In most areas a $100,000 house is a starter home (as was my first home, purchased in 2003). Working on the bathroom, kitchen and floors (going to hardwood) myself, I still put another $10,000 or so into the house, not counting the value of my labor.

So, I intend to put the house on the market next year (5 years after I bought it). I’ve paid roughly $60,000 over that period to live in the house, and if I’m really lucky I’ll sell it for about $130,000, which will put about $50,000 in my pocket. To anyone with basic math skills, I’m taking a $10,000 loss on the house, if I sell it for the highest possible price. In reality, I’ll probably sell for $110,000-$120,000 so I don’t have to leave the thing on the market for a year as some of my neighbors have.

Worse yet, I’m a 28 year old graduate student and my wife is the same age and also working on her Master’s degree. We’ll graduate next year and have to start looking for new jobs in our fields. If you own a house, you’re tied to your area for as long as it takes to move the thing (which at this point, could take a long time indeed).

It just seems ridiculous for a young person to tie so much of their money up into a house, having no idea what’s going to happen in the next 5, 10 and definately 30 years. My 401k has averaged about 13% over the same period of time that my home values have averaged about 5% return. My 401k doesn’t tie me down, doesn’t require hundreds of hours of maintenance, and if it starts losing money, I can redistribute my holdings.

I’m not sure where the idea that homes were a good investment started, but those people should be sued.

That may be the case in non-bubble areas (esp. the Midwest.) It’s definitely not the case here in the Bay Area, where there hasn’t been a good time to buy property since 1997.

Let’s take a look at the numbers. A good rule of thumb for housing prices is 200x rent. That is, take the monthly rent that the property would have, multiply by 200, and if that’s more than the sale price, that means the place is a good deal.

The two sides of this duplex rent for $1550 (mine) and $1250 (other side) respectively. $1550 + $1250 x 200 = $560,000. So at $560K or less, this place is a good deal.

My landlord bought in March 2004 for $625,000 and put $200,000 down. Even then, he is only JUST paying off the mortgage every month. He is not making positive cash flow. By any standards, this is a terrible investment — unless you’re hoping for insane appreciation. But it’s likely that by 2011, this place will be worth LESS than $625,000 (I’d place my bets on that.) Even if it is still worth exactly $625,000, inflation will have taken out any gains my landlord might hope to see.

The only reason to buy in the Bay Area is to hope and pray for insane appreciation. Those who bought pre-2000 have seen it (prices have doubled here since then), but those gains, much like the ocean’s tide, will recede. If my landlord were to sell now, I’d say he could get $800K for the place, but he intends to hold the bag, and he’s not going to do very well in the future. I will come out ahead by saving and investing in my business rather than in the ridiculous real estate market.

Unfortunately, that’s not the case in the Bay Area. Especially where Slashchick lives, renting is cheaper than the mortage. Prices are so overblown for buying properties, but rents are thankfully still sane.

Add to that fact that the bubble’s about to burst here (the beginning’s already being seen) and anyone who just bought a house is about to lose 40% of what was paid upfront… renting is the only sane option at this point in time.

There will come a point in time a few years out when buying a house in the Bay Area is a sane option, but that sure isn’t now.

Also if I need to move again, I’m a lot more mobile. I’ve found that people in ATL move a LOT. Usually to a different part of the city closer to a new job or to a better neighborhood, etc. Yeah, I’d like to have a house down here one day, but it’s a BAD DECISION right now.

Renting is throwing your money completely out the door. Its the epitome of a bad investment.

But as I said in AIM: Imagine the damage that it would have caused 6 months to a year down the road? Replacing the tile, etc, is nothing compared to having to replace the whole wall.