Why Owning a House is Financial Suicide

News.Com (Australia) ^ | November 13, 2015 08:32 GMT | James Altucher

[Up Yours Marxists]

OWNING your own house is as much the Australian dream as the American dream, and it's one that feels increasingly out of reach for many.

But when one user on Quora pondered whether it was ultimately better to rent or own your own home, blogger and investor James Altucher penned this highly controversial response:

I am sick of me writing about this. Do you ever get sick of yourself? I am sick of me.

But every day I see more propaganda about the American Dream of owning the home.

I see codewords a $15 trillion dollar industry uses to hypnotise its religious adherents to BELIEVE.

Lay down your money, your hard work, your lives and loves and debt, and BELIEVE!

But I will qualify: if someone wants to own a home, own one. There should never be a judgment. I'm the last to judge. I've owned two homes. And lost two homes.

If were to write an autobiography called: "My life - 10 miserable moments" owning a home would be two of them.

[kearnyirish2]

One of the issues with home-building in NJ (and other areas I’m sure) is the lack of demand for single-family homes; instead the few new constructions seem to be apartment buildings or condos - and those permits often include a requirement for a Section 8 allocation of units. How much would you pay (for a condo or apartment) if government-mandated gibsmedats were next door or across the hall? Section 8 tenants, who had been shunned by landlords in the past, are now desirable because of the regularity of the rent payments - even if the property falls into disrepair. Landlords are watching their areas (and state) deteriorate, and figure any income is better than none. I look at it as the equivalent of the Quartering Act that preceded the American Revolution; landlords (of new constructions) will be required to house gibsmedats instead of Redcoats.

[Macoozie]

I can rent a nice house,in a nice area for less than the owner pays in property taxes. No fixing anything. Rents in this area are capped by renter’s income. Owners CANNOT get more than the market will bear.
I have purchased two houses in less desirable areas with strong rent growth. Learned allot from the experienced folks in this business.
It all depends on individual circumstances and location.
Owning a home is NOT for everyone.
Being a landlord is NOT for everyone.
Tip: two kids going to the same university? Buy a House/Condo instead of paying ridiculous dorm fees, and teach the kids about property ownership and rental income.

[PoloSec]

Six of one, half dozen of the other.

[Alberta's Child]

Here's a dumb question:

If you live in an area where rents are capped to the point where landlords can't even collect enough rent to cover their property taxes, why the hell would you ever buy two homes and be a landlord yourself?

[trebb]

I don't necessarily agree with the author on this but it does lead to a good discussion. Thoughts?

Too many folks go for broke (literally) by buying more house than they can afford. We own our home (no mortgage) and it's because we bought withing our means and even took possible income hits into consideration when shopping for a home.

Someone, like the author, who "owned two homes and lost both of them" is an idiot and/or a victim of Left Wing "Beneficence" that tells them they deserve to posses that which they cannot afford.

[Cold Heat]

There should never be a judgment. I'm the last to judge. I've owned two homes. And lost two homes.

Not everyone wins life's lottery. Sometimes timing is off...employment is unstable...stuff happens...marriage, divorce, health.

[Dad was my hero]

I'm impressed by a couple things in your post.

1) you were paying $1000 a month rent in 1965 and it was a fixed amount all the way through 2015.

2) you make no account for paying the mortgage down with add'l principle - earlier. If you add $10 a month to a 30 year mortgage payment you pay it off 14 months earlier (for a 5% interest loan).

3) you make no mention of the value of the home appreciating over time which - though it may happen for your landlord that doesn't benefit you.

4) you have no control over what you are renting. If the landlord decides to sell the property and the new owner change it to condos you have to move or buy.

5) maintenance and repair also adds to the value over time.

Lastly, the same costs you have as a homeowner the landlord has too PLUS he wants to make a profit. So he is paying a mortgage, property tax, property insurance (and you're likely paying renters insurance) he is paying maintenance and repairs and wants a profit so you're footing that bill and have no control over who else he might rent to.

[Cold Heat]

Family is the most precious, homes tend to lead to stability for families, but in todays market and economy, few new young couples can afford a home nor have stable employment for even one of them.

That's the problem. It's not the home's fault, it's Obama.

[Mac n Jac]

The ability to own private property is one of our most precious tenets of freedom and it is under severe attack. For me owning a home isn’t just an asset, although for millions it has been a nice savings/retirement account, it’s a fight. The CFPB and all the new regulation that have come out since 2009 (and especially the most recent implemented Oct 3) have buyers and sellers under attack. More seller rights have been eroded ie in Texas, the new contract states that the buyer is allowed an additional 10 day extension for closing if his lender needs to re-disclose due to the new TRID rules (TILA-RESPA Integration Disclosure). Lender, attorneys and title company had retool their entire computer systems to meet the new regulation which costs borrowers more money and time as well (once closing numbers are finalized a 3 day cooling off period is required for the buyer before being allowed to sign/fund and officially close). I’ve been in the mortgage industry for 20+ yrs and feel like all the old doctors getting out of medicine due to Obamacare but at this point, I’ll be damned if I’m going to let Obama run me out of the business of helping people own property. And yes, there are scummy people in this industry and there are honorable people in the mortgage industry but where the battle needs to come down is on Federal and State government, HOAs, property taxes, etc to keep them from harming our private property rights and making it so ridiculously expensive to own a home. I want all my borrowers to payoff their homes as soon as possible, that generates wealth for them and helps our economy.

[catfish1957]

There is something about a "paid for" abode that actually gives me a piece of mind that I am free of lender, or government intervention.

In the eventuality of a SHTF scenario......... You know what I mean.

[grania]

I am happy I own my own home. Free and clear of a mortgage now

I'm in the same place. Home ownership should mean just that, owning it without a mortgage. If I had to sell quickly, I could always put my house up for auction and get a decent price, since it's in great shape and attractive.

But you know what? My first house, which I paid off thus had great equity, I had for 30 years. It was tied to the same stable job for my career. Expenses and taxes were manageable while I paid off the mortgage. For people starting out today, it's not that easy.

Repairs are getting out of control, and housing codes add to that. Lots of people don't know if they'll be in their current job long enough to make it a sound investment. Property taxes can get crazy out of control. Add to that, with domestic uncertainty, who knows where it'll be best to live in the future?

If I planned to move again, at my age (retired senior) I'd probably rent. Figure my budgeting on being around 20 more years and renting makes more sense than being tied to a condo development or the whims of local government.

[Alberta's Child]

One of the flaws in any analysis like this is that a comparison between owning vs. renting is usually presented over the course of many years. That's because it only works in favor of a homeowner over a long period of time, and only with the benefit of hindsight when you have already lived there for 20+ years.

One big difference between owning a home and renting a home is that you are always buying at the current market rate for buying the property, while the cash flow for a landlord is based on the value of the property when he purchased it. If you buy a home today, you might pay $450,000 for it. But if you rent the same home from a landlord who paid $200,000 for it 20+ years ago, the landlord can make a lot of money even by charging a monthly rent that is much lower than a mortgage payment on the same property.

To reinforce this point, just do some home shopping in a nice neighborhood near your home. Calculate the monthly cost of buying a home, then see what it would cost to rent the same home in the same neighborhood. I can guarantee you that the monthly rent is far lower than the monthly cost of owning the home.

[Mac n Jac]

That definitely depends on your location, your credit history and down payment. A $130k purchase in Ft Worth TX with 20% down and about a 4.5% rate costs about $980/mo (PITI) and rents for $1350. Nice margin and room for decrease if necessary but in the meantime, that extra can go to improvements or paying down the principal in a hurry.

[Alberta's Child]

The analysis doesn’t hold up unless you compare the cost of ownership with a $0 down payment. Even if you wouldn’t (or couldn’t) do this, it makes for a more realistic comparison — because the scenario you’ve presented doesn’t account for the fact that the renter still has $26,000 in his pocket that he didn’t put down on a $130,000 home.

[redfreedom]

We have not rented anything since the mid 70’s. I just would not consider an apartment again or a townhouse, or anything that does not give me the freedom to do whatever I want in my own home.

Right now we live in the sticks, our own well, sewer system, clean our own roads of snow. It’s so much cheaper and so much more freedom.

[Alberta's Child]

One thing about that scenario seems odd. If there is such a huge difference between ownership and renting in that area in favor of ownership, then the market ought to be flooded with people buying homes for $980/month and renting them out for $1350/month.

[jimmyray]

What about the salvage value of the house after 30 years of appreciation?

[Mac n Jac]

The market in Ft Worth/Dallas has been very hot with multiple offers. It’s like that in many places in Texas. Some cooling was experienced when oil prices dropped but it’s still hot in the DFW area as well as San Antonio. Not sure if Houston is still seeing multiple offers. This time of year the market slows just a bit but I helped with that exact scenario several times in the last 6 months.

[OKSooner]

I strongly disagree with him but he opens something that's worth talking about.

The stupidest financial decision(s) I've ever made in my entire life were 1) Buying a house prematurely, 2), Allowing someone other than my wife to have their say in a house purchase

My advice to anyone, especially young people contemplating a home purchase?

1) Live frugally and pay off everything else. No car payments, no credit cards, no student loans, no nothing.)

2) Don't buy the line about the "Home mortgage interest deduction!" By the time you are making a house payment and then pouring all your money into a house for just the joy of home ownership, the tax benefit of the "Home mortgage interest deduction!" is in no way a net gain. If you're counting on it to improve your finances you're taking the bait.

3) Start small. A decent starter home in a decent neighborhood that you can pay off sooner, MIGHT lead you to that better house if you play your cards right. Then you can sell it or keep it, your choice.

4) WHEN, not if, someone else tries to manipulate you into overbuying,

(after all, it's a family affair, right? /s)

or buying something you really don't want, (I'm not necessarily talking realtors here), invite them to the closing and then tell them to bring their checkbook. When they get that look on their face, that's the time to invite them to butt out.

[Dad was my hero]

I can tell you that my brother who has about 20 properties and my wife's cousing who owns over 300 and anyone else I know of who owns and rents properties, regardless of when they bought them, regardless of the amounts they owe (cousin with over 300 paid cash for most and owns all outright) always charge renters market rates. My examples were to highlight that a landlord has the same costs that a homeowner has and needs to turn a profit. Monthly rents in my neighborhood for a 3 BR 2 BA 2 car garage with a pool are very close to the mortgage rates for the same.

If a landlord owns a property that they bought 20 years ago for 200,000 and now prevailing prices in the same neighborhood are $450,000, the landlord will either sell the house for that price and pocket the difference or rent for prevailing rates or he is a fool. And it is just as likely that landlords have a mix of properties that they've bought at various times for market rates so they aren't all sitting on 20 year old properties raking in the money.

Now you can't account for the interference in the market by the government or by government policies. When I bought in 2010 the house was close to the bottom of the housing bubble that had burst. Just after I bought it for cash from the proceeds from a house I sold for cash the market went a bit lower then began a rebound. From the prices in my market I believe we are starting another bubble. BUT that doesn't mean that landlords won't charge prevailing market rates too (and I don't blame them).