Podcaster and author James Altucher, a bestselling author, entrepreneur, angel investor and former hedge fund manager, recently stopped by Business Insider to talk about whether or not owning a home is a smart investment.
It’s Financial Suicide To Own A House
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 hypnotize 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.
But I will tell you the reasons I will never own a home again.
IT’S NOT AN INVESTMENT
Everyone has a story. So here’s a story. Mom and Dad bought a house, say in 1965, for $30,000. They sold it in 2005 for $1.5 million and retired.
That’s a nice story. It didn’t happen to my mom and dad. The exact opposite happened. But…for some moms I hope it went like that.
Maybe Mom and Dad had their troubles, their health issues, their marriage issues. Maybe they both loved someone else but they loved their home.
Here’s a fact: The average house has gone up 0.2% per year for the past century.
Only in small periods have housing prices really jumped and usually right after, they would fall again.
The best investor in the world, Warren Buffett, is not good enough to invest in real estate. He even laughs and says he’s lost money on every real estate decision he’s made.
There’s about $15 trillion in mortgage debt in the United States. This is the ENTIRE way banks make money.
They want you to take on debt.
So they say, and the real estate agents say, and the furniture warehouses say, and your neighbors say, “it’s the American Dream”
What could we do as a society if we had our $15 trillion back? If maybe banks loaned money to help people build businesses and make new discoveries and hire people.
HOUSING IS NOT AN INVESTMENT
Let me tell you the qualities of a good investment:
- It’s not the bulk of your net worth. Good investments are usually part of a diversified set of investments you make in your life, including the investment you make in yourself (acquiring more skills, having more experiences, etc).
- It doesn’t require heavy debt.
- You can get your money back when you need it.
From hard experience I know when I needed money most, it’s exactly at those moments I can’t get it. The house can’t get sold.
And the bank that was so friendly lending the money, starts calling within 12 hours of not getting their check. And then starts suing.
ISN’T RENTING LIKE THROWING MONEY DOWN THE TOILET?
No, renting is like “making money”. Here’s how.
Let’s say you want to buy a $500,000 house at a 6% mortgage.
You put $200,000 down.
The entire house would rent for about $2500, give or take. So that’s 80 months or almost eight years’ worth of rent you just gave to the bank in a single check.
Do you ever get that bank money back?
No, because after mortgage debt (most of which cannot be written off in taxes), property maintenance, and taxes (which go up with inflation and are almost never considered in the price of the house), closing costs, buying costs, title insurance, property upgrades, etc. the homeowner might spend close to $1,000,000 in the lifespan of the house. Or twice that.
So instead of writing that $200,000 check in one day (as opposed to spreading rent out over eight years and the landlord is in charge of all maintenance, taxes, etc so you don’t have to deal with it), you could invest in yourself.
Can you get more than 0.2% a year investing in yourself?
I hope so.
HOUSE OWNER: IT’S GOOD TO HAVE ROOTS
The average house owner, owns their house for 4.5 years. Some own for much longer, some own for less. That’s just an average.
4.5 years is not “roots”.
Why do people move? Because jobs are no longer as stable as they once were.
And they are no longer in one or two cities but all over the country or world.
So the original reasons for owning a house (a guaranteed easy commute into an urban area where the jobs are) are no longer valid, as demonstrated by the increasingly short lifespan of house ownership.
This is a trend that is continuing forever.
The other day my sink broke. My house is 150 years old. Things break. Pipes crumble in the hands of the plumber.
I email the landlord, who calls a plumber, who gets new pipes that are paid for by the landlord. The landlord wasn’t expecting it but that’s what they signed up for.
Meanwhile, I read a book on the couch in the other room.
Some people like to know where they will be in 30 years. They feel comfort in that.
When you rent, you never know if you will be kicked out eventually or if the house will get sold and you have to move.
So there is no judging here. But I like flexibility in my life. I like to know I can move. And in my area, so many houses are for sale, I always know I can find a good place to rent.
Will it always be that way? No. Things cycle. But America has a tendency to overbuild. And then people overbuy. And then rentals are available.
But I still want the ability to pick up and move at a moment’s notice if I want to.
PROPERTY RIGHTS ARE THE BASIS OF AMERICA
Many people like to own real estate because of the word “real”. It feels more real than money.
Or stocks. Or bonds.
I get that. It is real. And in America, nobody can take your land from you if you own it.
But not many people own their land. The bank owns it. Hence the $15 trillion in debt.
And people will never own it (the 4.5 year average thing).
WHAT DO I DO THEN?
You can rent. Just like some houses are bad and some are good, some landlords are better than others. Like anything that is an important life decision, it takes research.
You can find roots with a good landlord.
If you believe in housing as an investment, there are companies that just own houses that you can invest in on the stock market.
So you get all the benefits of a long-term investment in housing and get your cash out in five seconds if you need it.
WHY DO PEOPLE ALWAYS ARGUE FOR HOUSING
There’s something called “investment bias”. Your brain thinks, “I’ve just made the biggest investment of my life so it must be right”.
So it tells you, “that $200,000 down was the best decision you ever made. Everything else involves flushing money down the toilet, or no roots, or no stability!” So it’s hard to consider the alternatives.
It’s a lot of work to own a house also.