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A house appreciates. So what?

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Valued Contributor

A house appreciates. So what?

You’re in it for the long haul. So as you aren’t going to sell, why would you care whether your house appreciates? Sure, it’s nice if you unexpectedly have to move, but let’s say that doesn’t happen just as a reverse mortgage isn’t for you. Or you could take out a home equity loan or line of credit, but why would you?

If your house appreciates, it’s probably because the neighborhood as a whole appreciates. You certainly enjoy living among nice neighbors, and if a school opens nearby enriching the residential streets by you with lively children, that may delight you more on a daily basis than being a reason for why your house appreciates.

Then there are your children or nephews and nieces. They are probably well off by the time you embark upon the journey six feet under and your inheritance kicks in, past their education and first house. There may even be charities, but somehow it feels livelier while you’re still, well, alive.

I’m begging for your help in enlightning me. There’s obviously something that some or all of you know and I don’t.

 

Message 1 of 11
10 REPLIES 10
Established Contributor

Re: A house appreciates. So what?

Do what?

Message 2 of 11
Valued Member

Re: A house appreciates. So what?

Agreed.

 

I never understood the worrying about value myself.

 

I am buying my first house now because it is perfect for me and my wife. We plan on living there for a very long time.

 

That being said, I don't really see the value of worrying about the value that my house may or may not increase to. I am agreeing to pay on something over time that will eventually be ALL mine, to save on paying a landlord's mortgage on HIS property by renting.

Message 3 of 11
Senior Contributor

Re: A house appreciates. So what?

While the true value of owning your own place is in setting a stable cost factor over the life of the loan or time you live in the home, there are added benefits over renting. One of these benefits is that the property will increase in value, while your cost (P&I) will stay the same and you need to think long term here not a year or two. Federal and State "income tax" exclude 100% of the increae in value when you sell if you decide to keep the profit or reinvest it in another property (yes there are limits and exceptions but for 99% of us this is tax free money).

 

Interest and taxes are deductible each year on your "owned" home which drops your real income tax - the real rate you pay - and your "investment" comtinues to increase in value (in a typical cycle). In many cases the value of real estate is left to an "estate" through the death of the owners, almost all is tax free to the estate (again there are limits which are currently in the $5 million dollar range to avoid estate taxes in most cases, but in most cases its tax free). 

 

On a personal level, increased value over time allows for a better balance sheet and credit standing, allows for fully deductible tax treatment for tapping of your equity within certain limits such as education, home repair, etc and even if the equity is not fully deductible, its free money should you refinance or borrow against your home's increased value. Note that this "free money" statement is not an absolute truth per se, its an asset  backed prequalifier for using the equity towards a larger loan (refi  or second).

 

Saving for your kids college? Hard to do on tight budgets and everyday paycheck to paycheck, but by buying a home now, living in it for 15 years you'll have an automatic credit line set up for their college education based on the value of your home doubling in the time frame while you investment will remain at 2014 levels.

 

I'm NOT a real estate agent/broker but I do live in a home that I paid $142k for and currently is worth $450k plus. I am also in the process of settleing an estate (probate) on a property that was purchased using a $15k loan (land was purchased outright) and will go for over $700k.

 

It's a much longer discussion than what I've posted - the value of increased real estate equity. 

Message 4 of 11
Senior Contributor

Re: A house appreciates. So what?

Just another example I forgot to add:

 

I purchased a brand new Condo in Myrtle Beach in 1997 as a vacation home for $79500, financed $50,000 which I paid off in 4 years. In 2003 I sold the property for $130,000 because we were not using it that much and I needed the money for other purposes. It sold quickly and I got a nice return on my investmet. These condos went up to $175k or so during the real estate boom, but crashed back to the $110k area during the real estate crash of 2007-09, currently they are going for about what I sold mine for, but still more than I bought it for in 1997. 

 

PITI on my current home is $1538 a month (4BR 2.5BH, 3500 SF single family house) - 2 BR apt's around here go today for $1400 to $1800 a month, plus utilities and yes I understand that varies depending on where you live.   

Message 5 of 11
Super Contributor

Re: A house appreciates. So what?

the house appreciates.... so what?

 

heres the what:  'wealth building'

 

Retired Lender
Message 6 of 11
Senior Contributor

Re: A house appreciates. So what?

If I were single again, I'd sell the house, buy a Porsche and and an RV. Park the RV by the ocean to hang out during the day and go cruising in town in the evenings. Unfortunately, if I go cruising these days, it will be to the hotest old folks home in town!

Message 7 of 11
Established Contributor

Re: A house appreciates. So what?

I'm not even sure I can agree with the premise that houses appreciate over time.  Personally, although it might  just be our market, we would come out having lost money if we were to sell our home at this point in time - we've been in the house for just over 10 years and we've done two refi's.  I say we'd lose money not because the home isn't worth what we paid for it, but because of the upkeep, landscaping, property taxes, etc.  I certainly don't regret purchasing this home, but if we had done it solely as an investment I'd be sorely disappointed.

Message 8 of 11
Valued Contributor

Re: A house appreciates. So what?

Sure, the house requires upkeep. It holds true for anything and anyone. When people say it’s time to scale down, maybe it’s not so much the physical moving around, could be the financial side of it.

Preventive maintenance goes a long way to keep the headaches and the finances under control. That’s hopefully the only reason I’ll ever benefit from the equity in my home.

You have to live somewhere. A rented apartment needs upkeep too, even your parents’ basement does. So I don’t know to which extent it’s reasonable to let upkeep counter the appreciation of property.

 

Message 9 of 11
Established Contributor

Re: A house appreciates. So what?


@My-own-fico wrote:

Sure, the house requires upkeep. It holds true for anything and anyone. When people say it’s time to scale down, maybe it’s not so much the physical moving around, could be the financial side of it.

Preventive maintenance goes a long way to keep the headaches and the finances under control. That’s hopefully the only reason I’ll ever benefit from the equity in my home.

You have to live somewhere. A rented apartment needs upkeep too, even your parents’ basement does. So I don’t know to which extent it’s reasonable to let upkeep counter the appreciation of property.

 


For the most part it is the land that appreciates. Better school, nicer neighbors, closer shopping, better jobs in the area, more desireable location for any other reason.

The structure on the land like a house actually depreciates if you don't do upkeep. You spend money on regular maintenance to keep the structure to its same value, or put in a new kitchen to improve the structure's value. But it's always the underlying land that fluctuates and usuallyu goes up over time. Even the IRS shows us this by allowing you to depreciate real estate for business year after year till it becomes worth nothing (according to the IRS)

 

But to think that you aren't benefitting from increased value of your home just because you aren't planning to sell it is not correct. You have an asset that you can leverage if you need money for any reason, even if you think that you may never have a reason.

 

Think of it like buying stcoks, which is just a different asset class. Say me and you buy a stock for $100, a year later yours is worth $110 and mine still $100, but what does that mean to us if we don't sell it? Well it still means you have something valued at $110 instead of $100, which means you can trade it in and buy 110 dlooars of milk or gas or whatever you need and I can only trade it in and buy 100. Or it means that you can get a higher loan or better interest rate than me because you have better security than I do in case you want to buy the milk yet continue to invest the 110. Or you can just decide you don't need any other stuff now and prefer to keep the 110 invested. Or buy a less expensive stock and spend the difference, much like getting a smaller house and using the other money to go to tennis camp. Or maybe you have other money you want to start a business with and the fact that you have a higher asset than I do gives you the confidence to start that business or to send Junior to college

 

 

 

 

 

 

 

 

Message 10 of 11
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