On Jul 21, 10:04*pm, Chip <chip.w...[at]ieee.org> wrote:
- quote -

Not if the client does not intend to utilize that resource by
eventually converting it into cash. If a client had $1M in personal
property (wife's jewelry, gold coins, stamp collection, etc) and $1M
in an IRA, it would not be prudent to plan on retiring into an $80k
annual income unless that client expressly intends to convert those
collectible *investments* into cash. I contend that conversion rarely
happens. It is not common place for the wife to sell the family jewels
when it comes time to retire. Nor do most people take all the artwork
off the wall an head to the auction house. And I would be incredibly
reluctant to part with my wines. [please forgive the crudeness of the
example. SS payments were ignored as were pensions, age, expected
return, inflation, etc.... I also used the questionable 4% rule.
Regardless, none of those things should detract from the point].

Depending on the specifics, the "investements" mentioned above might
or might not have a place in your asset allocation. How much of a
hedge does your wife's jewlery really provide? Is that changed if she
will only consider selling as an absolute last resort? How much is
gained from factoring a $5000 stamp collection into a $5,000,000 asset
allocation? Perhaps more importantly, does the gain justify the
extensive work that would go into valuing, possibly selling, and
calculating expected returns, standard deviations, and beta for such
an obscure "investment"? Does the answer change if the stamp
collection is worth $5M itself and you bought it because you felt the
stamps were undervalued and plan on selling them to retire?

Just to be clear, this is not simply MY stance. It's the general
consensus among the financial planning industry. It is common practice
to inventory personal property, real property, and life insurance cash
values. In particular they are important factors into estate planning
and taxation. However, the majority (if not all) of the programs
(software and otherwise) I have encountered specifically ask if those
items are being "used to fund retirement goals". If the answer is
negative, they are not included in the financial plan, but simply
documented for bookkeeping purposes.

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kastnna wrote:
I am i
- quote -

Then do you not consider jewelry, gold, rare stamps, fine art, and
vintage cars not an investment and not to count in net worth? It just
makes sense to me that these assets are certainly a hedge against stocks
and bonds and deserve their place as an investment.

Chip

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On Jul 18, 4:13*pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

Thanks for the excellent response, Mark. As I said earlier, I am i
neither the "investment" nor "non-investment" camp. I think it is
likely an investment, but I'm still reserving judgement. Actually I
meant to focus my comments on whether it was appropriate to include a
home in one's net-worth/financial planning (regardless of its
"investment status"). I think I did a poor job of conveying that. Life
insurance cash values also face a similar dilema. Sure it's fun to
count the asset because it boosts your net worth, but what good is it
for planning purposes? Most of the financial planning methods/software/
etc I have encountered include neither your home nor life insurance
cash values into retirement planning if the client does not _intend_
to utilize that reasource.

- quote -

Agreed, the wine is an investment. Again, how useful is it to be
included in net worth for financial planning purposes if I'm going to
drink it? Perhaps the fact that I could sell it, even if I intend
otherwise, gives sufficient reason to include it. Perhaps it does not.
I'm still unsure.

- quote -

I'm not sure buying is always the right answer for every person at
every time either. I think we agree largely agree and I muddied the
waters by switching between "investment status" and "usefulness in
planning".

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Since this seems to have turned, once again, into a buy/rent debate, I
offer a NYT article that I've not seen referenced in this NG. It allows
the user to offer the assumptions regarding certain variables and then
gives a break-even on the decision. The original URL was huge, this is
the Tiny version; http://tinyurl.com/62p7mk

NYT may require a log-in for this page, no charge, just an online setup.

Joe
www.blog.joetaxpayer.com

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Mark Bole wrote:

- quote -

You've made some very valid points, and I can definitely understand your
point of view on considering a house an investment. But since you've
brought up opportunity cost, let me try a different tack.

Given opportunity cost, under some circumstances (that I would argue are
not all that uncommon) the net present value of the cost of renting can
be lower than that of buying a house. As an example, let's say that I'm
in a situation where the two choices are economically the same. I can
buy or rent an identical house for a cost that has the same net present
value. You would say that the purchased house is an investment. Can I
then say that renting the same house is an equivalent investment
opportunity?

-Will

william dot trice at ngc dot com

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kastnna wrote:
- quote -

[comments snipped in accordance with posting guidelines, and
apologies to the moderators for the length of this posting]

- quote -

First, I'll try to make one reply do the work of two -- Will, I wasn't
ticked, no problems there. I do appreciate a good conversation, frankly
I was worried about me being too argumentative.

Will, I can only repeat, when you buy a house, a significant portion of
what you buy, namely the land and/or the intangible benefits of living
in a certain location, are not consumed no matter how long you live
there, and everyone *does* expect the value of those things to increase
over time (how else to explain why owning a closet in Manhattan can cost
a million dollars?)

For both you and kastnna and others -- maybe it wasn't really clear, but
I was also trying to bring in the concept of "opportunity cost". Since
I started down this path, let me quote again from an Investopedia
definition: "The difference in return between a chosen investment and
one that is necessarily passed up."

Consider a house owned "free and clear" and occupied by someone who
dies. The fact that they never sold nor intended to sell in their
lifetime has no bearing on whether it is investment. Think of a Roth
IRA that someone never plans to, and never does, make withdrawals from
during their life -- still an investment, right? Just one they plan to
leave to their heirs.

Now, suppose the heirs are trying to sell the empty house. Let's say
they could easily get $300K net after sales expense, but are holding out
for more. Suppose they could also park $300K cash in a "safe" bank
account and earn 4% simple interest (to keep the math easy --
$1K/month). It's pretty clear to me that every month they hold out for
a higher asking price is costing them $1K. If they wait six months and
finally get $306K for the house, they have only just broken even (even
though probate judges don't seem to get this concept).

Bring this back to the living homeowner: if you *don't* consider the
house an investment, or if it is in fact not gaining any value as an
investment, then that $1k/month needs to be added in to their total cost
of shelter (in the first case), or considered as negative return on
investment (the second case). It has to be accounted for somewhere.

Kastnaa, the valuable wine is a collectible, just like stamps, coins,
artwork, and so on. There is an opportunity cost to hanging on to it,
and if you end up drinking it, you've basically cashed in your
investment and spent it on yourself. How is this different from
starting a "wine fund" with some cash, letting it grow for a few
decades, and the using the proceeds of the investment to buy and then
immediately drink an expensive bottle of wine?

To summarize: I fully understand why it's wise to not treat a temporary
bubble in housing prices as a reason to stop saving for retirement or to
borrow more, but to me that's a different issue from understanding the
investment decision you're making when choosing between renting
(unbundled shelter) and owning (bundled shelter plus investment).

Which once again brings me back to the original subject of this thread:
there is so much propaganda that says "buy a home instead of rent if at
all possible", that many who should have carefully evaluated whether
such an investment fit their situation and goals, instead jumped
desperately at what they thought was their last best chance to buy into
the "American dream". So much attention is given to warning investors in
securities what they are getting into, but there should be the same
warnings when it comes to buying houses. Of course the realtors and
mortgage brokers and home builders wouldn't like that.

-Mark Bole

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On Jul 18, 10:05*am, Will Trice <wtr...[at]notmonitored.com> wrote:

- quote -

I am still on the fence about this issue, but I will say that I think
the definition in question is "broken".

The statement "an investment is the purchase of goods that are not
consumed today BUT are used in the future to create wealth" omits
provably existing alternatives. The word "but" creates an "either/or"
situation. In this case, you either consume it (not an investment) or
save it (an investment). However, in reality those are not the only
options. You can partially consume, yet still save some. The
definition seems to deny that possibility.

ISTM that a house falls under the "some of each" scenario. At any
given time a house can be a consumption good or an investment and,
more importantly, the same house can freely switch between the two.
One could hypothetically buy a house, and live in it, all the while
intending to later sell it, move into a smaller house (or rent), and
pocket the profit. I don't see how a reasonable person wouldn't
consider that an investment. Or the same person could buy the same
house with the intention of never selling it, never making a penny off
of it, not caring if it ever appreciates, and living in it until
death. That, I don't feel, is an investment.

My $0.02: the definition to which the argument is being applied is
flawed and thus a source of conflict. Whether it should or not, intent
plays a role in investing (especially with real and personal
property). I, for instance, collect wine. I have some wines that are
worth 10x what I paid for them, but it does not matter because I will
never sell them and someday I will consume them. However, I have
others that I purchased simply because I felt the wine to be
undervalued and I have every intention of selling them when the time
is right.

My only source of conflict with the above is thus: even if I have no
intention of selling a bottle, does the fact that I COULD still make
it an investment?

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Mark Bole wrote:
- quote -

Sheez, dude, I'm not trying to tick you off. I thought we were having a
fun conversation here. That's the problem with text, it's difficult to
assess mood and intent. So let's start over - go crack a beer before
you read this, though...

You consider the house that you own and live in to be an investment. I
don't (under most circumstances), but I can certainly understand why you
do. A portion of the definition you quoted read, "In an economic sense,
an investment is the purchase of goods that are not consumed today but
are used in the future to create wealth." I understand that this is not
the end-all be-all definition of an investment, but I was pointing out
that the house you're living in fails this part of your definition. A
house you're living in is not saved until the future as implied by this
sentence. I would assert, as other do here, that you are consuming your
primary house by living in it. And just like the consumption of other
durable goods, that consumption is evidenced by the wear you put on your
house. Obviously there are components of the house that do not
experience wear, or at least no additional wear, due to the fact that
you are occupying the house, like the frame and foundation, barring
catastrophic events like burning the place down. But once the house is
built, the frame and foundation are not usually separable from the rest
of the house in terms of value. In other words, when you buy a house to
live in, you usually buy all the subcomponents as well - the land, the
interior, the frame, the foundation, the driveway. This is usually sold
as a unit as well.

If it wasn't so early, I'd go crack a beer myself. It must be 5pm
somewhere, right?

-Will

william dot trice at ngc dot com

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I finally understand how banks made risk short of "disappearing" when
lending to sub-prime borrowers. Of course, the massive defaults were
written on the wall when many of such contracts were ARMs at all-time
low interest rates.

Thanks for the explanation.

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"Coffee's For Closers" wrote
- quote -

I expect that car financers use an algorithm similar to
FICO's. The FICO algorithm rewards consumers for paying down
debt regularly. No mortgage = no regular shelter payment.
Rent = regular shelter payment = regular debt payment.

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Will Trice wrote:
- quote -


No, of course my car is not an investment, because I'm not holding it to
generate future wealth.

Are you still arguing about whether or not the investopedia definition
of "investment" applies to a house someone buys to live in? First you
were trying to claim it didn't, because some components of the house
wear out and are replaced, and now I'm not sure what you are trying to
say about the components such as the foundation and frame that *don't*
wear out over any normal period of ownership by an individual.

Even Elizabeth Richardson, to whom I originally replied, has
acknowledged that yes, there is an investment component to her house. I
don't understand why you are resisting this so mightily, but before I
"suck all the nutrients out of this thread", I'll give it a rest now.

-Mark Bole

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In article <1nlek.27529$i55.25370[at]newsfe22.lga> ,
honda.lioness[at]spamnocox.net says...
- quote -


- quote -


Well, the homeowner vs renter is also a matter of stability. An
owner has a much bigger hassle involved with moving. A car
dealer wants to know where you live (and are likely to continue
living) in case they need to come over and repossess the vehicle.
A renter poses a bigger risk of suddenly disappearing with the
collateral.

Of course, a long time at the same residence looks good for
either owners or renters. But I would expect that owning looks
generally better, regardless of time frame.


- quote -


Why? I would expect exactly the opposite. The person with low
or no mortgage burden has a lot more flexibility, including in a
crisis. Whereas the renter might lose his/her job, and have to
choose between making the housing payment or the car payment.
Especially if the rent is relatively high. And a long residence
period doesn't really help in that circumstance.


--
Get Credit Where Credit Is Due
http://www.cardreport.com/
Credit Tools, Reference, and Forum

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Mark Bole wrote:

- quote -

I doubt many would agree that the foundation or the frame of your house
should be considered an investment. Do you consider the frame of your
car to be an investment? The house as a whole maybe, but only if you do
all the maintenance which you mentioned.

-Will

william dot trice at ngc dot com

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Will Trice wrote:

- quote -

Yes, there are some superficial components of the house which are
consumed, although they tend to be replaced at an equal or greater rate
than they are consumed. (In my case, many of the items you mention are
in better shape now than they were when I bought my house 24 years ago).
These items clearly are part of the shelter component, not the
investment component.

But when you buy a house, a large part of your investment consists of
intangible assets, such as proximity to transportation, jobs, shopping,
culture, parks, hospitals, recreation, as well as the quality of local
school districts, the crime rate, even the weather. Those are not
consumed, no matter how long I live there, but they can increase or
decrease the cost of my investment, and rate of return, quite dramatically.

So, between the land, the foundation and frame, and the intangibles,
there is still a very large portion of the value of my house which is
not consumed by my living there, and which very easily meets the
definition of an investment.

-Mark Bole

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On 2008-07-13 09:11:04 -0700, joetaxpayer <joetaxpayer[at]nospam.com> said:

- quote -

Yes, it certainly is difficult to plan far in advance, even if you
don't consider unforseen things like major illness, loss of a job,
divorce, etc. It seems to me that building up equity in a house is a
big plus and does not require as much effort and discipline as putting
away cash in a mutual fund or CD or whatever, where there is always a
temptation to take out money for this or that purpose. I like the
"forced savings" aspect of home ownership.

Another plan I have seen work well is buying a condo in a resort area
(or a cabin on the lake, or whatever) with the intention of paying down
the mortgage gradually over the years and eventually retiring and
living in it. The value of that kind of vacation property can increase
over the years, and the mortgage payments can be helped by renting it
to tenants part of the time.

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Mark Bole wrote:
- quote -

Or net present value. Or other measures depending on your their
importance to the prospective renter/buyer.

- quote -

Maybe your lot then is an investment (although you're still probably
leaching nutrients and doing your part to decrease the water table).
But you buy the lot with the house on it. A house where you are adding
wear to the carpets, light bulbs, floors, interior paint, driveway,
garage, light switches, motors, appliances, plumbing fixtures, furnace,
air conditioner, hot water heater, woodwork, etc. By living it it, you
are drastically increasing its risk of going up in flames (ignoring foul
play). In other words, you are consuming the house.

-Will

william dot trice at ngc dot com

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machinamentum[at]gmail.com wrote:
- quote -

Absolutely -- they need to understand the difference between liquid and
illiquid assets.

- quote -

But that's part of the propaganda -- "you should buy instead of rent
because you'll build equity". Perhaps your view stated above should be
required language in all ads by realty agents, home builders, and
mortgage lenders, something like: "Warning: prospective home buyers
should not take any present or future equity in a home purchase into
account when considering their overall financial goals". That is what
you said, right? ;-)

The cognitive dissonance on this subject is truly astounding...

- quote -

That's what reverse mortgages are for -- people whose emotional
attachment to a particular investment causes them to hang on to it long
after it stops being a good fit for their needs.

-Mark Bole

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Don wrote:

- quote -

First, I can share a similar anecdote - my 80 yr old client. Husband
passed a few years ago, and I knew the house was a burden between the
taxes and upkeep. Not for cash, but for the ongoing things that needed
to be tended to. She sold it for $500K, and moved to a retirement Condo,
which has assisted living as part of the complex. Unit cost $350K.

This validates your approach, but I'd suggest that it's far tougher to
plan this so far in advance. At 45, I can know my savings vs my current
income, I even have a fuzzy idea of my projected SS benefits, but I
can't say when my wife and I are likely to build the retirement house,
and therefore have no idea what fraction of my home's current value to
count as being 'freed up' to add to my numbers. I'll concede that this
isn't impossible. For some, even in their 40's they may know just where
they wish to move and knowing the relative cost of living between the
two cities, they are good to plan X% of their old house as part of
savings. (maybe those good planners wonder why I am so clueless on that
long term goal for myself.)

Joe

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On Jul 9, 7:30*pm, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:
- quote -


I agree with this, including your primary home equity skews a persons
view on the how successful they are at saving and financial planning.

There's nothing wrong with getting older and wanting a smaller place,
but there is something wrong with being forced to downgrade because
you home is also your retirement fund.

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"Mark Bole" <makbo[at]pacbell.net> wrote
On a home as an "investment" --
- quote -

If one is seeking financing at a car dealership (for one),
it's true "Do you own your home or rent?" will be on the
credit application. But such applications also ask the
amount of the mortgage/rent payment and how long one has
resided at the home/apartment. When it comes to car
financing, I think a high monthly rent payment and long
residence at the same apartment may be more advantageous
than owning a home with a small (or non-existent) mortgage.

Either way, neither home owner nor renter should think his
or her credit score measures the overall soundness of his or
her financial situation. As a factual matter, it does not.

Elizabeth and Joe: What you all said about not fussing over
how much one's home is returning as an "investment." I
personally do not perceive the value of my humble little
home the same way I perceive the value of my stock
portfolio. Good things, whose value cannot be measured,
happen in a home. <snip drippy sentiment to spare the more
staid element of MIFP <wink>
Mr. Weldon, I grappled with and then "got" your quotation.
Part of the grappling was reading this slightly different
version, turned up by google: Más sabe el diablo por viejo
que por diablo. (The devil knows more because he is old, not
because he is a devil.)

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