That’s right bozo. It’s not an investment. You can’t expect to put money into washing machines and later make a profit. First off, they lack liquidity (other than what you put in them) have you ever tried to sell a washing machine? Not easy. Actually I have a washer and dryer in my garage right now that I’m thankful that I can even give away to someone since they are so damn heavy to move.
However, I think we all remember that kid from college (or prison should you have elected that path) who decided that clothes can be worn for weeks on end without requiring a wash. So, the reality is you need to wash your stuff, or else scar your neighbors for life.
So – do you rent or buy?
Renting a washing machine is a wonderful notion. You basically take a bunch of quarters and schlep across town to the laundry mat, sit around aimlessly for a few hours to prevent the crack heads from stealing your clothes, and go back to your caravan to pack them away again.
Buying a washing machine is very different, you’d need space to put it, which means an upgrade to an apartment or perhaps a house, plus it would come with costs. Things like energy, water etc. What about maintenance to keep it operational? All these things you’d avoid if you just rented it.
Washing machines depreciate in value quickly. The resale market is getting savvy to it, and you’d likely have a hard time getting 1/3 of your purchase price back. This ‘How to Buy Used‘ guide doesn’t help matters, as it advises paying no more than $200 (and more like $50-100!) So with that in mind, why would anyone want to buy a washing machine?
Ask a New Yorker, and one of their top 3 features (I made up that number)for inside the apartment is a washing machine. Why is it desirable? Because it offers convenience perhaps. It certainly offers a tangible benefit to a renter, and likewise for resale value. It’s these little things that shape the vision of the home, and closes deals.
So it’s not an ‘investment’ in the sense that it isn’t traded on the stock market… but it offers value beyond its price, and there are some arguments in its favor. Ultimately, there is a ‘clean need’ which correlates to the shelter need we see within the Rent/Buy of home ownership, so is there any difference here?
Are you one of those people who refuses to buy a washing machine because it is a bad ‘investment’?
Update-
Check out this epic Ted Talk on Washing Machines… really good stuff. Thanks Brenton!
[ted id=1101]
How is it not an investment? You are bringing ‘in house’ your own laundry services. Now, if you can show it’s cheaper to have this service provided somewhere else…
So are groceries an investment?
Although I agree with you Matt, that laundry appliances aren’t an investment (more just a cost- or time-saving measure), I don’t think groceries would be the best example here because they’re a consumable and a washing machine isn’t.
What differnce does the consumable nature make? Both products provide an immediate need (food or laundry) Both save money, both decay and depreciate in value.
Washing machines are considered a ‘durable good’ in economics, which is a product that doesnt wear out quickly and lasts at least several years. Cars are another example. Food, cigarettes, clothing, paper, etc. are ‘non durable goods’ that wear out quickly or immediately. It seems Jonathan is referencing this in his post, saying that the durable good offers a time horizon from which to save money, but that food is a one-off and doesnt offer an accurate comparison.
However, I think Matt is referring to ‘groceries’ to mean buying food and preparing it personally, not eating out, in order to save money. This is a solid comparison to buying a washing machine if the buyers’ intent is to save money or reallocate time more efficiently. Some people loosely use the word ‘investment’ to describe this, which is what I am guessing JB has done. However, that line of thinking is part of Matt’s post.
So, just as the post says, buying a WM saves money and time and may be necessary, but does not fit a definition of an investment,
Great analysis.
I second that.
CJL, if you aren’t a professional mediator (or something else that pays better / you enjoy more), you should be ;-p.
This post is incorrect. A washing machine is an investment — probably but not necessarily a profitable one, but as a capital expenditure it clearly qualifies as an investment. Saying you can’t sell it for a profit at the end and thus claiming it isn’t an investment is willfully ignoring the value it provides — not just convenience, actual cash savings — while you have it. If the washing machine costs $500 and saves you $10 a week at the laundromat (net of operating costs for your machine), it pays for itself after a year and is profitable for year two and beyond. That’s a pretty damn good investment! (Normally when doing capital budgeting you should consider financing costs, but given current interest rates those aren’t really meaningful right now.)
So what is the difference between a washing machine, as you describe it here, and a personal residence. Are they both investments?
If you were to spend $500K on a home, that saves you say $1K a month over rent, your breakeven would be later, but you’d still hit a point on the curve where your initial purchase price was met in such a transaction.
Of course, albeit a much riskier one since the potential cash flows include a much larger and much more uncertain final residual value. But in both cases you’re investing capital to reduce your ongoing living expenses.
I do think the washing machine is a more clear-cut case in one sense, that you are definitely going to wash your clothes regardless, so it’s more cut-and-dried whether the machine is generating positive cash flows. The house gets more mixed up in the consumption aspect. Yes, you definitely need shelter, but the investment part involves whether you should rent for $2000 a month or buy the place for $500K. Whatever the rent would be is simply consumption, while what you would save by buying it is the cash flow from the investment. Just buying a bigger house is not really increasing your savings.
That’s an interesting approach.
You say that a house is riskier because the final value is uncertain, but that is only upside risk. With a washer you only have downside risk (it is a depreciating asset).
The washer isn’t such a clean cut case though, because you can pay anything from $300-$1700 for a washer, which can skew all manner of stats. If you consider a house purchase, the duration of holding the property (beyond the section 121 exclusion) impacts the value of rent vs buy. This is no different from a washer.
If you buy a $1700 washer, then try to sell it a month later, you’d clearly be taking a haircut on that.
You think the house only has upside risk to its final value? Did you miss 2007 and 2008? And does Detroit not exist?
Anyway, yes of course the price of the washer impacts whether it’s a *good* investment, as does the holding period, same as with the house.
Not at all. My point was that a washing machine cannot appreciate, whereas a house CAN appreciate.
Yes, true. But that goes to my point about the volatility. When you’re making your capital budget spreadsheet to assist in the rent (or laundromat) vs. buy decision, it’s easy to estimate the final value of the washing machine: zero. The house, probably the best you can do is to figure the current price plus some estimate of inflation over whatever you think your horizon is, but there’s considerable uncertainty around that estimate.
Yes, but my point on vol is that if it is introduced by means of offering upside, it should be embraced. Providing of course we don’t look at the projections with rose tinted glasses.
The question for me whenever I look at the rent/buy is ‘what is the breakeven point that I’d need to see to make renting smarter’?
There is an option of actually renting a machine, from a rental center that rents furniture and appliances. I think that avoids the repair aspect and depreciation and large initial investment and gives you the convenience of having one in your apartment. it is probably a bit costly so you have to weigh pros and cons. I personally own and never explored this avenue, just putting it out there.
Yep – rental in the home vs at the laundry is the same thing here – the convenience factor is something that can be clearly correlated with the cost of this route. In short, either would work in this post.
I feel like this article is written for people that live in a major city, so while it doesn’t relate to me, I still have an opinion.
In November of 2011, I bought a front loading washer and dryer for $900 total. The house we bought came with a traditional style W&D, but I opted to take the $600 credit and put it toward a front loader. So this argument is based on average lifespan of 13 years for a dryer and 12 years for a washer, as per Mr. Appliance (http://www.mrappliance.com/expert/life-guide/) and from Mr. Electricity (http://michaelbluejay.com/electricity/laundry.html)
Below assumes 5 loads of laundry per week. I also input electricity, water temp, etc… but those were fixed so the marginal cost of each remains consistent.
$900 front load washer and dryer. Uses 18 gallons for a wash instead of 55, high RPM cycle helps dry laundry better.
-Estimated cost for one year is $203.
-12 year cost including initial outlay is $3336 barring any repair or problems
$500 front load washer and dryer.
-Estimated cost for one year is $292.
– 12 year cost including initial outlay is $4004
$10/month rental (I’m sure it’s more, but for the sake of fairness)
-Estimated cost for one year would range from $203-292 depending on model
-12 year cost from $3876-4944
Laundromat
$10/week? (probably a little more if you’re doing 5 loads/week)
-Estimated cost for one year $520
-12 year cost $6,240 not to mention all the hours of sitting there. Even at 2-3 hours/week, if you value yourself at minimum wage rates, that’s still $10,000+
Even with a repair, the front load option bring a lower overall cost. And I can’t believe i just wasted 10 minutes doing this…
Technically, I wrote this article purely to explore ‘what’ an investment is, and why people struggle to understand the concepts of renting vs buying. I took a depreciating asset (washing machine) rather than an asset that has historically risen in price (housing) in order to make the case even more powerful that buying offers considerable value over renting.
That said, I’m pretty sure the confusion in the rent vs buy camp is that they mix up what an ‘investment’ really is. People using it to mean different things creates this confusion.
Thanks for the analysis though!!
Housing is not an investment. It’s shelter. Sure, if you’re lucky, your shelter may appreciate, but that’s unlikely over the long term (when adjusting for inflation/maintenance/taxes) because demographics are now against you (or soon will be).
Now, if you were like me, and bought your property out of BK, built it yourself, and enjoyed the benefits of scarce supply and economic policies that promoted home ownership for several decades, then you did very well. But I’d NEVER advise anyone who is buying retail today to expect to make a profit over the long term.
From your writings on similar subjects, I continue to think you are significantly overestimating the future upside – at least in the mid/long term (short term anything can happen). All because demographics are against you – the industrialized world population is declining. Absent large immigration, the US would be as well (right now we’re right at break-even).
I see it as a multi generational shorting opportunity – we’ve had the bubble from rising productivity but that is quickly going away – couple with a declining first world population and those extrapolating the last 50 years forward could be in a world of hurt. Just ask the Japanese about what happens when a population enters irreversible population decline -theirs will continue to decline for the next 85 years until their population is half where it was a decade ago…their stock market/property market is a fraction of where it was 30 years ago. And there’s no end in sight.
Hey Paul,
I always enjoy your perspective, and do agree that retail is crazy these days. That said, when I consider housing it is not for future upside it is instead for present day savings via not paying rent, and capturing tax benefits. I’m basically happy to break even on price (ignoring inflation) after all that.
I can’t believe that you are actually having this (what would you call it) discussion. A washing machine is an essential, especially when there is a baby in the house. Laundromats are not common around this area – a washing machine is as necessary as a cooker or a fridge. And at the end of its useful life it will be so out of date that you just give it to the scrap metal guys who come round every week.
I didn’t say it wasn’t an essential (though technically I would still call it a luxury) I said it wasn’t an investment. The post is supposed to start people thinking about how to define an investment and therefore make better rent/buy decisions.
So this whole thing is b/c you have a pet peeve against people who say “I’m investing in…”?
No, its not that. I’m suggesting here that because people use such a phrase they go on to make poor investing decisions. Its not just me say ‘ha you use the word poorly’ its me saying ‘you are screwing up investment decisions because of how the word is interpretted by you’ .
Knowing when you have a depteciating asset and knowing when you havean investment are critical, and go beyond the use of a word.
It’s funny that you picked washing machine, because it IS an investment… in our family and our children!
http://www.ted.com/talks/hans_rosling_and_the_magic_washing_machine?language=en
Buy used ones on craigslist. If they break, consult youtube to fix them. They will last almost forever.