Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home.
Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white.
Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a life where not everything is based around that mind-frame.
There is probably some useful advice in there somewhere but a more thoughtful, pragmatic approach will serve it better.
you can turn that argument on its head though. Caring about quality of life is why I rent rather than buy a home. No debt, no fixed costs (people typically say 1% of the value of the house per year, quite a lot of cash), no repairs I have to worry about, moving out is simple etc..
Here in Germany most people rent by the way, so I never understood the obsession with homeownership. Just look at the covid mess. If you're in your 20s or 30s and bought a house and live on credit cards I'd be sweating right now. Living in a rented place within my means, having a year worth of savings in the bank, it's a lot less stressful.
I don’t know what German tenancy laws are, but I suspect that they give
the renter much more protections than Americans. This affects incentives.
Here in the U.K. I wanted to make sure we owned a house before having children because I wanted to mitigate the risk of being in a rental and given 2 months to to find a new home because the owner wanted to sell.
For Americans with children, owning a home ensures your kids will attend the same school each year and a known school in the future. May be different in Germany, but in a place like Los Angles, the public schools can vary _greatly_ a small geographical area. If I showed you pictures of two public schools 20 minutes from each other, you’d be blown away. Renting makes securing a “good” school much more challenging.
My rent is 0.5% the price of an apartment per month (350 eur / mo). So, in 17 years, there are two outcomes:
1. I have no apartment, no money invested, and I have to keep paying rent.
2. I have a 60k euro apartment. Not only do I not have to pay rent ever, I also have the option of selling it and recovering most of my investment. Or I can rent it to generate money. Not to mention I have something to leave behind to my grandchildren so they don't have to spend money on rent.
> Just look at the covid mess. If you're in your 20s or 30s and bought a house and live on credit cards I'd be sweating right now
People who are renting are also sweating right now. Whether or not they bought a house or rent doesn't matter. What matters is that they "live on credit cards".
Or take another example: Silicon Valley. There were are two kinds of people in SV:
1. People who owned homes now rent them at exorbitant prices, or sold them for a huge profit.
2. People who rented were forced to move out or live on the streets.
Owning a home is an investment. Renting is a liability.
Another bit of reality is that most homes aren't available to rent! If you want a nice home for your family in a nice area in the countryside... well guess what that isn't something easily available on the rental market.
> I don’t want to reinvent the wheel, we’ll use the definition from one of the best personal finance book “Rich Dad Poor Dad”
I was trying to understand the perspective of the article, and that gave me the major clue.
RDPD is one of many books that basically says the key to financial success is real estate investment.
For a few people, and at certain times, maybe, but it is better for most people to make it a (small) part of a wider financial investment plan.
Your first house (or any house) should be first and foremost though if as a place where you will live, and “primary residence as investment” is almost never a good thing.
> it is better for most people to make it a (small) part of a wider financial investment plan.
Theoretically, you are right.
Realistically, most people don't have enough left to invest a substantial amount of money in another market once their primary residence has been taken care of. Last time I checked, over 60% of the net worth of the average American homeowner consisted of their home, with their 401k's taking up a significant share of the remainder. I guess that's one reason why RDPD was so popular: it told people that they could become a "rich dad" by just continuing to do what they -- and everyone else -- were doing.
I agree with your point. In addition, this book also suggests ideas that, in my opinion, are so far away from the minds of an average person that it's kind of absurd. Admittedly it's been years since I've read the book, but one example I can remember is setting up a corporation to reduce tax burden through. I don't think it's useful advice for somebody whose trying to get by and not already wealthy.
I would've appreciated the article more if they skipped mention of "Rich Dad, Poor Dad" entirely.
Agreed. RDPD influenced me a lot as a younger person. But now I'm convinced the house-as-investiment mantra is unsustainable. It also hasn't been true for most of history except select periods.
The book also seems based largely on anecdotes and the premise that one has money or lucrative opportunities to begin with.
Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all?
Also, there’s tax advantages to mortgages here in the US.
Renting out a house isn’t easy money, believe me I’ve tried it. You have to find tenants, things break, a lot, that you have to pay for. In my case, the tent ants literally moved out in the middle of the night using their car headlights since they hadn’t pairs the electric bill in 5 months.
Letting your money generate appreciation (in the stock market I assume) is no guarantee and as we’ve seen the last 20 years, we could see annual gains and losses of 20%.
A house IS AN ASSET. It’s a non-liquid asset, but it’s not a liability. What’s the best test if it’s an asset or a liability? Would you want to just give it away to someone?? A house, of course not. A car loan, of course.
The tax advantages are pretty rare now that the standard deduction was raised to $12k per individual. Only something like 10% of homes still use the interest deduction.
Yep between the salt tax deduction cap, incredibly low interest rates, recently lowered limit of $750k for how much home value qualifies for the mortgage interest deduction, and recently raised standard deductions, for a married couple (and maybe also for a single person but I haven’t calculated that in detail) the tax benefits of owning a house are very close to 0.
Which is probably a good thing, there’s no need to give the huge breaks we have been the past few decades to people wealthy enough to buy a house. But what a bizarrely complicated way to go about enacting this change instead of just eliminating the mortgage interest deduction altogether.
I’m in favor of the owner-occupied mortgage interest deduction (MID) because I believe that owner-occupied housing should not be at a disadvantage compared to commercially rented-out property.
Without MID, landlords can (tend to) outbid owner-occupants for property because of differential tax treatment. (Commercial loans for profit-seeking businesses are always tax-deductible as we tax profits and not revenues.)
For federal taxes, maybe. But some states allow you to itemize deductions, even if you don't itemize them for federal tax purposes. This is a not insignificant advantage for me.
Taking your point even further, you can raise the cost basis of your house by all the improvements you made to the house while you lived there. If you added a $50k pool to a $400k home, your cost basis is now $450k.
Further, you can deduct all the sales commissions (real estate 6% fees) from the profits as well.
You deduct the sales commissions because that’s money you lost in the round-trip. (Your profits were actually reduced by the amount you paid in commissions and we tax profits/gains.)
I'll add a comment to my own comment. In the last 3 months we've seen a HUGE advantage to home ownership over renting. I recently refinanced, as lots of Americans have done with the historically low mortgage rates. I knocked hundreds of dollars a month off my mortgage payment. You think your landlord is going to knock hundreds off your rent when he refinances the building you're in? No, that extra profit is going right into his pocket.
Rent is based on supply and demand. Landlord is not going to charge less or more than the market can afford. So no the landlord won’t drop the price because of mortgage. But there’s a lot of people negotiating hundreds of dollars off their rent in toronto because the market is down and if they refuse, the renter can pick just any other place that is cheaper. And its very well possible that those landlords didn’t get a discount on their mortgage if they are locked in.
Yes, if you own your house. No, if you have a mortgage, the bank owns it.
When the market was 'normal,' this would have been less of a risky issue. Take out that 15-30 year loan with the confidence that the home's value would all but be guaranteed to appreciate.
The market has been abnormal since early 2000's. Since, the housing market has become more of a speculative and volatile market, driving prices up to levels that the market cannot sustain without liquidity from the federal reserve, which has monetized an equivalent to 34% of US GDP. Not just housing - stocks and bonds as well.[0][1]
I think we should re-think what an "asset" is, starting with the question - is an asset an asset if can not maintain its market value without with out a central bank?
Economic policy makers were so exasperated with the housing crisis, they even suggested buying down and burning homes so the prices would stop dropping.[2] And that is key - to keep the prices from dropping. Does that sound like healthy market?
Even if you have a mortgage, you have some equity in it. Most mortgages require 20% down payment in your home, you can still get a way with a 80/15/5 loan now where you only have to put 5% down.
> Yes, if you own your house. No, if you have a mortgage, the bank owns it.
This is incorrect in most of the United States and in other countries, like England, where the mortgagee only has a lien; the mortgagor has legal title. That is, the mortgagee only has a right to obtain legal title in the event the debtor defaults. Until the debtor defaults and the mortgagee secures legal title, the debtor has legal title and owns the mortgaged property, which is properly the debtor's asset.
Also, there’s tax advantages to mortgages here in the US.
For most people there is no tax advantage for having a mortgage. With the cap on state taxes now being $10K and the standard deduction being $24000 for a married couple, and interest rates as low as they are you have to a larger mortgage than most people can afford for it to make a difference.
I had a mortgage of around $340K with 3.5% down for a house I bought four years ago, and I paid less than $10K in interest last year.
I completely agree.
The differentiator of "property" is that you're always going to need somewhere to live. If you have a whole portfolio then it's similar to any other bet/investment you might make on a share price - your investment might go up, it might go down - but it's not going to make you homeless.
If you have no financial connection to property where you live, you're taking a giant risk.
I agree that for someone who wants to frequently move around in their 20s, a house is a liability, especially since you don't know what the housing market will do so you could end up loosing a lot of money in the short term. But not everyone wants to move around in their 20s, some people find a city they like and want to stay there.
And I don't understand why the author suggests everyone wait until they can get a rental property, that just doubles your exposure to the housing market and adds the stress of having tenants. If you really want to have that much money at risk, just dump all the second house money in the S&P 500, and trade on margin or something.
This is mixing up liquidity with asset vs liability. A house is a depreciable asset. The land beneath the house holds it's value and doesn't depreciate. That's why the assesed value for tax splits them out. Both are less liquid than cash, but I can convert my equity in the asset to cash very quickly with a loan, or put the house up for sale and maybe it takes a little longer to get the cash. The loan would be a liability. But a house is never a liability on financial terms.
My current plan is to buy, live in the house for a few years, offer the house up for rent, and rent a new house for myself. I'm currently on step 2. I don't want to overcommit myself in real estate so buying a second residential property doesn't make sense for me. Because of rent appreciation I will have positive cash flow while renting out my current home. That hedges for any future rent increases in my future place of residence.
I'd consider buying an income generating vacation home too. But not another primary residence. That's just my opinion. And my opinion doesn't make my house an asset or a liability.
Now that said, I feel one non-financial aspect where owning a house is a liability is the opportunity cost of time spent maintaining the house. In a rental the landlord takes care of it.
Forget pure financial calculation -- It also gives you less flexibility to move quickly! I certainly wouldn't buy a house before age 30. You want to be able to pick up and move and chase an opportunity. (I'm awfully glad I got on a plane and moved to Silicon Valley in 1989 on a whim.)
> You want to be able to pick up and move and chase an opportunity.
This is a very personal decision. I, for instance, hate moving. Doubly so moving long distance. I was never going to be the type who bounces from city to city. Thus, I bought my first property when I was 24.
Why is Medium filled with, what I call, celery? I consume articles, but there is absolutely no substance.
Is there some unknown incentive for these people to share empty “enlightenment?” It’s as if these people are becoming content farms being graded on number of articles published.
Offtopic: I’m curious to see how Substack fares and if we will have the same “Substack sucks” attitude from viewers that we’ve seen with Medium. Both it and Reddit are YC ventures and it seems like YC hasn’t moderated away people disparaging how awful Reddit has become in attempting to monetize/ROI it’s audience.
Ha. I'm stealing that joke, that's quality. I wonder if anybody's managed financial success on Medium/Substack yet with a "hustler inspiration" focused GPT masquerading as a guru. I'd love to read that postmortem.
I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommend any young person to go ahead and buy a house as soon as they have the money for a down payment. There is a lot more benefit than just the financial side of things. I grew up a lot in that house. The freedom of owning your place also comes with the reality that anything that happens to it is on you. The house was the biggest personal responsibility I had ever taken on and it was a great overall life experience.
> A mortgage payment is always less than rent for an equivalent property, anyway.
Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy.
And you also have to consider what you equity would be doing if it was invested in something other than your house.
It’s true, and maintenance costs can easily erase the difference in any case. I wouldn’t say owning is definitively better financially than renting, but i do think it is better in general.
> > A mortgage payment is always less than rent for an equivalent property, anyway
Yeah, I don’t understand these statements. It is clear that people making them do not have experience is real estate or only have experience in specific markets. There are absolutely many real estate markets where the rent is more than the mortgage, and anyone with enough real estate knowledge to give advice would know this.
Ahh you are correct! My point is there are many markets where rent is cheaper and there are many markets where mortgage is cheaper. Anyone saying that is only one of those is going to cause me concern.
nothing nonsensical about this. would just mean that most landlords would have to rent out properties they own outright. in such a market a sufficiently large entity could potentially get better loan terms that allow them to build/buy a building and still achieve positive cashflow. or it might be okay with having negative cashflow while building equity over time (to break even in the long run, rent only has to exceed the interest + maintenance). this could even be a mechanism by which rent < typical mortgage payment in the first place.
It depends on what you're comparing. A crappy apt in a dodgy neighborhood or renting a house in a nice neighborhood. If you're renting that house you want to buy then you'll likely be paying the landlord's mortgage and then some. Generally it holds that mortgage is less for same type of property you're renting in equivalent neighborhoods of same geo.
People who bought houses in different time periods had different experience. See folks who bought in 2005-2006.
Also, for a young person who knows where they are going to be for next 5+ years home ownership may turn out okay. If you have to move for an opportunity the house can become quite the tight noose around your neck.
Oh god, I’ve thought long and hard about this over the years and my conclusion is that there’s no good advice that applies to everyone - whether you should own or rent depends heavily on what you value, how long you plan to stay put, and what alternatives you have when it comes to what to do with your money.
Renting gives you flexibility and keeps any cash you might have free, but it also is a sunk cost with each passing month. It’s pretty simple math.
Owning a place ties up cash in the form of a down payment, and a lot of people underestimate the true cost of maintenance and repairs over time on both new and old buildings. But the ability to build equity over time and the amount of control it gives you over your living situation makes it an obvious choice for me. If you can get into a multi-family or income generating property, your returns are obviously higher. I’d always look at appreciation potential as a bonus if it happens, it’s never a reason to buy.
I think the truest and most important thing to keep in mind is that money is made and lost when buying real estate, not selling it. Educate yourself, be picky, take your time, be realistic about costs, and do your very best to buy well.
So, so true. But if you have conversations with a hundred people about the math behind their real estate, it’s the only thing the vast majority are considering in my experience, which is such a big miss.
I don't ever consider my primary house an investment. I purchased and put money into projects that allowed me to live in the house. Usually, housing markets are stable enough that at the very least you are either breaking even, making some moeny or at the worst losing a little money to when selling the house. Despite maybe losing some money, consider the overall amount you spent. If done right, you should have at least lived rent free.
There are downsides to owning. Bad stuff happens and you are on the hook for it. A furnace can cost a pretty penny. Water damage is messy, expensive and hard to repair. If you aren't handy, renovations are costly. Even if you are handy, renovations often cost more than planned and take WAY longer than you might want. I wound up doing a lot of punch list work as I was getting ready to sell my first house. I spent years living with my imperfect, incomplete work.
Consider this, though: renting is as bad as leasing a car. There is no financial benefit long-term. That money is gone and you will have no real leverage from that rental to put towards your next adventure. Not even the security deposit with interest will cover the overall cost of renting for a year, though you may get it back with a little interest. You will have spent a significant amount in rent over the time you lived there, more than that deposit + interest is worth.
You do have some benefits (maybe). You aren't responsible for renovations or equipment failure. Hopefully you have a landlord that is responsible and willing to quickly repair that furnace in the dead of winter. You aren't as tied to a location long-term. When the contract is up, you can leave immediately. You don't have money tied up in a house that may not sell at the same time you are looking to purchase.
Ultimately I was able to walk away with a chunck of change for my next house, if I calculated it out, I likely broke even or lost a little money over renovations and interest, but I didn't lose all those payments over 5 years to rent.
It unclear to me what investment of a 20% down payment the author thinks is going to have net returns greater than the leveraged real estate investment.
Also the statement “Especially, in big cities where down payments are huge, renting is always a better idea” is just straight up wrong and it’s uncomfortable to me that people write financial advice articles with such a clear lack understanding of markets, real estate, and motives of home buyers.
Depends what country you're in really. Here in Australia the advise is pretty terrible.
House prices in some cities go up faster than any investment you could make and there are some pretty crazy tax gymnastics purposely put in place to keep the dirt cash churning.
Meanwhile your mortgage repayments are slightly higher than renting in the same area so why wouldn't you just pay for an asset instead of paying off someone elses mortgage.
Youre building equity which you can leverage for other investments while keeping a roof over your head.
This really varied from place to place. I live in a small city in the midwest. My mortgage payment is barely more than my rent was and I went from 1 bedroom to 3. I also went from hearing neighbors all the time to rarely hearing them and having a fenced in yard where I can do whatever I want. Those luxuries are more than worth it to me.
I could make more in a large city but real estate would be way more too.
Roughly the same for me here on the east coast even. My basic mortgage payment was less than I was paying for rent to hear a kid have night terrors most nights. Definitely miss maintenance being someone else’s problem but I think it’s very much worth it.
The author's advice is country dependent. My assumption is that he is writing from the perspective of buying in India.
1) In India, rents are very low compared to mortgage payments.
2) Home value appreciation is low given the rate of inflation.
3) financial instruments like home equity line of credit are not available.
So yes, it probably is not a good decision to buy a house in a big city in India. Elsewhere? Do your own calculation.
Purchases are irrational. I bought the car I bought because I like the engine noise, and I bought a house because I don’t want to have to ask permission to the landlord to hang a frame in the wall.
It makes sense not to buy a house if you just know you are moving in the foreseeable future.
> It is safe to assume, you are probably buying your first house for yourself — not for renting it out.
In this scenario — your first house will take money out of your pocket, you can’t convert it into cash for at least first few years otherwise where will you live?
Hence I believe it is a LIABILITY.
Yeah... Of course. But let's look at the alternative - most young adults don't have a roof over their head sorted out. Statistically few people have the opportunity to live with their parents - lack of space, job opportunities, social circles and so on. So it's either buying or renting. And here is where you need to look at both options:
1. Renting - you have a fixed rent + bills to pay. If something breaks down on it's own, your landlord has to fix it(ideally but far not always the case). Depending on your landlord there may or may not be furniture, so you may need to invest in furniture, appliances, etc.
2. Buying - same as rent, but you have to take care of maintenance on your own in all cases. However, the big difference is that in this scenario, your mortgage payment does add something to your name, that is, your money isn't fully gone at the end of the month, as opposed to renting. Renting will guarantee a roof over your head until the end of the month and that's it. Mortgage does mean you have an asset(even if it is partially). You still have the ability to sell it, should you need to.
I'm not talking about the people born with silver spoons in their mouths - for the vast majority of people(myself included), those are the two options we have in front of us. They are both liabilities, they both are a weight on your shoulder and while mortgages come with more strings attached, I still believe it's the lesser evil of the two.
>> most young adults don't have a roof over their head sorted out. Statistically few people have the opportunity to live with their parents
"The share of 18- to 29-year-olds living with their parents has become a majority since U.S. coronavirus cases began spreading early this year, surpassing the previous peak during the Great Depression era.
In July, 52% of young adults resided with one or both of their parents, up from 47% in February"
U.S. is a different story. On the other side of the pond, things look differently. I know of just one person in his late 20's living with his mom, but this is a recent development in his life(used to live abroad, moved back and needed a place to stay). Otherwise he left the nest pretty much when he was 18.
Home ownership and apt renting are radically different markets. That house you bought, how much does it cost to rent the equivalent? Your end desire is the important issue here to decide to buy or rent. When you rent you don't control the surrounds you have and might have undesirable neighbors living on top of you. I know few people who bought a home regret it. But some people prefer the care free life of renting. I don't want to be renting or paying a mortgage in my later years.
I moved to a lovely new town for my first IT job (I'm still there 20 years later). I initially rented for the couple of years and moved out when the landlord decided to sell - and he offered to sell to me for what I thought was a ridiculous price. Few years later I decided to buy and saw that original house was back on the market.
The appreciation on that original house was more than I'd earnt (pre-tax) in those intervening few years.
Next flat I rented was from a teacher. She'd decided to try working in Australia, but before she left had decided to sell her house in the UK and buy a nice, easily rentable flat in the town she 'might want to move back to'. This struck me as incredibly sensible.
There's your job(s) which may be tied to a particular place and there's your housing in that same place. If you don't own anything you're at the complete mercy of the markets. You might score that great 10% yearly pay-rise, but if housing goes up 20% it's still 'bad'
My humble advice is that not buying is perfectly sensible as it provides you with flexibility - but try to connect yourself to the housing market - you'll always need a house. Buying a place and renting it out might provide best return for the risk, but there are plenty of funds geared around housing you can invest in, just to make sure you don't get left behind.
70 comments
[ 2.6 ms ] story [ 156 ms ] threadEven if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white.
Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a life where not everything is based around that mind-frame.
There is probably some useful advice in there somewhere but a more thoughtful, pragmatic approach will serve it better.
Here in Germany most people rent by the way, so I never understood the obsession with homeownership. Just look at the covid mess. If you're in your 20s or 30s and bought a house and live on credit cards I'd be sweating right now. Living in a rented place within my means, having a year worth of savings in the bank, it's a lot less stressful.
Here in the U.K. I wanted to make sure we owned a house before having children because I wanted to mitigate the risk of being in a rental and given 2 months to to find a new home because the owner wanted to sell.
1. I have no apartment, no money invested, and I have to keep paying rent.
2. I have a 60k euro apartment. Not only do I not have to pay rent ever, I also have the option of selling it and recovering most of my investment. Or I can rent it to generate money. Not to mention I have something to leave behind to my grandchildren so they don't have to spend money on rent.
> Just look at the covid mess. If you're in your 20s or 30s and bought a house and live on credit cards I'd be sweating right now
People who are renting are also sweating right now. Whether or not they bought a house or rent doesn't matter. What matters is that they "live on credit cards".
Or take another example: Silicon Valley. There were are two kinds of people in SV:
1. People who owned homes now rent them at exorbitant prices, or sold them for a huge profit.
2. People who rented were forced to move out or live on the streets.
Owning a home is an investment. Renting is a liability.
I was trying to understand the perspective of the article, and that gave me the major clue.
RDPD is one of many books that basically says the key to financial success is real estate investment.
For a few people, and at certain times, maybe, but it is better for most people to make it a (small) part of a wider financial investment plan.
Your first house (or any house) should be first and foremost though if as a place where you will live, and “primary residence as investment” is almost never a good thing.
Theoretically, you are right.
Realistically, most people don't have enough left to invest a substantial amount of money in another market once their primary residence has been taken care of. Last time I checked, over 60% of the net worth of the average American homeowner consisted of their home, with their 401k's taking up a significant share of the remainder. I guess that's one reason why RDPD was so popular: it told people that they could become a "rich dad" by just continuing to do what they -- and everyone else -- were doing.
I would've appreciated the article more if they skipped mention of "Rich Dad, Poor Dad" entirely.
The book also seems based largely on anecdotes and the premise that one has money or lucrative opportunities to begin with.
Also, there’s tax advantages to mortgages here in the US.
Renting out a house isn’t easy money, believe me I’ve tried it. You have to find tenants, things break, a lot, that you have to pay for. In my case, the tent ants literally moved out in the middle of the night using their car headlights since they hadn’t pairs the electric bill in 5 months.
Letting your money generate appreciation (in the stock market I assume) is no guarantee and as we’ve seen the last 20 years, we could see annual gains and losses of 20%.
A house IS AN ASSET. It’s a non-liquid asset, but it’s not a liability. What’s the best test if it’s an asset or a liability? Would you want to just give it away to someone?? A house, of course not. A car loan, of course.
Which is probably a good thing, there’s no need to give the huge breaks we have been the past few decades to people wealthy enough to buy a house. But what a bizarrely complicated way to go about enacting this change instead of just eliminating the mortgage interest deduction altogether.
Without MID, landlords can (tend to) outbid owner-occupants for property because of differential tax treatment. (Commercial loans for profit-seeking businesses are always tax-deductible as we tax profits and not revenues.)
Further, you can deduct all the sales commissions (real estate 6% fees) from the profits as well.
So it goes both ways.
As a homeowner, you contact a lender and get it done. It benefits you directly.
> house IS AN ASSET.
Yes, if you own your house. No, if you have a mortgage, the bank owns it.
When the market was 'normal,' this would have been less of a risky issue. Take out that 15-30 year loan with the confidence that the home's value would all but be guaranteed to appreciate.
The market has been abnormal since early 2000's. Since, the housing market has become more of a speculative and volatile market, driving prices up to levels that the market cannot sustain without liquidity from the federal reserve, which has monetized an equivalent to 34% of US GDP. Not just housing - stocks and bonds as well.[0][1]
I think we should re-think what an "asset" is, starting with the question - is an asset an asset if can not maintain its market value without with out a central bank?
Economic policy makers were so exasperated with the housing crisis, they even suggested buying down and burning homes so the prices would stop dropping.[2] And that is key - to keep the prices from dropping. Does that sound like healthy market?
[0] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[1] https://www.zerohedge.com/markets/central-bank-balance-sheet...
[2] https://www.fool.com/investing/general/2011/10/06/creative-d...
> Yes, if you own your house. No, if you have a mortgage, the bank owns it.
This is incorrect in most of the United States and in other countries, like England, where the mortgagee only has a lien; the mortgagor has legal title. That is, the mortgagee only has a right to obtain legal title in the event the debtor defaults. Until the debtor defaults and the mortgagee secures legal title, the debtor has legal title and owns the mortgaged property, which is properly the debtor's asset.
For most people there is no tax advantage for having a mortgage. With the cap on state taxes now being $10K and the standard deduction being $24000 for a married couple, and interest rates as low as they are you have to a larger mortgage than most people can afford for it to make a difference.
I had a mortgage of around $340K with 3.5% down for a house I bought four years ago, and I paid less than $10K in interest last year.
And I don't understand why the author suggests everyone wait until they can get a rental property, that just doubles your exposure to the housing market and adds the stress of having tenants. If you really want to have that much money at risk, just dump all the second house money in the S&P 500, and trade on margin or something.
My current plan is to buy, live in the house for a few years, offer the house up for rent, and rent a new house for myself. I'm currently on step 2. I don't want to overcommit myself in real estate so buying a second residential property doesn't make sense for me. Because of rent appreciation I will have positive cash flow while renting out my current home. That hedges for any future rent increases in my future place of residence.
I'd consider buying an income generating vacation home too. But not another primary residence. That's just my opinion. And my opinion doesn't make my house an asset or a liability.
Now that said, I feel one non-financial aspect where owning a house is a liability is the opportunity cost of time spent maintaining the house. In a rental the landlord takes care of it.
This is a very personal decision. I, for instance, hate moving. Doubly so moving long distance. I was never going to be the type who bounces from city to city. Thus, I bought my first property when I was 24.
That's why I said "I certainly wouldn't buy a house before age 30." I was pointing out an advantage of renting that's not purely financial.
Is there some unknown incentive for these people to share empty “enlightenment?” It’s as if these people are becoming content farms being graded on number of articles published.
Anyway, this article is garbage.
Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy.
And you also have to consider what you equity would be doing if it was invested in something other than your house.
Yeah, I don’t understand these statements. It is clear that people making them do not have experience is real estate or only have experience in specific markets. There are absolutely many real estate markets where the rent is more than the mortgage, and anyone with enough real estate knowledge to give advice would know this.
That's what the quote is saying.
Also, for a young person who knows where they are going to be for next 5+ years home ownership may turn out okay. If you have to move for an opportunity the house can become quite the tight noose around your neck.
Renting gives you flexibility and keeps any cash you might have free, but it also is a sunk cost with each passing month. It’s pretty simple math.
Owning a place ties up cash in the form of a down payment, and a lot of people underestimate the true cost of maintenance and repairs over time on both new and old buildings. But the ability to build equity over time and the amount of control it gives you over your living situation makes it an obvious choice for me. If you can get into a multi-family or income generating property, your returns are obviously higher. I’d always look at appreciation potential as a bonus if it happens, it’s never a reason to buy.
I think the truest and most important thing to keep in mind is that money is made and lost when buying real estate, not selling it. Educate yourself, be picky, take your time, be realistic about costs, and do your very best to buy well.
Make the math work without appreciation, and you are doing it right.
A la ‘a short history of financial euphoria’.
There are downsides to owning. Bad stuff happens and you are on the hook for it. A furnace can cost a pretty penny. Water damage is messy, expensive and hard to repair. If you aren't handy, renovations are costly. Even if you are handy, renovations often cost more than planned and take WAY longer than you might want. I wound up doing a lot of punch list work as I was getting ready to sell my first house. I spent years living with my imperfect, incomplete work.
Consider this, though: renting is as bad as leasing a car. There is no financial benefit long-term. That money is gone and you will have no real leverage from that rental to put towards your next adventure. Not even the security deposit with interest will cover the overall cost of renting for a year, though you may get it back with a little interest. You will have spent a significant amount in rent over the time you lived there, more than that deposit + interest is worth.
You do have some benefits (maybe). You aren't responsible for renovations or equipment failure. Hopefully you have a landlord that is responsible and willing to quickly repair that furnace in the dead of winter. You aren't as tied to a location long-term. When the contract is up, you can leave immediately. You don't have money tied up in a house that may not sell at the same time you are looking to purchase.
Ultimately I was able to walk away with a chunck of change for my next house, if I calculated it out, I likely broke even or lost a little money over renovations and interest, but I didn't lose all those payments over 5 years to rent.
Also the statement “Especially, in big cities where down payments are huge, renting is always a better idea” is just straight up wrong and it’s uncomfortable to me that people write financial advice articles with such a clear lack understanding of markets, real estate, and motives of home buyers.
House prices in some cities go up faster than any investment you could make and there are some pretty crazy tax gymnastics purposely put in place to keep the dirt cash churning.
Meanwhile your mortgage repayments are slightly higher than renting in the same area so why wouldn't you just pay for an asset instead of paying off someone elses mortgage.
Youre building equity which you can leverage for other investments while keeping a roof over your head.
Lost me right there. That is such a stupid book.
I could make more in a large city but real estate would be way more too.
1) In India, rents are very low compared to mortgage payments. 2) Home value appreciation is low given the rate of inflation. 3) financial instruments like home equity line of credit are not available.
So yes, it probably is not a good decision to buy a house in a big city in India. Elsewhere? Do your own calculation.
It makes sense not to buy a house if you just know you are moving in the foreseeable future.
Yeah... Of course. But let's look at the alternative - most young adults don't have a roof over their head sorted out. Statistically few people have the opportunity to live with their parents - lack of space, job opportunities, social circles and so on. So it's either buying or renting. And here is where you need to look at both options:
1. Renting - you have a fixed rent + bills to pay. If something breaks down on it's own, your landlord has to fix it(ideally but far not always the case). Depending on your landlord there may or may not be furniture, so you may need to invest in furniture, appliances, etc.
2. Buying - same as rent, but you have to take care of maintenance on your own in all cases. However, the big difference is that in this scenario, your mortgage payment does add something to your name, that is, your money isn't fully gone at the end of the month, as opposed to renting. Renting will guarantee a roof over your head until the end of the month and that's it. Mortgage does mean you have an asset(even if it is partially). You still have the ability to sell it, should you need to.
I'm not talking about the people born with silver spoons in their mouths - for the vast majority of people(myself included), those are the two options we have in front of us. They are both liabilities, they both are a weight on your shoulder and while mortgages come with more strings attached, I still believe it's the lesser evil of the two.
"The share of 18- to 29-year-olds living with their parents has become a majority since U.S. coronavirus cases began spreading early this year, surpassing the previous peak during the Great Depression era.
In July, 52% of young adults resided with one or both of their parents, up from 47% in February"
-- Pew Research, https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-...
And at some point people may get to the point where they want these things.
Sure, you can rent, but there at lots of things you can’t do in a rental. And in some regions the rental market for houses is very small.
I moved to a lovely new town for my first IT job (I'm still there 20 years later). I initially rented for the couple of years and moved out when the landlord decided to sell - and he offered to sell to me for what I thought was a ridiculous price. Few years later I decided to buy and saw that original house was back on the market. The appreciation on that original house was more than I'd earnt (pre-tax) in those intervening few years.
Next flat I rented was from a teacher. She'd decided to try working in Australia, but before she left had decided to sell her house in the UK and buy a nice, easily rentable flat in the town she 'might want to move back to'. This struck me as incredibly sensible.
There's your job(s) which may be tied to a particular place and there's your housing in that same place. If you don't own anything you're at the complete mercy of the markets. You might score that great 10% yearly pay-rise, but if housing goes up 20% it's still 'bad'
My humble advice is that not buying is perfectly sensible as it provides you with flexibility - but try to connect yourself to the housing market - you'll always need a house. Buying a place and renting it out might provide best return for the risk, but there are plenty of funds geared around housing you can invest in, just to make sure you don't get left behind.