Best selling financial author JL Collins explains the skim, scam and fraud of home ownership.
If you seek wealth and financial freedom, don’t buy a home.
intercst
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Sure, if you want to keep giving an ever growing percentage of your income for housing, while having no equity, ever.
Charts consistently show that **U.S. rent growth has significantly outpaced [income growth] over the long term** , making housing less affordable, with median rents consuming a larger share of median incomes, often exceeding the recommended 30% threshold, even as recent trends show some stabilization or slight easing in the *rate* of rent increase compared to rapid income growth in some lower-wage brackets. While income for lower-wage workers saw faster growth recently (2019-2023), overall, rents have risen much faster since 2000, creating a persistent affordability crisis
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Like anything I can think of, housing has its ups and downs and perils and delights, but intelligence and the restraint or indulgence of mere desire for size of status or whatever will dominate pluses and minuses of results.
Housing Real Estate has been great to me.
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@intercst I have a hard time believing that renting is cheaper than owning. Sure, if you rent a cracker box instead of buying a nice home, you can become wealthy by investing the difference in rent/mortgage payments.
Here is an example. Please explain what I have wrong.
There are two houses next to each other. They are identical and built at the same time. One has an owner. He’s going to have to pay a mortgage, taxes, insurance, and maintenance. The second house is occupied by a renter. The landlord has to pay the same mortgage, taxes, insurance and maintenance. Surely the landlord charges enough in rent to cover his expenses? So how is the renter living cheaper than the next-door neighbor who own’s his home?
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Yes, rent will generally be more than the running expenses. But there is the economic argument that renters can have better capital allocation and economic outcomes. Diversification and specialization are parts of the economic argument.
But, owning a home is important psychologically for many people, including me. The rational man economics model can miss sometimes.
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There are lots of “accidental landlords” who will give a “good tenant” a break on the rent. I have one neighbor who is paying about 50% of market rent on his condo, but he is responsible for all maintenance and repairs inside the unit. I estimate about $500/year for my maintenance & repairs, not tens of thousands of dollars.
Maybe the landlord was exclusively using Private Equity owned contractors for his repairs?
intercst
When I paid cash for my current home in 2012, my stock portfolio was about 40 times the purchase price of the home.
I’d benefited greatly over the previous 30 years by have zero exposure to residential real estate. “Giving an ever growing percentage of your income for housing” is irrelevant if your invested assets are growing at a much higher rate.
Like I said, if you use a rent vs. buy calculation to inform your real estate decisions, you’ll eventually be wealthy enough to rent a castle if you think you need one.
intercst
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Yep, there are some people who do well with real estate investing. But somebody owns the 50% of homes in America that have appreciated at less than 4% per year long term average over the past century.
A stock investor can buy an index fund that guarantees him the market return on his investment (about 10% per annum over the past 100 years)
The individual homeowner has no instrument that will guarantee him the 4% residential real estate return.
intercst
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Not exactly - because a big chunk of the things that are covered by the mortgage payment and maintenance are not single-year operating expenses.
A non-trivial amount of the mortgage goes to repayment of capital. The owner builds up equity in the property as the loan gets paid down. The owner would love for this to be completely covered by rent, and in some cases it might - but a rental payment may well be less than the mortgage payment.
Also, anon-trivial amount of maintenance will go towards things that have a useful life of more than the rental period. If the landlord has to pay $25K to have the roof replaced, he’s not charging the current tenant $25K in the current lease year for that. The cost of the roof gets recouped over time.
These are more capital costs than operating costs. The owner (whether self-owned or landlord) has to have a bunch of capital tied up in the home and in making capital repairs, a portion of which gets recouped from the tenant in each rental period. Over the very long term, it all has to balance out (including a rate of return, see below). But in any single year, the rental payments may very well be lower than landlord’s cash flow out.
The economic “rent vs. own” debate is not typically over what we might think of as operating expenses. It’s over return on capital. When you own, you are investing a lot of capital in residential real estate. If you rent, that capital is available for investment instead in other assets - like a stock market index fund - in something that might have higher returns. That’s complicated, because investing in real estate gives you an opportunity for inexpensive long-term leverage that’s hard to beat…but that’s the idea.
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Yep. I learned pretty early in my engineering career (as a well paid, highly taxed employee) that working for wage & salary income was a loser’s game.
intercst
This is true. I own a house, but it’s because I want to, not because it’s a great investment. It’s in Colorado too, so I have “done OK” with it. i.e. I have a net return on investment of 2% or so, once all the costs of ownership are added in. Yay :-\
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If you realized a 2% return, you must be doing a lot of home repairs DIY rather than calling in a contractor.
I’m still having nightmares at the thought of my downstairs neighbor paying a Private Equity-owned plumber $6,000 for a $500-$800 PVC drain pipe repair.
intercst
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Oh crap - I didn’t add rent I didn’t pay into the equation. That would improve my rate of return.
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This was several years ago, but in a conversation with a coworker it came out that he was paying more for rent than I was paying for the mortgage on our (much larger than his apartment) home.
I’m told by 1poorkid that rent is ferocious these days, and you may as well buy a home because you’re paying about the same as the mortgage.
I’m sure different regions are different, and different dwellings can yield different results. But I don’t think it’s a slam-dunk to think your monthly housing bill will be significantly different whether you rent or buy.
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Yep - Almost all.
Major repairs have been covered by insurance. Mostly 2 roofs due to hail. But then my insurance has gone up. Not enough to cover the cost of the roofs though.
Yep. I figure that my property taxes, HOA fee and a $500/year deposit to a sinking fund for inside unit repairs and maintenance is equal to about 25% of the market rental rate on the unit.
intercst
It was starting to get ferocious in the Portland area when when my Rent vs, Buy calculation shifted to “Buy” and I bought my home in 2012.
On the other hand, during my 25 years or so of living in Houston, my rent barely budged while REITs kept building new apartment complexes as far as the eye could see.
intercst
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I have no proof of this, but I would think an owner is more likely to take care of his property, more so than a renter. And when something needs repaired, the owner either lives with it or learns how to fix it himself, if it is a minor or a cosmetic issue, whereas a renter is calling the landlord wanting it fixed. A major expense like a roof, I agree with you.
I know I’m biased on home ownership. I have done really well having owned 3 homes. And my results are not typical in that I built my own homes. I saved about 1/3 of the finished appraisal by doing the majority of the work myself.
And here is another benefit of home ownership. I’m living in my home now with no mortgage. Just taxes, insurance, and maintenance to pay. I should be able to live here another 20 years if the good Lord is willing.
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Sure. But the counter to that is that you could sell your home and pay rent instead. You get $X in assets and you could then invest that cash in a broad market index fund (or whatever). You’d then just pay rent out of that fund. The big “rent v. own” debate is whether you’d have more money at the end of that 20 years if you did the former rather than the latter (it can be more complicated than that, but that’s the gist).
Ironically, by not having a mortgage and owning your own home, you might be tilting that a bit away from the benefits of ownership and towards renting. Two of the major benefits of home ownership from an investing standpoint are (often) having access to cheap leverage and getting certain tax benefits. But that’s probably not a major thing.
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Depends on the markets, of course. If your rent payment and a mortgage payment were on-par with each other, at the end of the loan period you would have a house with the latter. A house you could sell to get much of your money back. Rent is just gone.
If the rent was drastically cheaper, then that debating point might be valid. But, at least in a lot of areas, it isn’t. So it’s not (IMHO).
In our case, we’re retired. Only investment income. Not having a housing payment is GREAT! (We paid it off at retirement to save on interest payments, giving a known “RoR” that exceeded inflation at that time.) Sure, we have to pay taxes. Far less than either a mortgage or rent.
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