“Don’t Buy a Home As an Investment” A Faulty Logic and Fuzzy Math
While I was reading the Sunday paper I came across this article from The Wall Street Journal and got intrigued by the title. Don’t Buy a Home as an Investment: After Costs, It Typically Doesn’t Yield Much. Think of It as a Place to Live.
I always enjoy the Wall Street Journal’s columns and generally agree with them. However, in this column listed above, the author came to his conclusion first and then tried to justify it. He neglected to include several important factors and then he discounted his extraordinary return on his Manhattan apartment for no apparent reason. Read more here: Don’t Buy a Home as an Investment
Dear Mr. Clements:
As for your Manhattan apartment, it was a “home run” in any way you look at it. We can disagree as to the amount of the investment return, but not as to the overall picture of a huge gain in two years. Again, was this apartment purchased for 100% cash? You neglect to include this very important fact which affects your investment return (I.e. you did not invest the full purchase price of $570k plus $7k of closing costs, only a certain percent of this). Therefore, your net sales price of $750k (i.e. $800k minus $50k in closing costs) gets compared to your investment (whatever amount that might have been). Once we know that number, we can determine the investment return.
All that said, I will agree that the investment return for real estate is not always as high as it looks. But, the beauty of this investment is the leverage that you get from mortgage financing (which is my business). To fail to properly include this information on your analysis of your two home purchases is, if inadvertently omitted, at a minimum, a disservice to your readers. If it was done intentionally, then it is just another example of improper journalism where the facts were manipulated to support the conclusion. I am hoping that it was the former. If so, please provide a follow up so that your readers can get a more complete picture of the situation.
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