Is Buying a home for idiots?
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@James G. 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).
198 Replies
Originally posted by @Matt K.:
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.
And, yet, people are still buying those units in that complex at that price. Why? Are they all misled lemmings drowning in ignorance while those renting there are enlightened souls lacking pity for those who just don't get how things work now-a-days?
Two people can be acting equally rational, yet behave in opposite ways.
Originally posted by @Matt K.:
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....
We put 20% down. But as I mentioned it was a fixer upper and we did all the renovation ourselves. Good interest rate 3.6 . No maintenances expenses so far in 4 years, as erything is updated.
When our kids are older and it's not enough room we'll just rent it out.
@Justin R. the people buying likely place a significantly high value on "home ownership" and those that rent likely place more value on price. But my comment was responding to to the notion that rent is "dead money" or that a mortgage would be "less" than rent.
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes8y
Lets take it a step further - why bother renting? Why not live in a shelter? Or live in a car? That would be the ultimate savings these speakers want to preach, right?
My goal when I bought my home and my car, among many other things, wasn't to maximize a return on my money. It was/is to comfortably enjoy my life using the money I worked hard to earn.
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes8y
@James G. First of all, GC is just gassing all of us up on Instagram and FB (but we love it). Smart real estate investors should be able to see past all that pretty quickly.
For giggles let take a look at a few demographics here:
- A 25-year old, who has a dog but no fiancee in sight a, buying a 3 bed 2 bath in an area without good schools might be considered idiotic by some real estate investors.
- A 32-year-old with a wife and a new baby carrying a car seat up and down the stairs of his building, which he is currently house hacking after driving around the block a few times to find parking in the City might sound idiotic to a non-investor.
- Finally (I promise this is the last one), a sixty-something retired couple who are now empty nesters living in a big 5 bedroom mansion sitting on a ton of equity with the hope of passing the home to all their kids who may (or may not) want the house can be debated in many circles as not smart too.
Basically, Life is not cut and dry, so GC says what he believes in and that doesn't mean he is right OR wrong.
We, as individuals, should continue to do what is right for our specific circumstances hoping for dissimilar results when compared to others.
Oh, the 32-year old guy above is me :/ (real estate investing requires scarifies now with the hope for a much better future).
Life without hope is definitely a worst financial decision one can make.
Hope this helps. Thanks! - Ola
I guess it depends on the location as mentioned above. In some areas your rent would have doubled or tripled bouncing around from house to house as the LL owner sold eventually typically. So lets say 3 different houses in the same hood over 15 years. The rents started at 2k and are now 5k or you could have just purchased a house 15 years ago for 2500 mo fixed and now that house is worth one mil ish. Understanding this only happens in areas that historically appreciate. I think we all know by now where those possible locations are.
Flip side is Grant purchased a home in LA to live in, remolded and made a cool 5 mil in a short period. Why would he not also mention that fact we can speculate.
Here is the house https://vimeo.com/34338392
Good luck!
- Real Estate Investor · Milford, NE · Member since 2011 · 201 posts · 140 votes8y
Yes.....Yes it is for idiots............
Idiots that don't mind hard work
Idiots that want to be free from bosses
Idiots that like to work on Sundays so they can go to the lake on Wednesdays and have it to themselves. This goes for anything to do with weekend crowds.
Idiots that like to retire early in life as millionaires.
Don't take my word for it, I'm an idiot........Go ask someone who's owned real estate for a while. They may also tell you its for idiots as they load their car with clubs to go golfing on a sunny Monday mid-morning. Sure they may have a few things that have to be done after golf..........unless something more fun shows itself.
Just Kidding :)
Not really ...
- 8yJames MaraditsPro MemberReal Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
There's obviously multiple ways to look at this, but the two scenarios that I don't see how anyone could dispute are:
1. Buying a multifamily where the other unit(s) completely cover the PITI and you're living rent free, have tax advantages over renting, build equity, sell with no capital gains after living in it for 2 out of 5 years, etc.
2. Buying a distressed property as an owner occupant and fixing it up while living there. I recently did this. My offer got priority over investor offers from fannie mae since I was purchasing as an owner occupant. I paid $44k and it just appraised at $115K. I just pulled out 80% of the equity to buy 2-3 similar houses with to use as rentals. I'll sell after a few years and repeat.
Originally posted by @Matthew Olszak:
Lets take it a step further - why bother renting? Why not live in a shelter? Or live in a car? That would be the ultimate savings these speakers want to preach, right?
My goal when I bought my home and my car, among many other things, wasn't to maximize a return on my money. It was/is to comfortably enjoy my life using the money I worked hard to earn.
Why not look at it apples to apples? I can rent the equivalent or BETTER home then I can buy, if you removed the emotions and what made me feel good/bad...... then why wouldn't renting make sense? Other than making me feel good, what benefit does buying my primary afford me that I can't capture via an investment property? Let's also operate under the assumption that the vast majority of people do not live in the same property for 30 consecutive years.
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes8y
Originally posted by @Matt K.:
Originally posted by @Matthew Olszak:
Lets take it a step further - why bother renting? Why not live in a shelter? Or live in a car? That would be the ultimate savings these speakers want to preach, right?
My goal when I bought my home and my car, among many other things, wasn't to maximize a return on my money. It was/is to comfortably enjoy my life using the money I worked hard to earn.
Why not look at it apples to apples? I can rent the equivalent or BETTER home then I can buy, if you removed the emotions and what made me feel good/bad...... then why wouldn't renting make sense? Other than making me feel good, what benefit does buying my primary afford me that I can't capture via an investment property? Let's also operate under the assumption that the vast majority of people do not live in the same property for 30 consecutive years.
You can't tell me to remove emotions and what makes me feel good while saying to only compare a situation where I could have a better place. If we're truly talking about saving money here, paying anything for housing is for idiots. You have a car, you can sleep in it and store your things, you don't need a house or apartment. Unless that isn't how you want to live. I want to live in a home that I control and improve upon as I see fit. And, live in a home that is paid off and in which I never have to concern myself with working to pay anything beyond my food, utilities, and property taxes, if I so choose. You will never have that renting.
Besides that, unless the savings in rent vs. the mortgage over 30 years is greater than my equity in the end minus interest and taxes paid over the life of the loan, you are losing money. That will almost always be the case. You might get away with saying over years 1-10 of my mortgage you pay somewhat lower rent, but once my equity builds you are at a loss. And that's not even taking into consideration appreciation. Renting is great if you are bouncing from place to place frequently, but that too can be overcome if you buy properties who's rent will cover the payment so you can rent once you move out.
It makes no difference if one stays in the same home for 30 years or buys/sells 10 different principal residences in that same time. You'll pay a certain amount of rent in those 30 years, and I'll pay a certain amount of mortgage/taxes in those 30 years, except I'll have equity at the end.
- Investor · Salt Lake City · Member since 2017 · 52 posts · 23 votes8y
Great debate! Its been said but it totally depends on your individual situation and personal goals, whats your income, how do you want to live in 20 years or 50 years (if one plans on being alive then), most importantly, what do you value? I know lots of people in Melbourne Australia (one of the most expensive places in the world to buy) who love renting in area's they could never afford to buy in their life time, they make great money and love having a full time gardener etc that someone else manages, I know renters who are dismayed, unhappy, have no savings.. but we all know home owners who fit that bill too. Grant Cardone is amazing, but what he is into isn't everyone's cup of tea. I like that BP talks to so many different people you just stick to the guidance of the people who are doing what you want to be doing, or those who resonate with you. I personally would rather use the little cash I have to enjoy my life or invest in my future, while my property pays for itself and becomes a future income for me.
- Matt K. You’re right...for your area. Each area is different. In 2006 I rented 2/1 800 sq. for in ATL for $600 a month, by 2008 they wanted $735 for the same apartment and didn’t include utilities or insurance. It had mold growing in the kitchen cabinet, my electric was an additional $200 a month minimum, and it hadn’t been updated since the 80s. I purchased a 3/3 1300 sq. in 2009 for $64.5k. With taxes, mortgage and insurance my monthly mortgage is $550, my utilities are $168 for electric and gas combined and I have no restrictions on my lifestyle. Today, I can’t even find a crappy apartment for less then $750 + utilities.
- Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes8y
I think it depends on where you live (cost of living, median home price vs rent price) and the choices you make.
In the area I live in, our median home price is $250k.
Rent for an average class B 2/2 apartment is $800 (ARV 80k, payments/PITI if financed at 97% LTV ~$550/mo), and rent for an average class B 3/2 SFR is $1200 (ARV 180k, payments/PITI if financed at 97% LTV ~$1,050 ).
Now, this is just comparing PITI vs rental values and doesn't factor in the fact that if you OWN the property you should have capex and repair funds set aside every month (Yes, your roof needing to be replaced every 20 years, AC needing replaced every 10-15 years and other items should not "sneak up on you").
These numbers also do not show you principal pay down of buying vs renting
At the class B 2/2 apartment it is significantly cheaper to buy vs rent. Though at the SFR example there's still some savings but the capex reserve fund should bring it to about break even.
It really depends on the person and what their strategy is. If you know you're going to move in the next year or two, you are NOT buying at a discount, and you don't have an exit strategy of renting the property and absolutely HAVE to sell it... even if you're in a fast appreciating market, you likely will only break even after the selling costs. Worse case you might not be able to sell the house at all since you don't have enough equity.
But, if you're going to rent it out after moving out. Or if your plan is to stay at the house for 5+ years then it may pan out.
Personally, my husband and I only buy primary residences like we do investment properties. At a discount. And we don't pick "our dream house". We live in whatever deal we can buy at the right time at the right price so we have equity right away. We see it more as an investment vs a "home". Though obviously it's a liability while we're living in it.
We just moved into our current primary. Bought it for 90k, Put about 30k of rehab in. Should appraise between 190-200k. Have a HELOC application for 85% LTV of appraised value. Should be able to get a $160k ish HELOC. So, if it pans out, we'll have 70-80k in equity. And we'll be able to pull out $40k more than the $120k all in costs. AND live in a nice 3/2 starter house.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@James G. I call it the accidental millionaire pretty much anyone who bought in CA in the 70s or 80s and still owns the home ( prime bay area prime LA San diego) has made well over million in equity.
I peronsally sold 3 homes in CA over a 17 year period and pulled out just under 1 million tax free.
I sold another home in Oregon that I lived in for 6 years and pulled out right at 400k tax free.. and this home I am in now when I sell I will make the full 500k tax free.. all for just doing what we do living in a home.. but in the right areas.. granted in many areas of the country homes might be worth less today than they were in the 80s.. take much of rural New York as an example..
and the same can be said for prime East coast and prime Chicago real estate and now some in Dallas and so on..
- 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
"granted in many areas of the country homes might be worth less today than they were in the 80s.. take much of rural New York as an example"
Why I never........ You take that back........ oh wait, you may just have a valid point...... :)
Originally posted by @Leanne J.:
Matt K.
You’re right...for your area. Each area is different.
In 2006 I rented 2/1 800 sq. for in ATL for $600 a month, by 2008 they wanted $735 for the same apartment and didn’t include utilities or insurance. It had mold growing in the kitchen cabinet, my electric was an additional $200 a month minimum, and it hadn’t been updated since the 80s.
I purchased a 3/3 1300 sq. in 2009 for $64.5k. With taxes, mortgage and insurance my monthly mortgage is $550, my utilities are $168 for electric and gas combined and I have no restrictions on my lifestyle.
Today, I can’t even find a crappy apartment for less then $750 + utilities.
You realize my statements were directed at someone saying that you're throwing away money renting... always. I simply provided a counterpoint.
I live by the numbers, doesn't make difference to me rent/own so long as the numbers fit my goal. I have family that are the exact opposite, they want to own outright no matter the costs. No one's right vs wrong in that sense of purchase, but you can most certainly rent cheaper than you can buy in many areas.- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Mike Cumbie sorry mike did not mean to pick on your area..
but its true in Detroit In the north side of Milwaukee many many areas.
lots of rural IL.. etc.
LIke I said for us that grew up here ( me in Cupertino) who was to know.. you just did what you do.. you get a job we did anything we could to buy that first house and then never looked back..
However also keep in mind back when I started House hacking was not invented yet.. BRRR that just meant it was cold.. NO money down forget bout it.. you had to have actual cash down and you have to acutally qualify..
in reality HML in those days did the 80 10 10 s in our area that's how I bought my first home.. 10% down saved up the 10k for the down stroke.. ( lot of money in 1976.) HML gave me a 7k second 5 points 15% 3 years.. then a 80s bank loan at 9%... sold that house and made a whopper high tech took off and next thing you know good bay area locations were doubling tripling etc.
the house I bough in 1983 in Palo alto for 185k.. is now worth north of 2 million.. and that's a 1500 sq ft rancher.. on a 6k sq ft lot.. :) even though I sold it for just under 525k in 92 and thought I was the smartest cookie in the box.. look what happened.. even though I was in the business .. I could not fathom it going up much higher.. .. but the house I bought in the Napa valley for same money little less 500k I sold in 2001 for just under 1 mil.. so it all worked out. and each time we did this we paid NO TAx had no tenants other than ourselves these were nice newer homes put very little into them. and enjoyed the lifestyle.
Originally posted by @Matthew Olszak:
Originally posted by @Matt K.:
Originally posted by @Matthew Olszak:
Lets take it a step further - why bother renting? Why not live in a shelter? Or live in a car? That would be the ultimate savings these speakers want to preach, right?
My goal when I bought my home and my car, among many other things, wasn't to maximize a return on my money. It was/is to comfortably enjoy my life using the money I worked hard to earn.
Why not look at it apples to apples? I can rent the equivalent or BETTER home then I can buy, if you removed the emotions and what made me feel good/bad...... then why wouldn't renting make sense? Other than making me feel good, what benefit does buying my primary afford me that I can't capture via an investment property? Let's also operate under the assumption that the vast majority of people do not live in the same property for 30 consecutive years.
You can't tell me to remove emotions and what makes me feel good while saying to only compare a situation where I could have a better place. If we're truly talking about saving money here, paying anything for housing is for idiots. You have a car, you can sleep in it and store your things, you don't need a house or apartment. Unless that isn't how you want to live. I want to live in a home that I control and improve upon as I see fit. And, live in a home that is paid off and in which I never have to concern myself with working to pay anything beyond my food, utilities, and property taxes, if I so choose. You will never have that renting.
Besides that, unless the savings in rent vs. the mortgage over 30 years is greater than my equity in the end minus interest and taxes paid over the life of the loan, you are losing money. That will almost always be the case. You might get away with saying over years 1-10 of my mortgage you pay somewhat lower rent, but once my equity builds you are at a loss. And that's not even taking into consideration appreciation. Renting is great if you are bouncing from place to place frequently, but that too can be overcome if you buy properties who's rent will cover the payment so you can rent once you move out.
It makes no difference if one stays in the same home for 30 years or buys/sells 10 different principal residences in that same time. You'll pay a certain amount of rent in those 30 years, and I'll pay a certain amount of mortgage/taxes in those 30 years, except I'll have equity at the end.
Living in a car and a actual structure can't really be compared... I think a 2/1 with like an extra 200 sqft can be considered "better" by a pretty broad range of people. You'd have to have some pretty unique circumstances to see the smaller place as a better deal again, going by the numbers.
Again, for my example that 1/1 at 360 you'll have paid nearly 200k in interest at the end of the loan that's a good chunk of money.... and I'd likely assume the chances of a 1/1 being someone's forever home is rather slim. Also look at the price history:
Without even getting to complicated one could easily do the following if they chose to rent instead:
Let's call it 8k, to move into the 2/2 @ 2k mo.Take that 90k you'd of put into the 1/1 and put it down on a 180k midwest property, should be able to pretty easily hit 1% rent on that investment. That'd probably put you right around like 700 mo expenses, 1100 mo extra. Now let's take off an extra 25% (10% for mgmt, 15 cap ex/maint/vacancy). That leaves you what like 800 mo...... and let's apply that your rent effectively making it 1200 mo. Even if rents are raised by say 4% year, that's what like 80 mo... your extra income from your investment would likely partially offset that because well rents are raised there too. You're also getting tax benefits and additional net worth like a homeowner would... and additional income.
Again, note nowhere am I saying this would work in all market or that it's a one size all solution..... but it can be rather easily replicated in probably a good amount of metros around the US.
- 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
LOL @Jay Hinrichs!
I am originally from Metro Detroit, born and raised. Guess now that you mention it I sure know how to pick places to live! Our areas stay pretty flat, I would have no idea how to treat an area that could raise or lower 50% in 4 years. I might be dangerous...... or broke.... suppose I could flip a coin and try my hand in a hot area!
- Investor · Los Angeles, CA · Member since 2016 · 94 posts · 93 votes8yJames Gleeson My answer is: Whatever makes you sleep better at night.
- Carrollton, TX · Member since 2015 · 415 posts · 371 votes8y
If you think buying a personal residence is a waste of money, try renting.
Don't lose sight of the fact that investing (real estate or not) is a means to an end, not an end in itself. So what's the "end"? Lifestyle! I don't invest for the sake of investing, I invest to achieve a lifestyle. The house I bought to live in is not a liability nor is it an asset. It's a lifestyle, it's why I invest. Why do you invest?
Cheers... Immanuel
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes8y
Ask the guys/girls on here who own 300 units if they are “idiots”
- Rental Property Investor · Toronto, ON · Member since 2017 · 37 posts · 9 votes8yThis is a No brainer... Buy house for 800k. Put 20% down. (160k in). Five years later the house is worth 2M. Refi and take out the original 160k. Mortgage is now 800k and you now have a home with no money in, and 1.2M of equity. Eventually Sell, Lend, earn $120k/year on 10% loans forever...Simple.
- Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes8yJames Gleeson I am a licensed Real Estate Agent and a Fall River Real Estate Investor. I agree with Grant Cardone and many members of the one percent... You should not “live” in anything that you own. To the same point I highly recommend buying real estate and renting that property out. The cashflow from a good rental property bought right should be able to pay for your rent relative to your standards of living and assuming you purchase a true cashflow property like a 3-6 unit building. For example, I own 5 properties on my own and another 7 with my business partner. Neither of us live in any of our properties and we both rent from other landlords. This gives us the freedom to sell any one of our buildings at anytime as well as the ability to easily move to any other living situation. We have no maintenance to worry about where we live and generally live much more comfortably than if we lived in a building that we were responsible for. Also there are numerous tax deductions available for rental property that ARE NOT available for owner occupied units. Don’t wait to buy real estate. Buy real estate and wait! Send me a private message and I will gladly setup a call to review your investment goals. Cheers to your success!
Well to be first clear...I don't think house hacking is always a good option. It depends on the market and the numbers. But anywho...
I am with Grant on this one. I buy all rental properties (cash-flowing) and I rent my apartment in LA. I was one of the "idiots" right out of college and bought my own house in Georgia then when I lived there, but I since changed my mind on the whole thing. Now if LA were to crash again, I'd certainly pick something up purely for the appreciation option...and preferably with as little of a mortgage as possible.
But for details on more of my thoughts on all this, check out-
https://www.biggerpockets.com/renewsblog/2014/01/1...
Hope that helps!
Also, a lot of the answers depends on the numbers, and the numbers depend on whether you are financing the house or not. Factors that could change my mind in some scenarios...
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