Why do people buy a house?

Uber stockguru
Jun 12, 2018 482 Comments

Say you are giving away 250k for down payment and 5k per month on the loan payment.
Considering 15% again on 250k stock that is 37.5 per year or about 3k per month.

That's about 8k per month of lost money.

You can get a nice apartment for rent about 4k. Why do people want to loose 4k per month?

I understand house value increases but isn't that a high risk? And would you really sell your house for money?

I'd rather spend that extra 4k and enjoy life.

I will add some good comments here to let the readers get a tldr.

Buy:
tax benefit on mortgage

Rent:
your pay will adjust as well

Interesting questions:
You think bank is giving you at a much lower interest rate? Why don't banks crash then?

What if a new technology company comes in and solves this problem? If we can think about flying cars in 2024, why is it so hard to solve the housing problem?

It's funny how most of us work in technology and don't believe this problem would be solved soon and keep worrying about renting 30 years from now.

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TOP 482 Comments
  • Apple / Eng
    hRiD32

    Apple Eng

    PRE
    Intel
    hRiD32more
    What is this magic 15% return investment?
    Jun 12, 2018 19
    • Twitch YUnU67
      If you can get a 15% return YOY, you’re not putting your talents to good use. Go start a hedge fund and this question you’re asking won’t even be a problem.
      Jun 12, 2018
    • Amazon Gamt
      Did you seriously crack that uber interview with this brain ?
      Jun 13, 2018
    • Amazon / Eng n0v
      Warren Buffet's average lifetime return is somewhere around 17%. Getting 15% return consistently is hard as fuck. People can do that (or better) for 3-5 years, convince themselves they are hot and then suddenly take major losses, which they don't talk about. A string of impressive returns, followed by zero is zero at the end of the day.
      Jun 13, 2018
    • Microsoft DaAX46
      Gamt he’s actually just driving part time
      Jun 13, 2018
    • Visa shaolin
      Like that Ackman kid. He is doing goid this year though. Actually, his fund is selling at sale price now anyone wants in.
      Jun 14, 2018
  • Google KjDt62
    Rent increase is a higher risk. I don't want my family to be homeless.
    Jun 12, 2018 12
    • Aetna / Mktg VGUB45
      Um. Currently looking in Bay Area and would like to understand WHERE in TH you are renting a nice house for 4k
      Jun 14, 2018
    • Microsoft Zuzi
      Op is prob renting a one bedroom condo.
      Jun 15, 2018
    • Google KjDt62
      @Zuzi Why?
      Jun 15, 2018
    • Microsoft Zuzi
      Based on his price range for a good rental in the Bay Area. Also his apparent lack of awareness of the non monetary cost of having to move a family with kids from rental to rental every now and again. It’s a cost those who have luxury of owning their house don’t have to pay.
      Jun 15, 2018
    • Google KjDt62
      Yeah, I can feel that a lot. We used to waste a lot of time and effort every year to find the next neighborhood for us.

      Many rental properties are nice. They have gyms, pools and party rooms. But they never make us feel at home.
      Jun 15, 2018
  • Lyft Toktok
    Putting a side the emotional part, a mortgage is one of few avenues for a retail investor to get leverage for their money.
    Jun 12, 2018 12
    • Microsoft / Eng secureity
      @ynlE82, for me to buy a house within 30 mins of work would be at least 5k/mo with zero down since I would never drop huge cash on a house. You earn about 5-10k a year in equity even on a house that's 500k+. I pay 18k on rent and invest the rest. You tell me who wins. Even in retirement the cash alone could generate the rent cash just in dividends. If houses were 250% cheaper I would consider if rent was still the same price as now.
      Jun 13, 2018
    • Salesforce ynlE82
      Same rule will apply if you buy, first few years math will look crazy but after a while it will swing in your favor. I bought 5 years ago and my mortgage payment for 3br today is less than 2br rent next door. As time passes, that gap will only widen.
      On a side note: 15% return OP talks about is very optimistic (read as unrealistic in long term)
      Jun 13, 2018
    • Salesforce ynlE82
      Don’t get me wrong, the market in some areas is simply insane and might not worth stepping into
      Jun 13, 2018
    • Microsoft / Eng secureity
      Exactly. If market is insane and I can live for 3 times cheaper just renting. Why not? If the market is 300k for a house or 2k for rent. Might as well buy the house. When market is 1.2m for non piece of shit house, I'll keep my 1800 rent.
      Jun 13, 2018
    • Salesforce ynlE82
      If you have 1800 rent, maybe you should hold on to it, OPs math was different though.
      Jun 14, 2018
  • Medallia CXM8
    Main question isnt who would buy a house, but who would buy a house in shitty California? Do you know the type of house and property you can own for $250k down and $5k/mo in places that are not broken liberal experiments?

    Life is amazing working for a company based on the coast, but living in places that do not punish success or have destroyed any semblance of middle and upper middle class.

    You all just keep fighting over your $1M shacks surrounded by homeless and needles. Not only do I own a very nice home, but I'm almost debt free and have only 9 years left on a 15 yr mortgage.
    Jun 13, 2018 35
    • Salesforce sf0101
      @JsonBlob so pathetic how you troll and shit on California because you can't afford it. There's a reason why those other states continue to be cheap while CA prices climb. No one wants to live in the country, eat Applebee's everyday, be around racists, and have 0 progress. Also I've never seen a needle. Confused by where you stay when you're in CA, perhaps by the freeway where you stay for free?
      Jun 14, 2018
    • Microsoft JsonBlob
      You have never seen a needle? How is that possible? How about when you were a kid?
      Jun 14, 2018
    • Salesforce sf0101
      Gee idk, by avoiding the freeway underpasses? You really should find another place to stay. The only needles most Californians see are from the doctor
      Jun 14, 2018
    • Microsoft JsonBlob
      Sigh
      Jun 14, 2018
    • Microsoft JsonBlob
      I think apart from Silicon Valley and Hollywood California is gold!
      Jun 14, 2018
  • Facebook public
    If you could get 15% a year consistently you would be a billionaire... Mortgages allow you to leverage huge amounts of money at a comically low interest rate, receive tax benefits, land is a scare resource, payment is predictable and stable unlike rent, and finally the emotional satisfaction of being able to do whatever you want on your property. If the property appreciatiates in value that is just gravy. Finally no, I hope you never sell any of my houses for money. Tenants pay me each month to live there and hopefully always will. Thank you renters!
    Jun 12, 2018 9
    • Twitch YUnU67
      @stockguru. Banks are making money between the interest rates the fed is setting and what mortgages pay out. I got a mortgage at 4% earlier this year and the interest rate was like 3.25%. They make 0.75% with your house as collateral.
      Jun 12, 2018
    • New DuQvV7
      Ex banker here:

      Your 4% mortgage is funded primarily by deposit accounts that pay 0-.25% to the depositor. The Fed funds rate is expensive money that banks only use for short terms (and not all banks are eligible).

      So the bank is making up to 3.75% on that mortgage.
      Jun 13, 2018
    • Facebook public
      Ex banker gets it.
      Jun 13, 2018
    • Amazon / Eng n0v
      Huh? Most mortgages are sold off to Freddie/Fannie, and the bank doesn't fund them at all. They go for the guaranteed return. Freddie/Fannie collateralize those loans and sell them to investors. Mortgages that remain on the bank's books (portfolio loans) and actually funded by Bank assets are fairly rare. Mostly they are jumbo loans to wealthier clients and some credit unions/small bank's hold confirming loans on their books.
      Jun 13, 2018
    • Uber / Eng
      sight

      Uber Eng

      PRE
      Facebook, Cisco
      sightmore
      Great responses, public.
      Jun 13, 2018
  • Amazon ij
    I love that I can put as many nails on wall as I want.

    I love that I can have a workshop in a room and not worry about damaging the floor.

    I love that I can put brown color paint on exterior.

    I love that I was able to dig a pond in my yard.

    I love that I can have a 100lb dog and not worry about him eating the doors.

    To me buying a house is kind of freedom. I did not have this in my rental. Investment or savings that house brings is a side benefit.
    Jun 13, 2018 3
    • Facebook NSnI12
      Those delicious doors
      Jun 13, 2018
    • PayPal Isjnd
      Exactly.

      I’m lucky in that I have a great landlord right now, so I was allowed to use my garage as my shop space.

      But by the sound of it, most everyone in this thread is interested in their returns, while staring out the windows of their 3rd floor condo, longing for that early retirement where they can do more of the same thing.

      I track my bikes, my cars and I work on them in my spare time. Oh, and I have a 75lbs German Shepherd. In other words, I have hobbies that necessitate a certain freedom that renting usually doesn’t give you.

      (That same landlord is having all siding redone and wants us to tell him what color to have it pained. Cool dude.)
      Jun 13, 2018
    • Amazon ij
      That is one GOOD landlord. And that too when you have a GS. I had a bad time finding a rental that allowed Rottweiler.
      Jun 13, 2018
  • Oracle HL3l$
    You have already figured out what you want. Why do you care about others?
    Jun 12, 2018 8
    • LinkedIn $$$$$$$$$
      I was happy with my TC before blind. Now after being here I need to make moves.

      See how that works HL3I$?
      Jun 12, 2018
    • Oracle HL3l$
      Let me make it worse for you. My tc is 430k, hoping to cross half mil next year. Eleven years of experience.

      See, there’s no end. There’s always be something if you keep looking. Sometimes it’s better not to look. You might fail and become even more frustrated.

      Happiness consists in contentment.
      Jun 12, 2018
    • LinkedIn $$$$$$$$$
      There is a critical mass though. I am way happier at 280k than I was at 100k in the Bay Area. Do I want more? Sure but the sacrifice vs reward is not as attractive as it once was. I am far more content now than previously.

      Just because you can always make more does not mean people have to go that route.

      Knowledge is power. I think it’s good to ask questions and expand your perspective regardless of if you implement change.
      Jun 13, 2018
    • Amazon IzUmI
      OP, where was all your money 11 years ago? In stock market?

      At some point I had the same thought but it is changed over time.
      Jun 13, 2018
    • LinkedIn $$$$$$$$$
      I am not OP but 11 years ago I was in high school
      Jun 13, 2018
  • Google ;O
    Are you insane? That’s not lost money. You’re converting liquid assets into illiquid assets each month, but the money is still yours (except interest / tax).

    We just bought another property in San Jose. $200k down payment; $4000/mo. On Airbnb we’ll get $5-6k each month, while it currently rises over $15k/mo.

    Our primary house has risen $1m. But if we had your mindset, we’d be dumb and poor. And the risk isn’t that high; there’s an incredible number of people here and so little construction.
    Jun 13, 2018 13
    • Postmates / Eng
      Lalasf

      Postmates Eng

      BIO
      Been in huge defense contractor, mid-sized finance, tiny startup.
      Lalasfmore
      I hear the zoning law is making condos and apartments incredibly difficult. Need to do something about that imho
      Jun 13, 2018
    • Intuit NK1An42
      Not really true, google. Surely the uniqueness of a detached property will help hold value, but since there are so few condos/apartments, you basically have to buy a SFH or rent one.

      An increase in condos will decrease the value of SFHs, all other factors equal because the housing supply is increasing.
      Jun 13, 2018
    • Google ;O
      Yeah, zoning laws are fucked in California. Getting projects approved involves borderline corruption.

      Anyway, people value SFHs. Just look at history. Condos lose value first and gain value last. You’d have to build a lot of condos very quickly to briefly affect SFH prices.
      Jun 13, 2018
    • Intuit NK1An42
      Condos like right on the water have appreciated very well in my area in the last decade or two.

      Maybe zoning laws will change... though many many people are betting they won’t
      Jun 13, 2018
    • Google ;O
      Location appreciates the best no matter what it is.
      Jun 13, 2018
  • Yahoo Funday123
    U have to pay taxes on sale of stock , so profit is 2.1 k after taxes. You get tax benefits on buying the house let’s take it 1k. So now the profit is down to 1k 😀. Now in the mortgage payment you are actually building equity which is not the case with rent. Rent always increases but not the mortgage payment. So if you do the math buying is better in your example
    Jun 12, 2018 3
    • Uber stockguru
      OP
      Good point about the tax thing. For long term capital gains the tax is way less. Right?
      Jun 12, 2018
    • Yahoo Funday123
      Yes but if u sell house you pay no tax on profit upto 500k if married and 250k if single
      Jun 12, 2018
    • Amazon PurpleHaze
      500K? Didnt know that! Off to Zillow.
      Jun 13, 2018
  • Microsoft / Eng Sinbad
    You are borrowing money at a low rate from the bank. If you are located in the Bay Area or Seattle, housing has been going up like crazy (15% a year?).
    Jun 12, 2018 6
    • Microsoft / Eng Sinbad
      With a family you need to live somewhere with good schools.
      Jun 12, 2018
    • Uber stockguru
      OP
      Brother sinbad, which school did you go to? It's crazy how people want their kids to go to "good" school. It fucking doesn't matter.
      Jun 12, 2018
    • Uber stockguru
      OP
      Why do you think banks are rich then? You think banks are loosing money?
      Jun 12, 2018
    • Amazon PurpleHaze
      OP is a dumb piece of crap! Do you even understand basic economics? You ask stupid questions and when people answer, you follow with even dumber ones. Rent and GTFO.
      Jun 13, 2018
    • Microsoft DaAX46
      I went to shit schools till university but then again Microsoft isn’t FAANG so maybe it does matter :(((((((
      Jun 13, 2018
  • Yahoo IlIlIIlIll
    OP, don’t buy a house ever, just keep investing in the stock market. I need tenants for my rentals and I promise not to increase rent more than 10% per year. That way someone else is paying for my mortgage, taxes, insurance and HOA. Plus I get cash flow every month to enjoy life. Deal?
    Jun 12, 2018 6
    • Uber stockguru
      OP
      I will never leave the house. Ok?
      Jun 12, 2018
    • Microsoft / Product @zzz
      This IMO was one of the best arguments for buy vs rent and it was completely lost on OP.
      Jun 12, 2018
    • Google QvCc10
      Bay area properties do NOT cash flow, at least if you bought one now. Get real.
      Jun 12, 2018
    • Yahoo IlIlIIlIll
      ‘98, ‘99 and 2001. It’s real, buddy! Dot Com boom! The ‘98 was a brand new 3br SFH for only $310k!
      Jun 13, 2018
    • Google QvCc10
      That's awesome.. I'm jealous. Although, you have to weigh the opportunity cost of selling and poetntial stock market returns vs rental income.

      However, give prop 13 shennigians, I'm sure the rentals will be quite lucrative. I'm not sure why so many Californians want to subsidize investment properties for people
      Jun 13, 2018
  • Amazon / Eng sde3
    Don't buy houses, I need rich tenants like you.
    Jun 12, 2018 2
    • Uber stockguru
      OP
      Of course, you are welcome
      Jun 12, 2018
    • Microsoft kickash
      Nice one 🤣
      Jun 13, 2018
  • Google NotAHipste
    Every single argument I've seen against buying houses start with "let's consider you get N% in returns from your money", where N is something you only get if you are investment-savvy and has a good amount of luck.

    Also, before buying my house my rent increased more than my comp raise for 4 years in a row (bay area). Now my monthly spending with housing is frozen for decades while the salary keeps going up.
    Jun 12, 2018 2
    • Google QvCc10
      Arguments against:
      1) same house I saw for rent for $5000 vs $8000 to own (so $300k down payment tied up plus $3k month coulda gone to stocks)
      2) change in tax law, doubling standard deduction, capping salt at 10k, big win for rent over buy
      3) call my landlord when shit breaks, don't have to pay maintance
      4) ability to up and move to new construction / full amnenity buildings with much less friction that owning
      5) matching my high liability (housing) to my current high income without having to know if I will keep that high incomw for 30 years (as in I can move to lower cost area in event I don't have super high income anymore)
      Jun 12, 2018
    • Cisco gF18aq
      If I rented my house at the time I bought it, it would have been the same as what I pay for mortgage, insurance, and upkeep. Now two years later, rents are way higher for the same house.

      Also, when you but a house, the finishes tend to be a lot nicer than a rental.
      Jun 13, 2018
  • Uber / Eng
    sight

    Uber Eng

    PRE
    Facebook, Cisco
    sightmore
    The leverage is unmatched and it’s the most tax advantaged place to park your money.

    Assume you buy a home for 1m with 20% down (200k). You pay ~4% interest and the home appreciates by 5% YoY in this market. That 5% appreciation is now 50k in home equity. That is a 25% return on your original 200k which more than offsets your taxes. The following year that compounds for even greater gains.

    Now imagine putting a renter into the home where the mortgage is covered for you. Populations are growing faster than new construction. It’s one of the best places to put your money if you can deal with the illiquidity.

    One thing that 90% of millionaires have in common: they own real estate.
    Jun 13, 2018 1
    • PayPal vdAR66
      Another way to look at it is even the ultra rich buy real estate with leverage even though they can easily buy the whole house with a check. Why not let a bank make your asset value 5x what you paid? Then take the leftover money and go do something else.
      Jun 13, 2018
  • These comments makes me so glad I don’t live in Silicon Valley
    Jun 13, 2018 6
    • EA / Ops
      dexw85

      EA Ops

      PRE
      HP Inc, Dell
      dexw85more
      The SV folks on here will defend it to their death while they rot away in their $4k/month studio apartments and feces covered streets.
      Jun 13, 2018
    • Right?! I have a 2,500 square foot condo with a garage and all the upgrades right in the middle of everything and 10 minutes from my job that I put 10% down and my mortgage is 2k a month. Not only that, when HQ2 hits NOVA (and we all know it’s coming to Virginia) then my house value will double, I can sell in 5 years and have 300k to put down on my dream custom build house by the river.

      All by myself as a 33 year old female. No husband or other income sources but my job.

      People in SV... holy shit why.
      Jun 14, 2018
    • Microsoft mona
      Where in VA do you think it will go? I think it will be in DC proper
      Jun 14, 2018
    • @mona - No way it goes into DC proper. They aren’t really business friendly and didn’t give Amazon all the perks they wanted. The two sites that are most possible are Rosslyn and out by Dulles airport in Herndon. If I had to put money on something I would out by Dulles for a couple reasons:

      1. It’s the most land and the building is cool
      2. AWS is already HQd about 5 blocks away, and we know Amazon likes doing business in that county.
      3. The AWS data centers are a hop skip and jump away in the other county that the joint proposal was from.
      4. Right now there is affordable housing out at the Dulles site, unlike DC or the sites closer.
      5. It’s a hop skip and jump away from Loudoun county wine valley. It’s literally a mini Silicon Valley with the federal arms of Google and other major players already here.

      Also it’s telling that Apple said they were coming here. The Rosslyn site might be attractive to Apple but I think they go to Tyson’s (which amazon already took out of the running so they can start now)

      It’s nice to see so many companies coming home to the birth place of the internet. SV thinks they are the shit but I read recently something like 90% of internet traffic goes through northern Virginia, and my county is once again the richest county in the country for median income. Virginia for life :) until I retire at least.
      Jun 14, 2018
    • Aetna / Mktg VGUB45
      Sorry just want to ask again who is renting (and where!!) a nice home for 4K.... -someone currently looking in Bay Area and surprised that rents are actually 5-7k for a decent place.
      Jun 14, 2018
  • Amazon KenobiBack
    A house is not an investment. It might be a lifestyle decision, but definitely not an investment.
    Jun 14, 2018 3
    • Uber vfOb56
      Is this a joke? It might be a bad investment depending on the deal but real estate can be a great investment.
      Jun 14, 2018
    • Amazon KenobiBack
      Let's describe your great investment :
      - high front load cost
      - high sale cost
      - no liquidity, takes months to sale
      - not diversified, performance tied to the faith of a neighborhood
      - high maintenance cost
      - high yearly taxes to pay
      - changing toilets
      - doesn't pay you a dime for holding it
      - can make you house poor
      - limits your future opportunities because you can't move easily
      - and so on

      Sounds like the best "investment" ever
      Jun 14, 2018
    • Google / Eng
      FhyzA0

      Google Eng

      PRE
      LinkedIn, Facebook
      FhyzA0more
      In stock terms, buying a house is like buying into a mutual fund that:
      1. Uses leverages
      2. Pays no dividend
      3. Has an expense ratio > 0
      4. Is costly to buy and sell (high transaction fees)
      5. When you want to sell no one will immediately buy (low volume)

      And for most people, they will only have 1 share.

      Money in real estate is made at the purchase. For stocks, you just need to continually dollar cost average over time.
      Jun 14, 2018
  • Apple / Other Tres comas
    Ther american tax system is set up to benefit homebuyers and people starting families. Property tax and other expenses can be tax write offs. Plus, You can increase the value of a house quicker with renovations. Want to live somewhere else? Sell it or rent it out. Tons of people sell their homes for cash or reinvest. My parents sold our home and bought 3 smaller properties in the bay area. 1 they live in and two they rent for income.

    Assuming you’ll always make money from stocks is rather naive. You can lose money on housing too but its nowhere near as volatile.
    Jun 12, 2018 2
    • Google / Eng
      FhyzA0

      Google Eng

      PRE
      LinkedIn, Facebook
      FhyzA0more
      10% yearly rate of return in the last 100 years. 12.5% in the last 30 years. That's the US stock market's history. If OP invests for the long term, he will be fine in the stock market.
      Jun 12, 2018
    • Google QvCc10
      Tax system was* set up that way. Blue states are fcked in going forward.
      Jun 12, 2018
  • PayPal vdAR66
    it is called leverage

    Let’s say you put 200k down for a 1M house. If your house appreciates 5% It is appreciation on the entire 1M. I think u can figure out the stock market comparison on 200k. Don’t even need to mention tax savings, risk profile, a place to live, etc.

    There are whole industries like private equity built on this model btw. But i guess ppl here only leetcode
    Jun 13, 2018 3
    • Facebook saqin
      Then why not just lever up on stocks?
      Jun 14, 2018
    • Yahoo Majoring
      How would you increase leverage on stocks to that level without collateral (like property)?
      Jun 14, 2018
    • PayPal vdAR66
      Who is gonna lend you $$ lol. Leveraged ETFs also have downsides, and dont work exactly as expected
      Jun 14, 2018
  • Amazon Gvtw14
    My house is up $750k since I bought it. Plus all interest was tax deductible
    Jun 12, 2018 1
    • Google / Eng
      FhyzA0

      Google Eng

      PRE
      LinkedIn, Facebook
      FhyzA0more
      That's anecdotal. Go replicate it today.
      Jun 12, 2018
  • Amazon tfswj
    5k is not loss, that is investment when you sell the house. 4K you paid to rent is absolutely loss. Also what investment gives you 15% gain with now risk? I want to do that
    Jun 13, 2018 2
    • Northrop Grumman / Eng Crypt0
      Investments that guarantee you 15% without risk are called pyramid schemes
      Jun 13, 2018
    • Amazon tfswj
      Haha you got it
      Jun 13, 2018