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