I've owned 3 homes and lived in an apt and I'm about to sell the house and get a condo. For what it's worth, there are sooooooo many little things (maintenance primarily) that add up considerably, when it comes to home ownership...this year alone: 1) an asphalt driveway (at least yearly) has to be maintained, power-washing, fertilizer, weed killin' crap, perennials and annuals, lawn/garden bags, shovels, gardening tools, more gardening tools, carpet cleaning, new parts for the sink and tub, dryer repair, new tile, new carpet, deck maintenance--it freaking never ends. I'm going to try somewhere in the middle---at least with a condo I can minimize some of the outdoor expenses!
There are so many factors to take into consideration. I crunched the numbers a couple of weeks ago and found that it could go either way depending on the markets. And since rental AND housing markets are rather unpredictable, there's no way to no for sure (do try the above spreadsheet - it's great).
The important thing to consider is that a house may be less of an asset than we all seem to think it is. I've always been told that you can never go wrong if you invest in real estate - but it seems like you can do pretty well if you just rent and save a whole lot of money, too. Then again, since it's impossible to tell how the markets will be acting in 30 years, assumptions are tough to make.
I did something similar and found renting to be much more valuable. What those of you who think buying a house is better are forgetting is that the renter can invest the difference between rent and the cost of the mortgage. If you add in the value of your investments over 30 years, the net worth is much higher for someone who has rented (in most cases, depending on appreciation rates etc...).
I put a spreadsheet together that you can use to check out the net worth under different interest rates and assumptions. You can find it here: http://tinyurl.com/2q9nc6.
At the point where the house is paid off it is an asset with two possible uses--you can sell it or you can live in it. (Actually, of course, there's also the possibility of renting it out, but that really amounts to doing business as a landlord and I'm not dealing with that here.)
If you sell your house, its value is whatever you can sell it for.
If you live in your house, its value is the amount by which it reduces your expenses versus what it would cost to rent instead. Now this is obviously a complex calculation--every place is different and each person has to make their own adjustments, whether for the "equivalent" rental or the place they actually do rent.
But let's put aside for a minute the "quality of life" aspects of home ownership versus renting. (Not because they're not important, but because they're not really economic. Let's do the economic part of the analysis first, and then do the quality of life analysis after.)
My fundamental point is that the economic result is the same, whether you own a "house" or whether you own some hypothetical investment with a return equal to the cost savings of owning versus renting. If the cost difference is large, then the equivalent investment is large. If the cost difference grows, then the equivalent investment needs to grow too.
(As an aside--rent will generally go up, but so generally will property taxes, insurance costs, and home maintenance. Only time will tell which will go up faster, but I think simply assuming that they'll go up about the same is a reasonable first guess.)
So I think my analysis does cover the "home appreciation" part of the question. Just as you might be able to sell your house at a profit, you might also be able to see the hypothetical investment at a profit.
If you do this analysis for your house, you may well find that the hypothetical investment has a value that is much lower than the value of the actual house. If the house a nicer place to live than the rental that you're using for comparison, then that explains part of the difference. (Do the analysis with a larger apartment or a rental house, rather than a small apartment, and you'll see that the hypothetical investment becomes more valuable.)
You may well find, though, that the economic value of your house plus the adjustment that you want to make for the higher standard of living that comes from living in a house, doesn't explain the whole difference in value between your house's market value and the value of the equivalent hypothetical investment. Feel free to make other adjustments (or simply to assign an arbitrarily high value to the benefits of living in that particular house), but let me gently suggest that the market value of such a house is not justified by its actual economic value.
You are comparing apples to oranges. If you really want a fair comparison you should compare the cost of renting an apartment to the cost of owning a comparable condominium unit, or compare the cost of renting a house to the cost of owning a comparable house.
Did you in any way add in the possibility of appreciation into your calculations for home ownership? Did you factor in that over 30 years a house payment never goes up while rents surely do? Did you calculate savings you get every year on auto insurance and life insurance as a homeowner vs. a renter? Then their are the much harder to define, in terms of dollars, standard of life issues. Renting sucks in so many ways its almost impossible to count. How do you place a dollar and cents value on every single day of your life being better in a house than in an apartment?
A house is an ASSET. Even if your monthly outgo is the same or higher than your rent, at the end of that I have something solid to leave to my children or to borrow against if things get ugly. Moreover, it works kind of like an enforced savings plan; the money I am paying for maintenance and such ends up in the bottom line value of my house. To keep up you would need to save every penny of the difference between your rent and my mortgage, including the maintenance costs, and get a decent rate on it the entire time to boot.
Your analysis above seems to leave out the value of the house itself once you pay it off. it's value is more than just the lack of rent you have to pay; it is an asset in and of itself.
In the end though, it comes down to what your goal is. if the goal is immediate cash flow and/or low maintenance, than renting is better. If the goal is long-term net worth, than buying is almost always a better choice.
There are ways to apply knowlege of money laundering that don't involve actually doing it. If your boss (or your employee) were using the business to launder money, you might save yourself all kinds of trouble if you understood what was going on.
Not to mention just understanding what's going on in books and movies where money laundering is part of the action.
... says you offer "Financial advice that is easy to understand and easy to apply." Who would guess this includes detailed advice about money-laundering?
I think the concern is about how information is stored and for what purpose; and yes, anything different makes us consider and reconsider privacy concerns. My state started asking for SSNs even though that information is not to be used for identification purposes (my first SSN card says that anyway); after the law was passed allowing the information to be collected and I went to get my license renewed, the examiner said that I didn't have to give out the information but she would take it if given.
As far as the photo and thumbprint, is the digital image stored forever or just printed on your license?
On the other extreme, when I moved to another state years ago, no photos were required for temporary driver's licenses and these licenses were considered proof of identification.
You make an excellent point about how easily we protect our other electronics, but tend to overlook such simple things as the fridge and freezer. Thanks for doing the research on the temperature monitor. I'll have to look into that.
...is difficult. Both Derren Brown and the Sci-Fi channel have each stated that he never uses 'stooges' or actors, that everything you see is 100% real. If they are lying and it turns out he's a fake, well, both of their reputations would be shattered and that's not going to help anyone. In his series he also shows the failures he has encountered. Much like David Blaine, I suspect he edits out a lot of the tricks that don't actually work and uses only those people who succumb more easily to hypnotic suggestion and persuasion.
Lots has been spoken but who is really planning to retire in China?
Well, I am and I am documenting that planning process. If you are really exploring a RV concept in China - where clean air living, availability of amenities, healthcare and living amongst English-speaking holiday/retirees sounds inviting, please head off to: http://www.chinese-culture.net/html/rv_subscribe.html
Cost of living is shooting up everywhere. Even the big cities in China are not really low cost anymore. And what about the crowd and pollution.
Check out my site to see how I have found that little right corner in China.
Hey, Andrea. Great post. I have no idea how I missed this one. Guess I was busier than I thought. I'm definitely going to check this one out. What the heck?
You're right. Economists aren't stupid and are perfectly aware of externalities, of time lags, and of the difference between a really compelling turn of phrase and saying exactly what they mean. If they ignore the messy bits, it's just so they can focus on the interesting parts of the work. If they engage in a bit of hyperbole, it's just to make their point a bit more vividly.
I actually have considerable sympathy for the point of view of the economists, which is why I'm inclined to try to change the world so that economist-style thinking works better. It's just that they're so easy to make fun of....
Re: "Economists, however, never worry about such things. If there's money to be made in planting oak trees and growing huge oaken beams, someone will do it."
Heh, heh. Economists say things like this but I'm not sure they mean it. There isn't any money to be made in planting trees. That's an externality! The only money to be made is from having a ready-made oaken beam ready to sell that meets a current buyer's need (even if you have to manufacture that "need").
I don't think that the solution is preventing people from thinking like economists so much as having the economic schools start training people to include rather than exclude "externalities". As your church-beam example points out, coming up with alternatives is easy but coming up with worthwhile alternatives requires long-term thinking and planning. Sometimes, "good enough" thinking is, well, good enough but sometimes it doesn't work out in the long run. Also, there's a big difference between "good enough" and "apparently good enough... for now".
And, actually, I think that I generally blame too much on "economist" thinking. It isn't a new phenomenon. It's a very human thought pattern that, with the addition numbers and charts, gets (inappropriately) raised onto the pedestal of "science".
I'm assuming from your choice of words surrounding the accident that it was auto related.
You need to contact the other party's insurance company and make sure the limits of the policy haven't been exhausted. You then need to contact your insurer and explain the situation. If the other driver was underinsured, you may be able to collect the money for the bills from your own UI/UU policy limits.
Also, let your insurance company go after the at fault party and their insurer... Don't go on your own to a lawyer without consulting them first. Most people don't know that your insurance company will go to court for you in order to defend you or to recoup what they've spent. It's in your policy, but no one ever bothers to read them.
You're right about the sustainability issues. Economists, however, never worry about such things. If there's money to be made in planting oak trees and growing huge oaken beams, someone will do it. (And make a fortune, if no one else did, making their oaken beams the only choice in town.) They just handwave away the 400-year lead time.
They also figure that the market will come up with some replacement or alternative. A 400-year old church in Italy collapsed in an earthquake a few years ago. It had withstood many similar quakes over the centuries, but collapsed this time because the wooden beams that supported the roof had been replaced with concrete ones (because wooden ones were no longer available). The concrete ones were generally fine, but brought the whole building down in an earthquake--too heavy and not flexible enough.
The problem is, so many people think like economists. It's not even a bad way of thinking--it solves many problems and optimizes many situations. That's what's led me to take this odd option: try to change the world (to a low-interest rate one) so that the situation that we have is closer to the situation where economist-style thinking works well.
Trying to change the world so that not so many people think like an economist is another option, but lots of other people are doing that. This is my own little quixotic venture.
Other good businesses to launder are movie theaters and restaurants. I read a really interesting short story that talked about this called Bee Dancer of Nokota. It is available on the net.
After 400 years you'd have to face the real possibility that if you didn't plan for replacing the beams that no one else would have, either. It doesn't matter what the replacement cost is if the replacements aren't available.
We could turn it around and say, "Hey, I got my apples because someone in the past planted apple trees but the present value and discount rate make it of no benefit to me to plant new apple trees. I'll just put $0.50 in the bank and let my descendants buy their own apples."
I just hope someone else plants some apple trees in time.
You mentioned having an undercover watching a car wash for weeks. I actually helped it setting something like this up.
The PD had a hidden camera in an empty transformer (hung for them by the power company) watching a restaurant. It watched how many customers came in all day. It was wireless and sent its video back to an LP about 1 mile away. Inside the tranformer were several large 12v batteries that powered the camera and transmitter for about 1 month. Later, they figured out how to get the power company to run power into it from the line thereby eliminating the batteries and time limit.
Someone watched the recorded video in 4x speed and counted the people coming in. With this, they were able to build an average and then knew what the restaurant was claiming was true or not.
I've owned 3 homes and lived in an apt and I'm about to sell the house and get a condo. For what it's worth, there are sooooooo many little things (maintenance primarily) that add up considerably, when it comes to home ownership...this year alone: 1) an asphalt driveway (at least yearly) has to be maintained, power-washing, fertilizer, weed killin' crap, perennials and annuals, lawn/garden bags, shovels, gardening tools, more gardening tools, carpet cleaning, new parts for the sink and tub, dryer repair, new tile, new carpet, deck maintenance--it freaking never ends. I'm going to try somewhere in the middle---at least with a condo I can minimize some of the outdoor expenses!
There are so many factors to take into consideration. I crunched the numbers a couple of weeks ago and found that it could go either way depending on the markets. And since rental AND housing markets are rather unpredictable, there's no way to no for sure (do try the above spreadsheet - it's great).
The important thing to consider is that a house may be less of an asset than we all seem to think it is. I've always been told that you can never go wrong if you invest in real estate - but it seems like you can do pretty well if you just rent and save a whole lot of money, too. Then again, since it's impossible to tell how the markets will be acting in 30 years, assumptions are tough to make.
I did something similar and found renting to be much more valuable. What those of you who think buying a house is better are forgetting is that the renter can invest the difference between rent and the cost of the mortgage. If you add in the value of your investments over 30 years, the net worth is much higher for someone who has rented (in most cases, depending on appreciation rates etc...).
I put a spreadsheet together that you can use to check out the net worth under different interest rates and assumptions. You can find it here: http://tinyurl.com/2q9nc6.
-DS
At the point where the house is paid off it is an asset with two possible uses--you can sell it or you can live in it. (Actually, of course, there's also the possibility of renting it out, but that really amounts to doing business as a landlord and I'm not dealing with that here.)
If you sell your house, its value is whatever you can sell it for.
If you live in your house, its value is the amount by which it reduces your expenses versus what it would cost to rent instead. Now this is obviously a complex calculation--every place is different and each person has to make their own adjustments, whether for the "equivalent" rental or the place they actually do rent.
But let's put aside for a minute the "quality of life" aspects of home ownership versus renting. (Not because they're not important, but because they're not really economic. Let's do the economic part of the analysis first, and then do the quality of life analysis after.)
My fundamental point is that the economic result is the same, whether you own a "house" or whether you own some hypothetical investment with a return equal to the cost savings of owning versus renting. If the cost difference is large, then the equivalent investment is large. If the cost difference grows, then the equivalent investment needs to grow too.
(As an aside--rent will generally go up, but so generally will property taxes, insurance costs, and home maintenance. Only time will tell which will go up faster, but I think simply assuming that they'll go up about the same is a reasonable first guess.)
So I think my analysis does cover the "home appreciation" part of the question. Just as you might be able to sell your house at a profit, you might also be able to see the hypothetical investment at a profit.
If you do this analysis for your house, you may well find that the hypothetical investment has a value that is much lower than the value of the actual house. If the house a nicer place to live than the rental that you're using for comparison, then that explains part of the difference. (Do the analysis with a larger apartment or a rental house, rather than a small apartment, and you'll see that the hypothetical investment becomes more valuable.)
You may well find, though, that the economic value of your house plus the adjustment that you want to make for the higher standard of living that comes from living in a house, doesn't explain the whole difference in value between your house's market value and the value of the equivalent hypothetical investment. Feel free to make other adjustments (or simply to assign an arbitrarily high value to the benefits of living in that particular house), but let me gently suggest that the market value of such a house is not justified by its actual economic value.
Any kind of look removing dents from metal bumpers, like on my GMC Yukon... Nice dent in the left rear bumper..????????
You are comparing apples to oranges. If you really want a fair comparison you should compare the cost of renting an apartment to the cost of owning a comparable condominium unit, or compare the cost of renting a house to the cost of owning a comparable house.
Did you in any way add in the possibility of appreciation into your calculations for home ownership? Did you factor in that over 30 years a house payment never goes up while rents surely do? Did you calculate savings you get every year on auto insurance and life insurance as a homeowner vs. a renter? Then their are the much harder to define, in terms of dollars, standard of life issues. Renting sucks in so many ways its almost impossible to count. How do you place a dollar and cents value on every single day of your life being better in a house than in an apartment?
A house is an ASSET. Even if your monthly outgo is the same or higher than your rent, at the end of that I have something solid to leave to my children or to borrow against if things get ugly. Moreover, it works kind of like an enforced savings plan; the money I am paying for maintenance and such ends up in the bottom line value of my house. To keep up you would need to save every penny of the difference between your rent and my mortgage, including the maintenance costs, and get a decent rate on it the entire time to boot.
Your analysis above seems to leave out the value of the house itself once you pay it off. it's value is more than just the lack of rent you have to pay; it is an asset in and of itself.
In the end though, it comes down to what your goal is. if the goal is immediate cash flow and/or low maintenance, than renting is better. If the goal is long-term net worth, than buying is almost always a better choice.
There are ways to apply knowlege of money laundering that don't involve actually doing it. If your boss (or your employee) were using the business to launder money, you might save yourself all kinds of trouble if you understood what was going on.
Not to mention just understanding what's going on in books and movies where money laundering is part of the action.
... says you offer "Financial advice that is easy to understand and easy to apply." Who would guess this includes detailed advice about money-laundering?
I think the concern is about how information is stored and for what purpose; and yes, anything different makes us consider and reconsider privacy concerns. My state started asking for SSNs even though that information is not to be used for identification purposes (my first SSN card says that anyway); after the law was passed allowing the information to be collected and I went to get my license renewed, the examiner said that I didn't have to give out the information but she would take it if given.
As far as the photo and thumbprint, is the digital image stored forever or just printed on your license?
On the other extreme, when I moved to another state years ago, no photos were required for temporary driver's licenses and these licenses were considered proof of identification.
You make an excellent point about how easily we protect our other electronics, but tend to overlook such simple things as the fridge and freezer. Thanks for doing the research on the temperature monitor. I'll have to look into that.
They can take a picture of your face but not of your finger?
...is difficult. Both Derren Brown and the Sci-Fi channel have each stated that he never uses 'stooges' or actors, that everything you see is 100% real. If they are lying and it turns out he's a fake, well, both of their reputations would be shattered and that's not going to help anyone. In his series he also shows the failures he has encountered. Much like David Blaine, I suspect he edits out a lot of the tricks that don't actually work and uses only those people who succumb more easily to hypnotic suggestion and persuasion.
What did do you use as proof that they were not actors?
Hi guys:
Lots has been spoken but who is really planning to retire in China?
Well, I am and I am documenting that planning process. If you are really exploring a RV concept in China - where clean air living, availability of amenities, healthcare and living amongst English-speaking holiday/retirees sounds inviting, please head off to: http://www.chinese-culture.net/html/rv_subscribe.html
Cost of living is shooting up everywhere. Even the big cities in China are not really low cost anymore. And what about the crowd and pollution.
Check out my site to see how I have found that little right corner in China.
Hey, Andrea. Great post. I have no idea how I missed this one. Guess I was busier than I thought. I'm definitely going to check this one out. What the heck?
You're right. Economists aren't stupid and are perfectly aware of externalities, of time lags, and of the difference between a really compelling turn of phrase and saying exactly what they mean. If they ignore the messy bits, it's just so they can focus on the interesting parts of the work. If they engage in a bit of hyperbole, it's just to make their point a bit more vividly.
I actually have considerable sympathy for the point of view of the economists, which is why I'm inclined to try to change the world so that economist-style thinking works better. It's just that they're so easy to make fun of....
Re: "Economists, however, never worry about such things. If there's money to be made in planting oak trees and growing huge oaken beams, someone will do it."
Heh, heh. Economists say things like this but I'm not sure they mean it. There isn't any money to be made in planting trees. That's an externality! The only money to be made is from having a ready-made oaken beam ready to sell that meets a current buyer's need (even if you have to manufacture that "need").
I don't think that the solution is preventing people from thinking like economists so much as having the economic schools start training people to include rather than exclude "externalities". As your church-beam example points out, coming up with alternatives is easy but coming up with worthwhile alternatives requires long-term thinking and planning. Sometimes, "good enough" thinking is, well, good enough but sometimes it doesn't work out in the long run. Also, there's a big difference between "good enough" and "apparently good enough... for now".
And, actually, I think that I generally blame too much on "economist" thinking. It isn't a new phenomenon. It's a very human thought pattern that, with the addition numbers and charts, gets (inappropriately) raised onto the pedestal of "science".
I'm assuming from your choice of words surrounding the accident that it was auto related.
You need to contact the other party's insurance company and make sure the limits of the policy haven't been exhausted. You then need to contact your insurer and explain the situation. If the other driver was underinsured, you may be able to collect the money for the bills from your own UI/UU policy limits.
Also, let your insurance company go after the at fault party and their insurer... Don't go on your own to a lawyer without consulting them first. Most people don't know that your insurance company will go to court for you in order to defend you or to recoup what they've spent. It's in your policy, but no one ever bothers to read them.
You're right about the sustainability issues. Economists, however, never worry about such things. If there's money to be made in planting oak trees and growing huge oaken beams, someone will do it. (And make a fortune, if no one else did, making their oaken beams the only choice in town.) They just handwave away the 400-year lead time.
They also figure that the market will come up with some replacement or alternative. A 400-year old church in Italy collapsed in an earthquake a few years ago. It had withstood many similar quakes over the centuries, but collapsed this time because the wooden beams that supported the roof had been replaced with concrete ones (because wooden ones were no longer available). The concrete ones were generally fine, but brought the whole building down in an earthquake--too heavy and not flexible enough.
The problem is, so many people think like economists. It's not even a bad way of thinking--it solves many problems and optimizes many situations. That's what's led me to take this odd option: try to change the world (to a low-interest rate one) so that the situation that we have is closer to the situation where economist-style thinking works well.
Trying to change the world so that not so many people think like an economist is another option, but lots of other people are doing that. This is my own little quixotic venture.
Other good businesses to launder are movie theaters and restaurants. I read a really interesting short story that talked about this called Bee Dancer of Nokota. It is available on the net.
After 400 years you'd have to face the real possibility that if you didn't plan for replacing the beams that no one else would have, either. It doesn't matter what the replacement cost is if the replacements aren't available.
We could turn it around and say, "Hey, I got my apples because someone in the past planted apple trees but the present value and discount rate make it of no benefit to me to plant new apple trees. I'll just put $0.50 in the bank and let my descendants buy their own apples."
I just hope someone else plants some apple trees in time.
You mentioned having an undercover watching a car wash for weeks. I actually helped it setting something like this up.
The PD had a hidden camera in an empty transformer (hung for them by the power company) watching a restaurant. It watched how many customers came in all day. It was wireless and sent its video back to an LP about 1 mile away. Inside the tranformer were several large 12v batteries that powered the camera and transmitter for about 1 month. Later, they figured out how to get the power company to run power into it from the line thereby eliminating the batteries and time limit.
Someone watched the recorded video in 4x speed and counted the people coming in. With this, they were able to build an average and then knew what the restaurant was claiming was true or not.