There is a lot of talk about homes being an “investment.” While this is (or can be) true, it is not as assured as one would like to think. The reality is that the house is really only as valuable as the land that it sits on, and that is relative to the myriad of social and economic factors in place at the time the land is purchased. While the land may have “X” value when purchased, it can be either negatively or positively impacted by what happens around it. For example if a prison or an airport gets put next door, the value might go down. On the other hand if oil or gold is discovered the value would most likely go up. What is the value of the house that doesn’t exist yet on a piece of property? Sounds like a ridiculous question I know, but I am just trying to get across the ideas that the house starts out a “zero” value----or simply the value of the land. Maggie Microsoft comes along and builds a McMansion and the value of the house is X plus the cost to construct the home----let’s say 2X. Now time goes by and Maggie sells the house to Margaret for 3X----netting a nifty profit. The question is: “Can the house always appreciate in value?” I would argue that not only is the answer, “No,” but that “eventually” the house returns to no value----it is all a matter of who’s watch it happens under. We all keep our fingers crossed that it doesn’t happen under our watch. 
Charles Buell
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Click on the Rose to check out: AHA!---A Forum of Landmark Proportions---your Group
PS, for those of you that are new to my blog (or for some other "unexplained" reason have never noticed)all pictures and smiley-face inserts (emoticons) (when I use them) have messages that show up when you point at them with your cursor.
My WORDLESS WEDNESDAY pictures and some selected POEMS & STORIES.
Charles, you start with the value of the land and then add the value of the house based on comparables. A house should not be looked at as an investment but shelter.
Wow Charles your post is so timely to my life right now. I just listed a house with NO VALUE. You know one that takes away from the value of the land because it needs to be pushed down or burned up. I wanted you to see it for yourself, so please pop over and scroll down in my post to see the pictures.
Gary, I agree---but I bet there are a lot of people that don't look at it that way:)
Tammy, as I said over at your post---looks like our houses went to different schools together:)
Definately have that same ivy thing going on. Of course I'm thinking the best difference is that the one in your post isn't some poor brokers new listing like mine! I keep telling them * the bank* to get rid of the house and I can get more for the land. So far that idea is no go.
Tammy, are they operating under the "there is a sucker born every day" principle?
Hi Charles: That looks like a good building site - no wait there is a house there - couldn't see it because of the camouflage - LOL
:)
Matt do you suppose it is "broom clean?"
In the south, we'd call this a cute little cottage that needs a little TLC.
Mr Charles,
My relatives would enjoy that house. However, it seems to me that you are supporting your equation with a photo of a composting house.
Nutsy
Hmm this looks like a lovely place in my home town in Finland. Yes values are non existing in some huts. LOL. ~Rita
Charles, reminds me of some of my recent inspections. Getting back to nature, or is it nature getting back.
Charlie - There are stil a lot of people who are trying to purchase in this market who question the timing and are afraid they are not going to get the same deal they would if maybe they wait another month or two. Depreciation? Not on my watch? That's ridiculous. How can somebody even put a price tag on one's quality of life. If we haven't hit bottom yet we've got to be pretty darn close. I agree with Gary - a home is a shelter, not a bank account. And, even if a house burns to the ground, the land is worth something (and so is the home owner's policy). The key to not seeing significant depreciation is annual maintenance, upkeep and occasional updating.
Hey Charles,
where did you get a photo of my summer cottage from? Please return it!
Barbara---it sure does need TLC unless Nutsy is going to live there
Nutsy---it does kind of look like your house doesn't it?
Rita, can you say fire sale?
Jack, sooner or later all structures go back to nature----even the pyramids
Carol I think there are lots of people that live as though their houses are bank accounts.
Tony, sorry I forgot to give you credit. Tony what are you planning to fix next?
If you really want to get philosophical, nothing material real has value.
There are lots of places similar to that in parts of Skagit County on some backwoods roads down near Bow and Edison.
Hmmm interesting -so if you rennovate a home it would add no value to the home.........charles you've got me confused.........:-)
Charles, That looks like my house up there! I am the odd one on this as an investor I do not think of my personal house as an investment, more of a liability (or lifestyle expense) This is just how I think about this. Regards,
that was great fun reading the blog and associated comments. I loved all the photos - shack,kids, animals, etc.
A house can actually add negative value if it needs to be demolished before building a new home. The demolition costs would need to be deducted from the land value.
James---so true
Steve---but this IS your house:)
Liz, I am just making the point the value is so relative to so many things----many of them pschological, some illusory---some even wishful thinking.
Pete, I like the idea of "lifestyle expense"----so true
An, thanks
Maureen---for sure
Charles,
Value is so relative. There are hundreds of homes in my community and across the land that have not sold because your are right on. So many people think their home has a certain value. Value is so relative and elusive. Ask those people who paid 600 K for their homes two years ago and can't sell them for even 200 now.
Charles...before and after what ever improvement could possibly be made you have the land, The ultimate property "investment" is the land...it is mostly up from raw.
Paul, people hear the stories about how so-and-so bought their house in 1976 for $60,000 and just sold it for $860,000 and thinks it means something more than that they got lucky. The guy that just bought it for $860,000 does not feel so lucky that he can't sell it for $260,000 and will not be able to make the payments on it long enough to regain the $860,000 value.
Steve, raw land is always going to be less risky----but nothing is without some risk.
I enjoy my house. I feel blessed to have my name on the deed. I bought it when the market was just about to turn--I didn't pay too much, but then there was a small window that if I wanted to sell, I could have made $80,000 on it -- in a short amount to time. But I DIDN'T want to sell. I wanted to live here. And so that magical number is gone . . . and perhaps in the years to come it will see that appreciation in equity again. But, I love my house. I feel blessed to have it. I have updated it since buying it, painted it my colors, and landscaped the outside to make it more "me" . . . I hate dislike my neighbors, A LOT, but I still like my home. And, I deduct the mortgage interest payment each tax season, and say a silent "thank you" to whatever Congress or Senate that passed that bill along way back when!
Good analogy on a houses worth... very true too.
Charles...
"Under all is the land." That's the founding principle of the National Association of Realtors!
Be it ever so humble there's no place like home.
Patricia Aulson/Portsmouth NH Real Estate
Carla, our homes I think, do have more value as a place to live than as a place to make money off of.
Kim, thanks
Richard---excellent point---it is what it all comes back to isn't it?
Patricia---so true
Great post, and very true. In the last few years everyone was absolutley insane and beleiving it can only rise in value. Their agents also believed it.
Value here , though flat and still active is still a matter of perception. We are experiencing, in some of the more desirable areas, sales of homes that are torn down and new structures built. Appraisals are still holding steady but you better have comps to support the sales price!
Your missing the point . . ."Cozy Country Cottage with Garden . . . ' Priced to sell!
Jim, it seemed to be a reverse "sky is falling" syndrome:)
Russell, it is always about "faith" isn't it? or Confidence?
Gene---ahh yes---how silly of me:)
Hi Charles -- Demand drives a lot of value. One can dramatically improve the condition, price it beyond competitive, but if there is little or no demand, it is what it is.
Oh my.. this is a little over grown. Hate to see the inside of this home.
If we could only go back to the simpler things in life, instead of chasing paper over the value of something that rightfully belongs to very single human being. We all have to live here, so...
Mr Charles,
It took them a few days but I see that Active Rain, at my suggestion, featured this blog. Congratulations.
Nutsy, from one hot dog to another
Chris, it can be quite the dance we dance when we take our homes past what we really need.
Roland---pretty much like the outside----just indoor plants is all:)
William your comment deserves repeating: "If we could only go back to the simpler things in life, instead of chasing paper over the value of something that rightfully belongs to very single human being. We all have to live here, so..."
Nutsy thanks (I can't believe I am thanking a squirrel)
I am constantly trying to explain to clients with well outdated or in poor repair houses that land is the asset, but the house is a liability. If you don't maintain the liability then that's all you have left - a liability, one that can on occasion even eat up a large chunk of the asset's value!
Interesting, and I do get the point. Dust to dust and all. But I just read that the wealth of people who own a home compared to those who rent is 50:1. Sounds like a pretty good investment to me....
It's only as valuable as people want to think it is.
Lovely photo. A little TLC and it should clean up real nice, make a cozy little home.
I love what Barbara said,
"In the south, we'd call this a cute little cottage that needs a little TLC."
We have a lot of homes that look like that around here.
The real value of my home comes from the laughter and joy my five grand-kids bring to it when they stay with me. I see its real value in the holiday meals spent sitting around the big table, discussing all the topics that the family swore they wouldn't mention. The value of my home radiates from a glowing fire in the living room fireplace on a rainy day. The value in my home comes from the two olive trees that I planted in the backyard.
Financially, my property's worth is sinking faster than the Titanic. It's value, however, continues to appreciate with each new bit of laughter, each new dip in the pool, each new birthday party for a grand-kid, and each new moment to myself after a hectic day of real estate.
And before you all think I'm some kind of "glass half full, rose colored glasses, make lemondade outta lemons" kinda guy, I'm really a very jaded real estate broker in southern California with five foreclosures in my neighborhood, You just caught me on a good day.
Charles, what an interesting way to view real estate. I agree that our houses should not be just a property investment, they should be our homes, as Scott Rhinehart (above) commented.
Thanks for posting at http://activerain.com/groups/virtualoffice
Stephen----so true
Joetta, I think it is all in how one defines "wealth"
Andrew true----yes, a little good old fashioned elbow grease.
Pam---I think they are going to become even more common as people that find it difficult to pay their mortgage certainly aren't going to have money for maintenance.
Regina, I agree. And, I think it is fine to see your home as an investment---just don't count on it.