Macro Economic Trends and Risks
"A house is a home but not always a great nest egg."

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By Adenovir
August 30, 2007

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In 1969 my parents bought the suburban house that I grew up in. It cost $32,000 and they put 20% down. They had a monthly P&I payment of ~$200. Taxes were ~$50/month (annual tax ~$600). I don't know about insurance. The total was about $300/month. We moved out in 1977 and rented out the house.

*(numbers are from memory)*

In 1999, my mother showed me the last payment. It had the same P&I of ~$200, Taxes of $600 (annual tax $7000), and insurance of $100. The total was about $900. Due to inflation, the original P&I was so small that it really didn't matter any more. If she had scrimped and saved to pay off the house early, it would have done very little for her.

In 2006 I convinced her to sell the house which she was renting at the time for $1500/month. The tenants hadn't paid rent for 6 months and she was trying to get them evicted. She finally evicted them; she sued for damage to the house and held the security deposit. They counter sued and won, and collected about $5000 in damages. It cost her another ~$5000 to repair the damage (caused by dogs urinating on the hardwood floors).

The house sold for $375,000, that was about $100,000 more than the last comparable sale on her block. We put the post-tax proceeds, about $300K into a diversified portfolio of stock and bond mutual funds and now she gets dividends of ~$1000/month. No hassles.

What I learned...

1. The house only appreciated ~7%/year - most of it in the last year - not a great investment.
2. Being an amateur landlord stinks.
3. If inflation is high, paying the house off in advance isn't a great deal.
4. If your house goes up in value by 30% in one year get out.
5. A house is a home but not always a great nest egg.


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