Comment of the Day: What You Inner Loopers Got Wrong

COMMENT OF THE DAY: WHAT YOU INNER LOOPERS GOT WRONG “. . . You could have bought a 3,000 sqft home in the burbs for $250,000 and put the $500,000 you saved in an investment that has a return that is better than 3%. Not to mention the money you had to spend putting a couple of kids through private school. The idea that residential real estate is a good investment is not supported by the data during a time of record low interest rates. Once the fed starts to raise rates again you are going to have trouble selling those homes that sit on expensive land for what you have in them. The only people that made off like bandits in the last decade in Houston were those who bought a single family home on a 7,000 sqft lot and replaced it with several single family townhomes.” [Dave Swank, commenting on Shops Replacing San Jacinto Stone, Just North of the South-of-the-Heights Walmart]

38 Comment

  • Where did you get these facts from?

  • Nice quote. Too bad nary a word of it is true.

    The fact of the matter is that anyone who bought a single family home a decade ago on the west side of the inner loop has realized a MAJOR value increase over the last 10 years.

  • I live outside the beltway but would love to live in the loop walking distance to restaurants and bars and a short drive to all sorts of events. It’s not a matter of investment. Its a quality of life thing. I live in a location which is compromise given what I could afford. I hope to not lose money, but no one can predict very far into the future so who knows. All I know is your analysis is irrelevant to most home buyers, who are looking for a place to live first, not invest.

  • Buy a house in the burbs and ruin my quality of life by having to drive everywhere / deal with rush hour traffic…? No thanks.

  • ummmm…how about a) commute time b) the relative instability of prices in the burbs (Shaprstown used to be a suburb) and c) the redneck factor in the burbs…can’t put a price on THAT

  • All aspiring George Costanzas’ know that nobody is going to give you a loan for an investment in the markets – that’s what makes investment in PROPERTY unique and attractive.

  • Someone with that logic will never achieve financial independence. Here’s why: I put down $40k on a Heights house 6 yrs ago that now has increased $90k above my purchase price. Renters have continually been paying my mortgage down for years. So if I were to sell now I’d get my 40k back plus another $100k. That’s 250% profit. Successful investors make wealth from other peoples money. I’ve done the same thing in Florida and already have 75% roi in just 18 months. I could pay cash for a $250k suburban home but why? Not when I can use other people’s money.

  • Well, I bought a house in Montrose in 1988 for $100,000 (lot size over 6,000sq ft. It was a duplex and during that time my renters paid for 3/4 of the mortgage. We put the money we would have paid on the mortgage into various 401ks and annuities. I saved 1.5 (3 counting my husbands time) hours or more per day NOT commuting to Katy any longer. Not to mention saving on wear and tear on my car and gas and mental health.

    You do not even want to know how much I sold it for this year. Suffice it to say, I paid cash for my house on Padre Island and don’t ever have to work again unless I want to.

    The new owners didn’t tear it down and build 6 townhomes.


  • but then I would have to live in the suburbs.

    In theory the differences in land prices(which lead to the difference in density) are balanced out by the differences in transportation costs. My car will last twenty years to your’s five, and each year I will spend 1/4 the amount on vehicle maintenance and gas. Plus, I get an extra hour of life each work day that you have to spend driving. So the total return/cost on a house in the suburb is equal to that of a house in the city.

    In the end though,
    People have different preferences. I prefer excitement, diversity of entertainment, and not driving. You prefer peace, quiet, and a lot of space.

  • Hmm. For less than $300k, you can buy a decent house in Timbergrove on a good sized lot, close to everything in town and near decent schools. There’s more than just the Heights in the NW quadrant of the Inner Loop.

  • Anyone who is putting out 750k for a house inside the loop is pulling in enough income that they are not going to miss the 500k they could have invested had they chosen to live in Cypress or Katy.

  • This post is non-sense.

    West U. House purchased in 2000 for $600k. 2012 Value: 1.2mm

    That is far better than any 3% per annum growth on this investment you speak of.

    Even houses in EADO are cranking out 10% annual appreciation.

  • You know what they say about assumptions..

    Anyway, I don’t have kids, I drive 3 miles to work (and get to go home at lunch) and I paid less than your burb scenario for a similar sized house. In the loop.

    Each person needs to make smart financial choices for themselves. Only buy what you can afford so you can afford what you need??

  • Nothing like listening affluent people complain about which expensive house is the better investment, while a large portion of the city lives paycheck to paycheck and is just happy to make rent. Next up: which is the best brand of caviar….

  • And another thing – what do you think will happen at the end of the Fed easing, when we fall off the fiscal cliff and rates roof? That scenario is massively inflationary. There is no better place to be than owning leveraged real estate, in size, regardless of whether it’s in the loop or not.

  • We are about to experience a period of higher inflation but it won’t effect real estate, it is priced beyond most already. Food, fuel, commodities, and taxes going to hit us hard

  • I wouldn’t be opposed to interest rates ticking up some. It will stimulate the market some and help it align itself for all you home owners.
    A lot of that money the fed is putting out there is going into the stock market pushing it up.

  • Parents bought a lot and built a custom house in Southside Place for $600k in 1994. Sold it for $1.3 in 2004.

  • The morning drive was being reported this morning as almost an hour and a half from GP down I10 to inside the loop. Every penny you saved by buying a home way out there goes right into your gas tank to sit in traffic for at minimum 2 hours a day.

    Living in the loop, I go the opposite direction, my commute is 15minutes door to door, and I don’t waste gas creeping 5mph down the freeway.

    Having lived outside the beltway, and working in greenway, I know how frustrating traffic is, so much so that I used to saddle up to the renaissance hotel bar and wait till about 7 or 8pm to drive home most evenings. I even saved money buying $8 mixed drinks rather than pumping gas through my car at 5mph.

  • I have no doubt most inner-loopers who are coughing up 300-400K+ for their houses are both living paycheck to paycheck and they took out as large of a loan as they got approved for. I live out in the burbs because on my income I can have twice the house that I could in the city for the same price. This is not to say that buying a house in Garden Oaks 10 years ago wouldn’t have been a good investment. However I think it’s ridiculous when someone pays 675K to live in a 3000 Sq/Ft house near Richmond and Newcastle that’s 50 years or more old and they rely on TWO incomes to maintain their lifestyle and live there. Why not move out to Sweetwater or Greatwood and get a larger house for a third of the cost and invest the money in college funds for their kids, pay off the mortgage sooner, or buy a freaking beach house?!

  • I’m going to have to get on the inner loop bandwagon here because Dave’s theory is ridiculous, and I know from experience having made the move from Kingwood area to Lazybrook. Your house may be cheaper out there, but as others have stated, the quality of life is not the same. Further, transportation costs are astronomical. Gas/vehicle maintenance/depreciation/etc. I now have a car that actually has value because the mileage is so low, and I spend a fraction of the money I used to on gas/oil changes/tire and brake replacement/the list could go on. The biggest value is time though. Commuters, add up how much you spend per day in your car and multiply it over your working lifetime. When I figured out that I would spend nearly three years of my life commuting so I could live in a cheap suburban area that I highly disliked, I threw in the towel and made the move as quickly as I could unload my difficult to sell suburban digs (which by the way has appreciated ZERO in the six years since we sold it). Now, I live in a great neighborhood, close to everything, in a house purchased for the about the amount referenced above, and it has appreciated more than ten percent in the three years I have owned it. The savings in transporation costs alone make up for the mortgage payment difference. Keep deluding yourself Mr. Swank, but while you do, I’ll remain an inner looper!

  • I don’t understand the constant bickering on here about living inside the loop or out in the burbs. Live where you want to live for your own reasons. Who care where other people live or don’t live?

  • This is not to say that buying a house in Garden Oaks 10 years ago wouldn’t have been a good investment. However I think it’s ridiculous when someone pays 675K to live in a 3000 Sq/Ft house near Richmond and Newcastle that’s 50 years or more old and they rely on TWO incomes to maintain their lifestyle and live there

    Who’s to say it takes two incomes to pay for a 675K house? Because you don’t make that kind of money? Your value judgements on inner loopers are just as invalid as inner looper judgements on you and your fellow exurbanites. We each bought where we felt we maximized the value for our money and telling us otherwise is just an exercise in futility. Circumstances may change where you feel you need to spend more money closer in. That didn’t make your personal judgement earlier wrong, just that you had a different set of requirements.

    I also continually point out that one man’s urban core today was also yesterday’s suburb, so gloating heights urbanites should remember that they live in a 1920’s suburb and not everyone that lives in Cinco is driving to downtown, so why should they pick the inner loop to live.

    Let Houston continue to be dynamic and people to enjoy their part of it.

  • The near two hours a day saved in commuting more than justify it for me. Time is money. I also have seen a 25% value increase in my Heights home in just 3 years… My scenario is not the normal, but I just can’t see myself sinking money out in the burb’s as a wise investment.

  • I am an inner loop home owner, so that should tell you where I fall on certain aspects of the above debate. What I want to weigh in on here is how people think about investment return on their houses.

    Most people say “I bought it for x and sold it for y, so I made an (y-x)/x return on my house” which really isn’t the case. That formula can tell you your total appreciation in market value, but that is not the same as your ROI.

    To get closer to calculating an accurate nominal return, you need deduct the following from y: total in real estate taxes you paid while you owned the home, total expenses for repairs and maintenance, total amount of insurance premiums, the total interest and fees you paid to a lender before paying off your mortgage, and any commissions you paid to a realtor. You can then add back any income tax benefit you got for deducting your interest payments as well as any income you got from renting out all or part of your property.
    If you wanted to take things to the next level you could discount these cash flows and also convert nominal dollars to real, but I think even with just doing the above exercise most people will find that they didn’t really make as much money on their house as they think they did, and unless you manage to time your purchase, sale, and hold period just right, home values really have to appreciate significantly each year for the regular homeowner to just break even on it as a pure investment.
    That said, I think there are a lot of other very good arguments in favor of home ownership, including some financial ones. My point is just that if you bought a house for $100K and sold it 10 years later for $200K, you didn’t actually get a 10% annual return unless your property was tax exempt, you paid cash (and had a separate account set up to hedge inflation and compensate you for the cost of that capital being tied up for ten years), sold it yourself, didn’t buy homeowner’s or flood insurance, and never made any repairs.

  • I miss the olden days, when almost no yuppies wanted to live inside the loop. Y’alls have really f’d that up.

  • Some of the math that various posters have used appears to be a bit suspect to me–or, at the very least, is quite selective in determining what inputs to use in order to show a gain on a real estate “investment.”

    I realize that few want to admit that they have ever lost money on a deal, but in real life, not every one wins. I also realize that on an relatively anonymous internet board, everyone is rich, beautiful, and successful in all of their endeavors.

    So forgive me for having my doubts about the veracity of some posters’ comments.

    That being said, I think that Houston’s real estate market has been heavily influenced by rising (or at least reasonably steady) commodity prices (save for the mini-crash of 2007/2008), and that it would be unwise to think that the days of recent past will continue on forever.

    If the experience of those in places outside of Houston (or even Texas) in regards to real estate prices have shown anything, it should be the fallacy of the the idea that real estate can only go up in a particular location.

    So for those who claim to have made money in Houston real estate (using what appear, on their face, to be highly selective accounting methods), I can only wonder what you are comparing your “win” to, and what you are now doing in terms of housing.

    Unless you have downsized significantly (particularly in terms of cost of housing), you haven’t really won anything, since you effectively traded an appreciating asset for an asset that has already appreciated. And given that Texas real estate is already rather economically priced, I’m not entirely sure how much price-downsizing availability there really is.

    And, in regards to the comments touching on the (likely soon-to-appear) inflation issue, in an inflationary environment, your house may be worth more and your (fixed-rate) mortgage cost less due to inflation, but since most buyers can only afford a certain monthly payment (whatever it may be), in a higher-interest rate environment your previously affordable house just became less so to a potential buyer. So while you may be in a good situation, good luck trying to sell the place and move on to other opportunities.

    Ultimately, though, a house is a place to live, and is not an investment. So the posts by others of “only buy what you can afford so you can afford what you need” and “live where you want to live for your own reasons” are the best—and most accurate–in this thread.

  • My Heights house was a great investment. Bought in 2005 for $270k and sold in 2009 for $380k. Enabled me to have a nice downpayment on a suburban home for the family. Of course, I had to move to realize the gain. But you know what? The “quality of life” loss that I expected in the suburbs did not materialize.

  • oh look, a bunch of old people bragging about how much gains they got on their homes while bankrupting the state and country with low property taxes and market distorting mortgage deductions.

    good luck selling at these prices once the baby boomers die off.

  • @you didn’t earn that: Don’t forget that you do not pay any taxes on the gain you realize when you sell if you roll it into another home. My father made out like a bandit when he sold his home back east and bought summer and winter retirement properties with cash from the gains he made. And in Texas, your homestead is exempt from execution by creditors. A $500k investment would exceed the amount exempted for retirement accounts and be subject to the claims of creditors.

  • LOCATION, LOCATION, LOCATION! It costs more to purchase and provides better returns when you sell (even in a slow economy).

    If you have never lived inside the loop you should not comment on it. You must live it to know it.

  • I nominate @youdidn’tearnthat for post of the day. I too think people highly overstate the financial benefits of home ownership. At the end of the day, you’re likely just paying the cost of having a roof over your head.

  • From Random Poster:

    Dear Random, the only money I ever lost on a house was one I bought in Katy in 1983.

    Suburbs that far out won’t appreaciate like the inner loop.

    The bottom line is: It’s your home, don’t think of it as an investment. Live where you are most happy.

  • Just talked to a friend who lives in Sugarland and will be leaving his job at ExxonMobil when it moves from downtown to the Woodlands.
    You CAN get downtown from the Heights in 10-15 minutes, but we live in a city with a lot of different employment centers. Living ITL also allows one spouse to work in the Energy Corridor and the other at Greenspoint, or the Med Center, etc., with both having a reasonable (20-30 min) commute.

  • A home is not an investment. A home is a place to live. If more people thought that way rather than thinking about it as a way to make money, then we wouldn’t have had a housing bubble.

    On that note, having lived west of the Beltway and now living a block from West U I can certainly attest that living outside the loop sucks ba11$.

  • Though some people (from above) may THINK that “a house is a place to live, and is not an investment” or that ” or “A home is not an investment. A home is a place to live”–the reality (and, yes, I do believe that there is some kind of verifiable, fundamental reality out there) is that is is BOTH of those things. Some people simple choose to assign more value to one than the other–or to ignore one or the other completely when making a buying / selling / renting decision.

    And that’s fine.

    But it doesn’t change the fact that if you buy right (price & location) you can not only have a great home–you can accumulate significant equity for yourself by simply living in the house and paying the mortgage (or renting the house and letting your tenant pay the mortgage).

    So, given that choice–the choice to either own a home and accumulate significant equity–or to own a home and NOT accumulate significant equity–perhaps even accumulating great debt (by over-paying up front and/or by choosing to own property in areas that are stagnating or depreciating in value rather than appreciating)–WHAT PERSON IN THEIR RIGHT MINDS WOULD CHOOSE THE LATTER?

    The problem is that we (humans) don’t always make rational decisions. If we did, the foreclosure rates, bankruptcy rates, and divorce rates would not be so high. We are not machines. We are not purely rational. And that’s a beautiful thing.

    So, if you made a killing on your last home–great. If you didn’t–no biggie. Time is the great equalizer.

  • To all of your inner loopers extolling the virtues of your short commutes – would you live in a suburb if you worked in that suburb? Somehow I doubt it…

  • @bwdance,

    Busted! I’ve lived within a one-mile radius, in several directions, of Lucky Burger for 25+ years. During that time, I’ve worked in Clear Lake, Atascocita, Energy Corridor, Galleria area, and Midtown.

    So, no, even if I worked in a suburb I still wouldn’t live out there.

    I’m living where I want to live, which isn’t necessarily where everyone else wants to live, and that’s fine. The currently short commute is just gravy.