"Why I Am Never Going to Own a Home Again"

By
Real Estate Broker/Owner with Gabris Real Estate BRE# 01425882

Yahoo News posted an article written by James Altucher, you can read the full article here:

http://finance.yahoo.com/tech-ticker/why-i-am-never-going-to-own-a-home-again-536051.html#mwpphu-container

 Basically, James makes the case that it is a bad idea to own a home for 6 main reasons (I will summarize):

1)   Because the cash used for down-payment is tied up and can never be used again (as it will "just roll into the next house").

2)  The expense of closing costs when purchasing a home that can add up to 2-3%.

3)  The maintenance costs of owning a home (and how he can call the landlord when a dishwasher breaks, and have the landlord pay the costs of fixing it).

4)  Property Taxes, and he feels that the tax deduction for interest payments is a "microscopic dot on your tax returns."

5)  You are trapped and are unable to easily move to a place with better jobs.

6)  A bad investment that is illiquid, highly leveraged, and not diversified.

 Lady saying "Huh?"

Rather than give just a "how dare you threaten my lively-hood" knee-jerk response, I am willing to consider his points: 

1)  Down-payment- He has a point that the money is "tied up," but a large down-payment can offset the cost of the mortgage and eliminate mortgage insurance.  This translates into a lower monthly mortgage payment, that could help a homeowner save money compared to what they would be paying in rent.  Anytime that we pay for something instead of financing the whole amount, our money is "tied up."  There are obvious advantages: not paying interest or rent for that asset.  Btw, James might not know it but many buyers are using FHA financing that only requires 3.5% down-payment.

2)  Closing Costs - Yes, when purchasing a home and obtaining financing for it, there could be 2-3% in closing costs.  Whether or not this is expensive depends on the value of owning a home vs renting a home.  A home buyer could save a few hundred dollars every month compared with renting a similar home, and that amount of savings could easily add up to more than 2-3% in closing costs. 

3)  Maintenance Costs - So, when the landlord has to pay more money to maintain the property, he will just "eat" this cost and the renter has the landlord "working for him"?  This is fanciful thinking.  Over time, the renter will end up paying the landlord back for maintenance, just as the renter will also pay for the taxes, insurance, management, mortgage, and profit. 

4) Property Taxes - Yes, property taxes are expensive, but the renter will pay for the property taxes in the rent that they pay each month.  He thinks that the tax deduction for mortgage interest is "microscopic?"  If a tax payer is able to be in a lower tax bracket because of the mortgage interest deduction, and pays hundreds or thousands less in taxes; he may consider this benefit to be slightly larger than microscopic....

5) Being Trapped and Unable to Move - I give this point the most validity in the case of a person who is upside down on their mortgage, but the opposite could also be true, a renter could be told to move from a place he loves. 

6)  A bad investment - Buying a home is not like a traditional investment that is liquid and diversified, but the biggest thing that James seems to miss is the fact that we have to live somewhere, and wherever we live, it costs money.  Buying a house is not like investing in mutual funds, but it does come with many practical and tangible benefits that do not come with stocks, mutual funds, or oil futures. 

I think that James should have prefaced his entire sensational argument with the idea: "it depends on the situation."  His blanket statement about it being a bad idea to own a home is blindly one-sided.

Comments (189)

Steven Zimmerman
Belloise Realty Tropical - New Port Richey, FL
Husband & Father, @Gulf_Harbors Resident Realtor

David,

Good afternoon, and as many above have already said; Great post ! Its always a pleasure to see Yahoo News post such a one-sided story ...especially after they've deposited their share of Real Estate Ads and Featured Realtors Dollars ! 

Have a great weekend,

Steven 'yes, I'm glad to be a Home Owner & Realtor that does Not read YahooNews' Zimmerman

Living in & Selling Florida's Waterfront Lifestyle on the Gulf of Mexico

Mar 25, 2011 08:29 AM
John DL Arendsen
CREST "BACKYARD' HOMES, ON THE LEVEL General & Manufactured Home Contractor, TAG Real Estate Sales & Investments - Leucadia, CA
Crest Backyard Homes "ADU" dealer & RE Developer

Nothing wrong with renting in today's world. I have multi-million aire friends of mine, in land development no less, that sold their homes 5 years ago because they knew what was coming. They are now sitting on the sidelines and lease/renting some pretty impressive bay and beach front estates and just watching the world go by. A couple of them even said that they will probably never buy another home but instead just lease a few lavish estates around the world and enjoy.

Mar 25, 2011 09:34 AM
Tiffany Torgan
Harcourts Prestige Properties of La Jolla - La Jolla, CA
Featured on HGTV's New Show! How Close Can I Beach

Hi David, I feel like renting is like flushing money down the toilet. If you are buying a home for long term, it is the smart way to go!

Mar 25, 2011 10:26 AM
Anonymous
Madison Carlson

David,

   I love this argument. I have been in this same discussion with Buyer's and Seller's many times. I really like the points you made, it really puts into perspective the many positives of owning a home that most people are uneducated about: The simple fact is that Real Estate is the best investment in any market. What other investment can you buy for $100,000 with only $20,000 real money down, rehab it for another $20,000 or so and sell it for $150,000? That is a 25% return on your initial cash basis! You can't get that anywhere right now on any other assets.

   I also like the point of never seeing your investment again because it potentially roles into another house,. Well a great example is when you buy a car, you use it for a few years then sell it. You RARELY get a penny more than what you paid, you almost always lose with an investment like that but when you buy savvy you have the potential to have cash at the end.

   It all depends on what your needs and wants are, either way renting or buying you have to live somewhere!! Happy Selling!

 

Mar 25, 2011 11:34 AM
#174
Jay O'Brien
RE/MAX Revolution - Kansas City, MO
Kansas City Real Estate
Way to address all those tough questions! It often helps renters to just see the black-and-white of it. Thx!
Mar 25, 2011 01:21 PM
James Ward
Murney Associates - Nixa, MO

David,

I too read the article and your response was much more polite than mine would have been. Great job!

Mar 25, 2011 04:03 PM
James Ward
Murney Associates - Nixa, MO

David,

I too read the article and your response was much more polite than mine would have been. Great job!

Mar 25, 2011 04:03 PM
Brad Hornshaw
Brad Hornshaw Realtor Lynnwood, Bothell, Everett - Lynnwood, WA
Realtor, Listing Agent, Buyers Agent, Investments

Hi David

Ubeleivable! through out my life I have noticed that the biggest acumulation of wealth most folks have in there retirement years is the Equity built up in there home. I have noticed most who rent there whole life having difficulty taking care of them selves in old age. ...........Brad

Mar 26, 2011 11:48 AM
James Loftis
RealEstate911.com - West Palm Beach, FL
RealEstate911.com

Good information to ponder.

Mar 26, 2011 11:57 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

My wife and I have owned the same home for 35 years. I live in the San Francisco Bay Area. That means that the real estate bubble drove the value of my home way up and now the value had receded. At the top, my house was worth about 13 or 14 times what I paid for it! Now, it is only worth about 8 times what I paid for it. Guess we should have rented.

But I do have friends who have rented in my town for the last 30 years. They have rented the same house all that time. Long story made short...their landlord is now losing the house to foreclosure and they are being FORCED to move. Hope they have a big enough truck to haul 30 year's worth of rent receipts.

By the way, if you are familiar with the Rule of 74, I want you to know that I computed the increase to be 9.25% yearly on the original cost of my house based on the current value.

Mar 26, 2011 04:03 PM
Faramarz John Mosstaghimi
Silicon Valley Homes And Land - Los Gatos, CA

For one thing, this is more of a Personality trait. Some people are entrepreneurs and some people are employee types by nature. The same way, some people are Home Owners and some are Tenants. It also depends on how they have been raised and what was customary in their family life. Many people are happy with not having a high school diploma; others can’t rest if they did not get their Masters.

Investing in real estate in a long term investment and nobody has lost money in long term Real Estate investing. I have encouraged my children to save money and buy their home, even if they rent it out and live with me in our garage for a few years. But after a few years, they have made good money from that leveraged down payment and have built a good size equity.

Oh, BTW don't forget that investing is all about timing and finding a good deal. Speaking of timing, Now is the time to buy. Prices are down and interest rate is low. What could be better?

Mar 26, 2011 10:42 PM
Anonymous
Peter Sigurdson

Basically, it is 3 options as I see it:

1. Own property.

2. Rent property.

3. Live in a cave or other dwelling without any costs. 

If option 3 is your thing: Go for it!  If the 2012 people are right, you'll be laughing at all the rest of us.

If you rent, you are in essence paying FOR SOMEONE ELSE TO OWN IT.  Unless that person is charitable enough to subsidize you, they are probably making a PROFIT, which means you are paying MORE to rent that if you owned it!  (If I'm getting a key issue here wrong, please let me know about it).

As to having a landlord to call when something breaks, they are paying someone to come fix it, and charging YOU for it someone (see my point above about this).  YOU ARE NOT GETTING THIS AS A FREE SERVICE PEOPLE!

As for equity being tied up:  Good point.  If you are REALLY going to use the capital in a way that capitalizes at a HIGHER RATE, then do it.  This is why businesses lease premises and keep their capital in the business, which will earn 20% or more capitalization, than in the land which might earn 5% capitalization.  But many people don't have other profitable venues for their money, or the financial discipline to not spend liquid assets.  If land ownership is a forced savings mechanism, why is that a BAD thing?  Of course, you can always put your money in the bank, take their .5% interest, and see the bank invest in other people's (your landlord's for example) mortgages and cap at alot more return than they are paying back to you. 

The expense of closing costs is 3%.  Well isn't that a shame.  It costs money to make money.  I DID NOT SEE THAT ONE COMING!!

It is true that some people just view money as dirty and simply don't want to accumulate it.  As for me, and the advice that I give to my clients, somebody is going to be sitting on top of my money at the end of the day, and I'd like it to be ME.

Mar 27, 2011 05:04 AM
#182
Kathie Burby
Coldwell Banker Mother Lode Real Estate - Sonora, CA
REALTOR, SFR, Tuolumne County Real Estate Guide

Great rebuttal to the yahoo article. Although there are many good reasons to rent, the ones pointed out in the original article hardly qualify. Frankly, it sounded as if the author was simply ranting as his arguments were not well thought out. Thanks for the concise and well written rebuttal.

Mar 27, 2011 12:34 PM
Kelsey Barklow
Hurd Realty - Johnson City, TN
423/948-9154

I was also very irritated by the article. Home ownership is still many Americans' dream and I believe if you start out small/inexpensive (where you can easily pay your monthly mortgage), your home will appreciate and you take it from there. Granted these times are tough but that's where a good Realtor comes in: to help you get a great deal at a price where you can live with the payments! Thanks for the great post. 

Mar 28, 2011 02:23 AM
Michael Myers
King-Rhodes & Associates - Cherokee Village, AR

"it depends on the situation."

That is the correct response. The dirty little secret is home ownership is NOT a good idea for everyone. I know people with big money who have never owned a piece of real estate and never plan on it. I also know plenty of people who have made piles of money in real estate.

The author, yes, is another ranter, but many of us in RE put our head in the sand and say home ownership is best for all. That is simply not true. You want it to be true. It is good for me, but it may not be good for my neighbor.

Opportunity costs, Opportunity costs, Opportunity costs

Also, is the home you live in and own (even if you own it free and clear), is it an asset, or is it a liability? Another dirty little secret?

"it depends on the situation." hits it on the head.

Don't get me started on the mortgage interest deduction. Most people in this country cannot do simple math. Different subject for a different day.

Mar 29, 2011 02:13 AM
Anonymous
Aneta

Good luck with tied money for rent. I am not trying to change somebody mind, but for me the rent money are "gone with wind"

Mar 29, 2011 06:57 PM
#186
Elizabeth Byrne
Keller Williams Realty - Arlington, VA
Arlington Virginia Real Estate

David, you stirred up a heated discussion. Perhaps you could refer James to some of the classics regarding real estate investments, such as Rich Dad, Poor Dad, for example. Or perhaps he could call Donald Trump to discuss benefits of owning real estate.

Stock market is a good supplement to building your wealth, but it appears that every wealthy individual has a lot of money invested in real estate. Renting helps make landlords wealthy, but I cannot see how it benefits a renter, besides being able to move on a short notice.

Apr 02, 2011 10:47 AM
David Gabris
Gabris Real Estate - Rancho Cordova, CA
Professional Service with Excellence

Great comments everyone, thank you. 

 #120 You are totally right, pride of ownership is one of the greatest reasons for buying instead of renting.

#121 Nick - haha.  Yes, there is always good deals and bad deals, that's why it depends!

#122 Stan - I agree with you.  It serves me right for reading Yahoo News.  Problem is that many people do.... :)

#124 Pau - Yes, James is probably not a good buyer.  But, I bet you that he would not refuse an excellent deal to purchase, as ironic as that would be.

#125 Jim - you are right on!  Market Value decline could be the biggest danger when owning a home.  Good thing James didn't discuss it with you before writing his article. ;)

I had no idea I would get so many comments on this blog.  I apologize for not giving more personal responses as things have been hectic in my world, but thanks for all your insightful and colorful responses.

One thing is for sure, the debate is not over.... 

Apr 06, 2011 01:13 PM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

I like his attitude. It keeps my rentals full and has sent my kids to college and is funding my retirement plan!

Apr 29, 2011 12:13 PM
Kerry Jenkins
Prime Properties - Crestline, CA

There are some valid points that he has but i think on the whole if owning makes more sense for each individual then that is what is best. Right now we are trying to see for relocation and so yes, at present we are stuck in our home. But it is best for our situation to have owned this place for a while...

Jul 12, 2011 09:56 AM