Is Buying a home for idiots?

198 Replies

Hi BP. I’ve heard a lot of real estate investors, including Grant Cardone, say that buying a home is one of the worst financial decisions you can make. What is everyone’s thoughts in this matter? I know that house hacking is a good decision but I’m not referring to that. The question is: if you had a choice to buy a house and be in debt for 30 years, or pay a landlord rent every month, which would you choose? Why?

@James Gleeson That depends on a # of factors including where you live, your cost and tax structure, your future plans, purchase price, growth and inflation expectations, mortgage details, closing costs, etc. 

NY Times has a great calculator: NY Times - Rent vs Buy Calculator

Essentially, there is no right or wrong answer because it all depends on your personal situation. The average person who considers their home an asset is wrong. No financial planner/advisor worth their salt, uses the value of an investor's house as part of their net worth (regardless of what posters on this forum believe). It is not considered acceptable, conservative practice. Owning your own home is considered a "shelter to substitute" i.e. if you don't own a home, you will rent. There is an imputed cost to both decisions (invisible as it seems to many individuals).

Nonetheless, the same house, if bought, say at 30-40% below market value can be a great investment. But the economics of owner-occupied house suck and do not make for a good long-term investment. Hence, most professional investors eventually either move up to multifamily or move into commercial assets. 

Grant Cardone isn't wrong on this one. Remember, most people buy a house they can't afford with money they don't have to impress people they don't like (harsh but true).

P.S. There are many reasons to buy a house. They are emotional and valid. For instance, if you work hard, save money and dream of owning your own place. You should buy it! Many people with kids buy over priced houses in good school districts. But those aren't investment decisions (although, they are valid and should be given importance).

Updated over 3 years ago

*should read "substitute to shelter"

@James Gleeson , simple: Rent money is dead money!

For more than half of the next 30 years, your mortgage would be less than rent anyway!

Would you really rather still be renting in 30 years? [And will your kids benefit?]

My contention is: Any initial savings that renting might show on paper, are short-lived.

And, why deliberately leave the house hacking strategy out of the argument?

But sure, if in your circumstances and investment wisdom, you can buy rentals much quicker (say, out-of-state), while still renting where you can't afford to buy? Fine.

But, most renters don't have that sort of acumen and discipline! Cheers...

This questions is so complicated.

from a financial standpoint, buying is many time cheaper than renting, but maintenance and ancillary costs are hard to determine. this factor is largely based on what market you're looking at. You also have to consider that a lot of resources get tied up when purchasing

from a stability standpoint it's great to own rather than buy, imo, especially when you're younger.

from a flexibility standpoint it's probably better to rent than purchase. Being able to leave a state or city and move where new opportunity is can be extremely valuable. Home ownership doesn't prevent this, but it might make it stifling.

my personally opinion is that home ownership is probably good for most people because they are creatures of complacency, and they don't save much. So buying a house early in life and sitting it in it for 20 years is the best financial decision lots of people will make. If you're ambitious, have low overhead, and want to get ahead then renting is most likely better.

Most of my wealth comes from owning properties.  My friends who rent, have only a tiny fraction of what I have.

It’s not as simple as that. A personal residence can be a great asset (depending on your market), but certainly isn’t an investment.

At the end of the day, I would always rather own than rent if only for the psychological benefits of knowing that the mortgage payment is fixed and going towards increasing my equity rather than rent which should increase periodically and does not grow my assets in any way.

 I bought my first home at 19 in Milpitas ca for 79k... ( 1976)   and never looked back..

few things forced savings.. renters have a hard time saving.

but there is a new crop out there that are disciplined look at @jmartin he is a prime example of the Cardone theory.

But he is single is travelling the world and loving life.

for most of us its about family stability keeping the kids in the school district you want them in.. close to your job all those factors..

Plus since I never rented but for a brief time from 18 to 19  last thing I want is some landlord telling me what to do.. or deciding not to renew my lease and now I have to go find another place to live.

plus I don't want to be paying off some slimmy landlords house for him with my money.

lastly home ownership done in the right markets at the right time with the 500k tax free exclusion is by far the best tax treatment one can get.. I have pulled that card 3 times and will pull it for a 4 th in the next year.. this is serious wealth building.

If you listen to Rich Dad Poor Dad and Cash Flow Quadrant, basically buying a home with a min down and not too much yr/yr equity growth is dangerous.  reason being you are working for money, money isnt working for you.  and the home is NOT an asset in this case b/c you are paying into it.  Assets should work for/pay you.

that said the books dont say you shouldnt buy it but rather you must be diligent in doing so and buy the MIN you need not "what you desire or wish for" so you are not stretched.

paying it off as fast as possible is the best in the long run ....now on the flip side, if you build up enough REI and are able to then utilize that money to pay your mortgage/car loans/ car cash purchase etc....then it isnt as bad off.

bottom line, the best thing you can do if you would like a house is to make sure you buy the min you really need.  keep it simple for now esp if you are getting into investing etc.  also reading these books highly suggested if you havent already.

from a standpoint of understanding how renting vs buying affects your day to day activities and tax situation etc, the calculator provided above does a great job.

@James Gleeson Eh, probably depends on your personality and the time in your life.  If you want to be mobile for work, investing, etc. then getting a 30 year mortgage isn't the issue, it's the cost to sell (whether to move or upgrade) every __ years.  A lot of people move their primary residence every 4-5 years and when you add in realtor fees, getting the property "sale ready", closing costs, etc. I think you're probably looking at a 10% cost.  If you live in San Diego (yay!) that can add up...and add up quick.  And if you value being professionally mobile (more common these days) you might not making it that 4-5 years.

Now fast-forward to getting married, having a kid, wanting a consistent home environment to raise them in, a good neighborhood, great schools, etc. and priorities definitely shift. Not to mention that I don't want to share walls, have shared parking, or have to worry about some neighbor tipsily stumbling by my door at 3 a.m. in an apartment complex. And I also don't want an owner with the power to kick me out of "my house" if I live in an SFR. Nor do I want to "adventure" of finding a new home in a new neighborhood. Not my kind of adventure.

So the bottom line is that so much of the "why" has to do with my personality, desires, the time in my life, etc.  

@James Gleeson   I agree with @Alexander Felice ...there is no "one size fits all" answer to this question. My thought process on this goes along these lines, especially in relation to the gospel of Grant Cardone -

How much of what Grant Cardone says and does is applicable, achievable or relatable for me?  

Answer: Currently very little. Therefore, if I can buy houses, let tenants pay them off for me (including my primary property) and I benefit from cash flow, tax shelter, depreciation ect ect, I will do so....and love doing it. Because this is what works for me. (maybe call this the gospel of John Schaub)    :) 

To try to summarize - if what GC does doesn't really apply to my life, why would I want to apply his philosophy to my life? Also a factor in this, even in buying a personal property, I buy from a bit of an "investor" standpoint. I do not buy "status" properties. 

All the best!

Originally posted by @Russell Brazil :

Most of my wealth comes from owning properties.  My friends who rent, have only a tiny fraction of what I have.

I don't think the OP is talking about owning rental properties, but owning home (to live) vs renting (to live).  There is a subset of investor population that thinks its better to rent vs own when it comes to your personal living situation. I don't believe painting with such a broad brush.  In majority of cases, unless one is in kind of job where they constantly need to move from one city to another, one is better off owning. 

Lot of good responses here.  I would only add that one needs to be resistant to those who make over-simplifying statements (e.g., "buying a home is one of the worst financial decisions you can make" or increasingly I'm hearing "college isn't worth the cost").

The oversimplified answers to nuanced/complex questions is a dangerous path and not for the savvy.  This applies in politics too ;-).

Originally posted by @Chinmay J. :
Originally posted by @Russell Brazil:

Most of my wealth comes from owning properties.  My friends who rent, have only a tiny fraction of what I have.

I don't think the OP is talking about owning rental properties, but owning home (to live) vs renting (to live).  There is a subset of investor population that thinks its better to rent vs own when it comes to your personal living situation. I don't believe painting with such a broad brush.  In majority of cases, unless one is in kind of job where they constantly need to move from one city to another, one is better off owning. 

 Well $600k of my net worth was generated from primary residences, still far exceeding any of my friends who rent by many multiples

Originally posted by @James Gleeson :

@Russell Brazil How did you make so much money from your primary residence??

Did you house hack? Did you buy, fix up, and after 2 years sell to get 100% in taxes? Please explain

 That is over the course of 3 primary residence sales, so it was not 1 single property.  I wasnt really house hacking.   Just did what many people do, started out with a starter home, and continued to trade up every 5 years or so. 

@James Gleeson It truly depends on where you’re located and the current market. For instance, with my first primary home purchase I sold it for roughly 70k more than I paid for it only 3.5 years later. It wasn’t a fixer, and was only 5 years old when purchased.

I see people getting rich in real estate all around me, literally. You can’t do that renting.

Originally posted by @James Gleeson :
Hi BP. I’ve heard a lot of real estate investors, including Grant Cardone, say that buying a home is one of the worst financial decisions you can make. What is everyone’s thoughts in this matter?

I know that house hacking is a good decision but I’m not referring to that.

The question is: if you had a choice to buy a house and be in debt for 30 years, or pay a landlord rent every month, which would you choose? Why?

I chose to buy a house at a low price , fixed it up. We now have quite a bit of equity in it. I don't consider it a dead equity. We recently took a HELOC out on our primary with a fixed rate with the intend to use it as a down payment for a rental property.

Yes, I believe in purchasing.   I have had significant gains in equity with every house I have purchased.  I also believe in paying off your home ASAP, but with today's low interest rates, it might make sense to let the mortgage run.

I DO believe that most people buy way more house than is wise -- when those funds could be used more productively. People get into houses as status symbols -- and those gated communities can be killers in terms of setting social expectations. By the time they can afford their dream house, the kids are off to college and you have an aging couple rattling around in their mausoleum -- or as Dr. Housing Bubble puts it "the Taco Tuesday Baby Boomers in their tract mansions". But the house is only part of it -- then you need the car, the landscaper, the housekeeper, the HOA fees, the country club membership, the lavish wedding for your daughter .......

When all you really need for TRUE happiness is a little farm, a pick up truck, goats, a good dog and an APARTMENT BUILDING.

Originally posted by @Bettina F. :

Yes, I believe in purchasing.   I have had significant gains in equity with every house I have purchased.  I also believe in paying off your home ASAP, but with today's low interest rates, it might make sense to let the mortgage run.

I DO believe that most people buy way more house than is wise -- when those funds could be used more productively. People get into houses as status symbols -- and those gated communities can be killers in terms of setting social expectations. By the time they can afford their dream house, the kids are off to college and you have an aging couple rattling around in their mausoleum -- or as Dr. Housing Bubble puts it "the Taco Tuesday Baby Boomers in their tract mansions". But the house is only part of it -- then you need the car, the landscaper, the housekeeper, the HOA fees, the country club membership, the lavish wedding for your daughter .......

When all you really need for TRUE happiness is a little farm, a pick up truck, goats, a good dog and an APARTMENT BUILDING.

 I enjoyed your reply!!! Thank you :-)

Originally posted by @Brent Coombs :

@James Gleeson , simple: Rent money is dead money!

For more than half of the next 30 years, your mortgage would be less than rent anyway!

Would you really rather still be renting in 30 years? [And will your kids benefit?]

My contention is: Any initial savings that renting might show on paper, are short-lived.

And, why deliberately leave the house hacking strategy out of the argument?

But sure, if in your circumstances and investment wisdom, you can buy rentals much quicker (say, out-of-state), while still renting where you can't afford to buy? Fine.

But, most renters don't have that sort of acumen and discipline! Cheers...

 Please.... I rent for cheaper than I could buy. There's PLENTY of options where I can rent that'd require me to literally put couple hundred thousand down.... to MATCH what I could go out and rent it for. Not mention, maintenance is no longer my problem... neither is moving. I'm out what like first, last, and 1 mo sec deposit.... free's up good chunk of money to invest.

Here's a lower priced generic example that took me 5 min to find.

2/1 for rent 2k mo 

https://www.zillow.com/homes/for_sale/18413575_zpi...

1/1 for sale (same complex) 359,900

https://www.zillow.com/homes/for_sale/18413622_zpi...

You'd need like 90k down to match the rent rate of a BIGGER place.

Originally posted by @Matt K. :
Originally posted by @Brent Coombs:

@James Gleeson , simple: Rent money is dead money!

For more than half of the next 30 years, your mortgage would be less than rent anyway!

Would you really rather still be renting in 30 years? [And will your kids benefit?]

My contention is: Any initial savings that renting might show on paper, are short-lived.

And, why deliberately leave the house hacking strategy out of the argument?

But sure, if in your circumstances and investment wisdom, you can buy rentals much quicker (say, out-of-state), while still renting where you can't afford to buy? Fine.

But, most renters don't have that sort of acumen and discipline! Cheers...

 Please.... I rent for cheaper than I could buy. There's PLENTY of options where I can rent that'd require me to literally put couple hundred thousand down.... to MATCH what I could go out and rent it for. Not mention, maintenance is no longer my problem... neither is moving. I'm out what like first, last, and 1 mo sec deposit.... free's up good chunk of money to invest.

Here's a lower priced generic example that took me 5 min to find.

2/1 for rent 2k mo 

https://www.zillow.com/homes/for_sale/18413575_zpi...

1/1 for sale (same complex) 359,900

https://www.zillow.com/homes/for_sale/18413622_zpi...

You'd need like 90k down to match the rent rate of a BIGGER place.

 That proves the point that there is no single right answer to that question. As for us, our mortgage+tax+insurance is about $750 . We would pay $1400 if we would rent that house . No brainer .

Originally posted by @Lana Lee :

 That proves the point that there is no single right answer to that question. As for us, our mortgage+tax+insurance is about $750 . We would pay $1400 if we would rent that house . No brainer .

 How much down you putting to get to that number? Seems like you're in a place that'd be a good investment....