of it you don't have an asset (the home), but hopefully you invested the nest egg and got a nice return on that.

Further, due to the flexibility of your portfolio when you rent+invest, you are avoiding a huge amount of risk. Remember that adage "don't put all your eggs in one basket"? Well, a mortgage is like leveraging your eggs by a factor of five and then putting them in a single basket--then, the housing market goes wobbly and 2008 happens again, and you're ruined.

I'm not saying that renting+investing is better than owning, just that they are both valid, viable options and people should consider the option and choose the one that fits their life plans better. Personally, I rent despite having easily enough financial stability to own a home because in my industry I end up moving across the continent every 2-3 years and I don't have the time or desire to maintain/improve a place. My sister owns because her joint-custody agreement with her ex requires her to live in a very specific place and she's a very handy DIY person. Both perfectly sound strategies.

[archibaldcrane]

I bought not because I was totally ready to make that huge life commitment, but because I was close enough to being ready combined with a once-a-decade combination of housing price and mortgage rate collapse. I knew I would want a house in the next 5 years and I had to jump at the chance in 2011. Bought a place for 400k, 30-year fixed at 3.875% in December 2011, then refinanced in January of 2013 at 3.375%. Could sell the house today for at least 550k, maybe 600k, but I'd rather keep it and rent it out if we end up moving to a better school district in a few years, because the $2014 per mo I pay for mortgage/interest/tax/insurance is well below what I could rent this place out for. I just have to put enough away for another 20% down payment on the next house...which will likely cost double. (fucking Los Angeles property values...)

[test123]

A house / property is ultimately just a thing, just like stock is just a thing. It's silly to think that one kind of investment is somehow magically better.

Except that you can't live in a stock. Stocks are just an investment, a home is both a requirement and an investment. Rent is money you never see again, but a down payment is going back into your own pocket.

[Darus Grey]

Renting's big advantage(besides mobility, which DOES have a career value over a lifetime), is that it's easier to rent down than buy down in many cases. i.e. I'm a single dude, and I rent below my means. I can find some random $300-$500 apartment/flatshare/whatever in most non-NYC/SF/etc places, where the cheapest mortgage I can get for anything you couldn't consider a crackhouse is $600-900.

If I rent a room for $400, and put the difference of $200+ into an index fund. I will come out ahead over time vs owning.

This is typically the only scenario where renting is better for any reason other than mobility. But if you can put yourself in that position, it's better.

[BaneTheBrawler]

owning's biggest disadvantage, imo, is that you're responsible for EVERYTHING.

for example, there was a problem with my shower a while ago. called up the property manager, he took a look, then called the plumber. i paid exactly $0. owning, i'd have been on the hook for it.

[aurik]

Except that you can't live in a stock. Stocks are just an investment, a home is both a requirement and an investment. Rent is money you never see again, but a down payment is going back into your own pocket.

No, a down payment mostly burns off into interest payments on the principal of the loan. 30 year loan at 5% juice is like 90% of the principal in interest over the lifetime. Considering that you're probably putting down 20% of the principal, you pay almost 5x as much interest as the down payment. And god help you if your property value tanks.