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Don't Buy a House Advice from Influencers, real or not?

By
Real Estate Agent with Coldwell Banker Select

If you watch certain financial influencers, they will specifically say, "Don't buy a house" or "a house is not a good investment. These include Ramit Sethi, Morgan Housel, and Robert Kiyosaki who famously says, "A house is not an asset," despite owning according to him around 16,000 units. He also completely ignores the accounting equation of Asset=Liabilities + Equity, or he just creates his own definition of what an asset is.

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The value for the average household in the US (US Census 2021) of their real estate holdings, equity in their own home, rentals plus other is around 36% of their net worth. The census excludes wealthiest 1% as it tends to skew the results. So, is it responsible for an influencer to make such blanket statements of an asset class that represents a substantial portion of wealth for many Americans, or more importantly, are they right?

One observation of ownership of real estate is that it has the characteristic of a growth stock, a)the amount of mortgage payment that goes toward equity over time, b)compounding appreciation over time and c)if it is a rental, compounding rental growth over time.

In the Tulsa market, there are properties available for $200,000 that will rent for around $1,500. As an example, if you put 40% down on this home, your first year returns based on your down payment and closing costs are around 13%. Remember, your cost of capital, or the interest, is COVERED by the tenant. This is equity buildup of around 1%, appreciation of 9%(on your investment due to leverage), depreciation of around 2%(the higher your tax bracket the higher this benefit is) and nominal cashflow. This includes an allowance for repairs and vacancy and the landlord is managing the property himself/herself. By year 10, and remember this is a cashflowing property, so barring any catastrophe you are not putting new money in, the return due to the effects of compounding are almost 21% subject to market cycles and volatility.

The conclusion is that the longer one holds real estate, the better the results are and real estate over time builds real wealth and you probably don't own enough! I'm happy to share the calculation by Excel spreadsheet, email me a request and send me your investors!

 

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Comments (2)

Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Peter - there never seems to be a shortage of opinions.  Finding what is best for you, your situation, your desired timing as well as other factors can help you make better decisions.  Consider advice.  There is no need to depend on it.  And, yes, that's my opinion.  

Jan 17, 2024 08:48 AM
Peter Tamura

Hi Michael,

Thanks for your comment again! I agree that it's important to consider opinions that are different from your own. Definitely, investing in some areas is more difficult than others. In the US, there is a disturbing trend of more short term investing/trading, according to the World Federation of Exchanges, the average holding period for stocks has gone from five years in the 70s to 10 months in 2021. More taxes, more commissions and you are competing against AI bots and professional traders, it's a losing game.

Jan 17, 2024 09:00 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

It’s a great post. Thank you for sharing!

 

Have a super fantastic week!

Joe Jackson, Realtor-KWCP

Jan 17, 2024 10:04 AM
Peter Tamura

Thank you Joe, you have a nice week as well.

Jan 17, 2024 10:11 AM