Is Buying a home for idiots?

Investor · St Louis, MO · Member since 2017 · 250 posts · 181 votes

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?

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Omar Khan

Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

@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).

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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
Originally posted by @Anthony Dooley:

@Jay Hinrichs I agree that you can have both, but if I could go back and do it again, I would buy investment property first and then buy the personal residence from the increased income. I disagree that renting is a waste of money. Shelter is one of the basic necessities of life, and that is worth paying for just like food and clothing.
Your comment smacks of one who only wants to (finally) buy their own primary in a non-appreciating market! Why? Because appreciating markets appreciate at a much faster rate than a measly few hundred dollars cash flow per month can keep up with! Even when you have four, five or seven investment properties.
Every year you let go by that you refuse to buy where you really want to own and live, is another year that will make it harder for you to enter that market - ever! But, cheers...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Anthony Dooley well obviously we need shelter I am not advocating living under a bridge ..
the reason buying a home first for many is a logical step is as much how our financial system works first time home buyers can get into a home with an FHA loan or a USDA loan and there are all sorts of down payment assisstants etc.. as you know your a realtor.
So they can get that home.. and in low value areas if they just put the amount they would pay for rent against their mortgage they would own the home free and clear in probably less than 10 years.. with next to nothing down.. so you have not tied up anything but one loan slot.. not much cash and it does not hurt your DTI.
Now if you try to start in investments first you need much larger amount of money down.. you have no experience owning properties.. so financing is tougher..
Not to mention the tax advantages of homeownership.. IE the tax exclusions are just huge for most folks and something that is not thought of up front but as we stated in the higher dollar markets its what many end up retiring on.. and they are not a slave to being a landlord all their life..
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Jay Hinrichs a one year lease is not slavery. Paying the bank for 30 years with interest, maybe. Tax advantages, loan products subsidized by the government, and low down payments are marketing products and incentives to entice people who cannot really afford to buy. The bank has a much nicer building that we do, so who benefits more from home mortgages?
I'm am not saying that owning a house is bad. My point is that if you are going to borrow $500K from the bank, you may as well make money on the deal. Instead of hoping your house goes up in value, buy cash flow. Building equity in your personal residence is useless unless you sell it or borrow against it. Otherwise, the equity is trapped. In the meantime, you are still a slave to the bank and your roof will need replacing at some point.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Anthony Dooley Ok we can debate this and you have two distinct asset class's you have historic non appreciating areas or areas that have actually deprecated.. and you have historic appreciating areas.
in historic non deprecating areas homes are NOT 500K they are maybe 100k.. so with rents at 1000 a month for a nice home even in those areas.. owners can pay them off in less than 10 years.. never to pay again and have a nice nest egg and security and not have to worry about moving or someone telling them what they can and cannot do.. you cannot put dollars on that aspect..
in areas with known appreciation IE ( HISTORIC) there is no question that these homes over time will do more for a person at the end of a 30 year run than a few rentals.. you would need to be in the rental BUSINESS to do better..
So let me ask how long do you think it would take for someone at 200 a month positive cash flow on these houses you speak of ( leveraged) to get to a few million of actual cash in the bank with no risk of recapture.. ???? pretty long time and or you 30 to 100 of them to do this.. how many mom and pops ever get to 30 to 100 rentals ??? there are always a handful or more in any given mid west city that have made this type of business their livelihood..
But how many in high appreciating markets that bought 30 years ago are sitting on 1 mil 2 mil in equity of which 500k is tax free and when you sell you don't have recapture... and its CASH and you never had to answer to a tenant other than yourself..
that's the issue here.. and something that folks that live in low value or areas were homes dont' go up cant quite fathom.. there is a reason states like CA and NY are drivers of national real estate there is a reason that CA folks buy all these out of state rentals.. because many have made HUGE amounts of appreciation.. :)
However again my point is do both.. get that house bought then if you want to invest in other things go for it...
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Ownership of a home is an American dream it is not meant for every one. Mark Zukerburg became a 1st time home owner not long ago after his child was due. Renting is often a good choice. His old style PA home would not even fetch 800K in East Coast. He spent $7M on it. As fifth richest person on the planet, he drives a Honda FIT and a VW.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Brent Coombs I didn't say any of that. I said, "if I could go back and do it again." Knowing what I know now, I would own a lot more cash flowing assets, which allows me to live wherever I want. I am not tied to one area of the country. I can pick up and move next month. Can you?
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Nick Rinnert
Investor · Marysville, WA · Member since 2015 · 19 posts · 9 votes
8y
Very simple ! If your sole purpose is to become financially free . You want to accumulate as many assets as possible . Buying a single family home is a liability because it does not produce income . Listen to Uncle G man ..
1 Reply
Henri Meli
Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
8y
I always recommend 90% of the people I mentor to buy a home. Once you own a house, your mindset shifts and you start thinking like an entrepreneur. You try figuring out the value of the asset and how to leverage it. You think how to save on taxes, how to leverage other assets such as 401k. You start thinking about your net worth. In case you have an empty room, think about putting it out for rent so you can generate additional income.
Once you own a home, banks look at you differently.
Especially for people from minority communities, purchasing/owning a home is a way to start building generational wealth. Of course, it has to be done right and with the right mindset, etc. But it is a way to leave the "ghetto" and move into better communities.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Jay Hinrichs there a thousands of scenarios. You can't sum up the entire spectrum in your two examples. Following traditional wisdom, 70% of Americans are broke. Following the crowd will not put you in the 1%. Wealthy people didn't get wealthy from buying a house to live in. They invest in things that produce flows of income such as businesses, real estate, and farm land for example. Your personal residence may appreciate in value, but you earn zero on your equity until you pull it out, which takes years.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
Originally posted by @Anthony Dooley:

@Brent Coombs I didn't say any of that. I said, "if I could go back and do it again." Knowing what I know now, I would own a lot more cash flowing assets, which allows me to live wherever I want. I am not tied to one area of the country. I can pick up and move next month. Can you?
The problem with your comment here is that "Knowing what I know now, I would own a lot more cash flowing assets" has nothing whatsoever to do with "allows me to live wherever I want".
All it means to me is "Knowing what (you) know now", you'd be more disciplined with your income, which is a much different topic. We'd all do some things wiser in retrospect!
But to answer your accusation: buying my own home (with buy-vs-rent-for-30-yrs and appreciation aspects in mind) has not impeded my ability to move at will - at all!
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Carol Desantis
Investor · Franklin, NJ · Member since 2017 · 27 posts · 26 votes
8y
While Grant Cardone is entitled to his opinions, he plays a much different game than you or I and wants to live a different type of lifestyle than most. While being tied down to a mortgage prevents you from having that mobility factor that he discusses, it provides you with some security. In renting, you can walk away, and aren't tied down to a mortgage, but your money is being spent, rather than kept (in the form of equity).
I believe that owning real estate gives you the most versatile asset, when compared to stocks, bonds, etc. It is offensive in that you are continuously building equity, and if its in the right area it will also start to appreciate in value. It is defensive in that if the market turns sour, you lose your job, or something happens where you cant pay the mortgage, you will always have the option to rent.
Its similar to leasing a car, yes you can have a new car every 2 years, but the car will never be YOURS. That is why I choose to own my own home.
It really all comes down to what kind of lifestyle you want to live. Do you want to live in new & different places every couple of years? Or do you want to settle down in one place and have a home that you own?
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Brent Coombs I must not have been clear, so I will clarify so you don't misinterpret what I said. If I could go back and do it again, I would have purchased cash flowing rental properties instead of my personal residence. It isn't about my discipline, it is about choices based on the information I had at the time. Based on conventional wisdom, I did what "everybody" said, not realizing that "everybody" is not rich. I would be wealthier having made a different choice, but hindsight as they say. Cleveland is not exactly a hot bed for appreciation, so I don't know why you are on a high horse.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Henri Meli I'm talking about owning real estate as an investment, not a personal residence. Owning a home is very important in a financial plan. Especially if that home is a rental that pays you 15% or more.
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
8y
Not everything is about money in life. I used to rent, then I bought a home. I like owning a home much more than renting. I don't have to share common areas, I can upgrade and improve my home the way I want to, I can have pets without paying extra "pet rent", I can have people over when I want, I can get a roommate without anyone's approval, etc. Owning gives me more freedom than renting in this way. In my geographical area, owning is cheaper than renting. I pay $800/month including taxes and insurance. If I were renting, I'd pay $1000/month just for rent.
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
Originally posted by @Anthony Dooley:
@Brent Coombs I must not have been clear, so I will clarify so you don't misinterpret what I said. If I could go back and do it again, I would have purchased cash flowing rental properties instead of my personal residence. It isn't about my discipline, it is about choices based on the information I had at the time. Based on conventional wisdom, I did what "everybody" said, not realizing that "everybody" is not rich. I would be wealthier having made a different choice, but hindsight as they say. Cleveland is not exactly a hot bed for appreciation, so I don't know why you are on a high horse.
No, you were quite clear. However, if you'd rented in the same area as you bought, I daresay you would not have been as well placed to buy as many investment properties instead of your primary, as you'd like to believe. Would a few hundred dollars extra play money per month in your pocket have made that much difference? And would you really prefer to have to buy your current primary at today's price? [If the answer is yes, then Cleveland is not bad either!]
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Henri Meli
Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
8y
@Anthony Dooley . Owning your own home is the first step in changing people mindset. Lots of people do not understand money well enough to think about growing it. They believe that money is just a way to pay bills and buy stuff. Before one thinks about generating 10 or 15% returns, one first needs to understand WHY those returns are needed. It takes a mindset shift for people to actually understand how to "control money", versus have "money control you".
2 Reply
Mario Ortiz
Friendswood, TX · Member since 2017 · 10 posts · 25 votes
8y
James, I would not say it’s for idiots, since you can get a modest increase in net worth over the years. It’s better than most people do. However, if you want to significantly increase your income and net worth, multi family seems to be a much easier way to go. I started with homes. I had 10 and that became overwhelming, especially since I had a full time job as a project manager for an oil company. Once I bought my first multi family (16 unit) I saw the multiplication of effort start to happen. Although I was still the maintenance man, it was not necessary for me to travel all over Houston to do it. Two years later, I traded up to a 90 unit, and that. Hanged my life. I had employees and I no longer was having to do as much. I don’t know how much effort it would have taken to get 90 houses, but I’m guessing it would have been a lot harder. My advice, for what it’s worth; but a few houses to get your feet wet, then switch to MF.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Brent Coombs if I would have borrowed $220,000 to buy rental property instead of my primary residence, my income would have increased by $40,000 per year from 2008-2017. That increase of income over that period of time is far greater than the appreciation in a primary residence as well as paid my rent, if I had done that in hind sight. Looking forward, now that I sold that house, I will continue to increase my cash flow which will allow me to purchase a residence wherever I want. Maybe I'll buy in your neighborhood when the next crash happens.
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Avery CarlBusiness Member
Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
8y
There is no singular answer. In New York City? Yes renting is better. In Nashville, our mortgage on a 3/2.5 is 950 (I’m talking primary bought in 2013). Rent on our house would be in the $1500-$1700 range. I tend to think rent money is dead money in most markets, but there are definitely markets where renting makes more sense.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
And in the definition of irony - a forum post just hit my inbox and the subject was a landlord in SF wanting to evict an elderly couple who had rented from him for 8 years so he could raise rents.
If he finds a way to do it. I'll bet they wish they had owned.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Dave Foster:

And in the definition of irony - a forum post just hit my inbox and the subject was a landlord in SF wanting to evict an elderly couple who had rented from him for 8 years so he could raise rents.
If he finds a way to do it. I'll bet they wish they had owned.
specially since that property probably doubled in value in the last 8 years.. at last 500k in appreciation in that market not many investors are going to make 500k TAX free in 8 years on one rental property..
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
Average net worth of Homeowners:$199,557
Average net worth of renters: $2,208.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Russell Brazil:

Average net worth of Homeowners:$199,557
Average net worth of renters: $2,208.
BOOM nuff said Love it Mr. Brazil !!! I think folks or investors tend to think every one should be a landlord and cant fathom why everyone is not.. when in fact not everyone should be a landlord or are very good at it or are successful at it.
just think of all the big Multi that has been re-positioned in the last 15 years usually failed landlords or operators for whatever reason.. and then all you need to do is look any low value or bottom 25% of a median price point in a Major MSA ( province of those nice wholesaler folks ) and those are 90% failed landlords..
so yes for the majority buying a home to live in over the course of time is a great thing to have.. for the average American.
Mr. Cordone can hardly be classified as our peer group..
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Laith Ali
Hazelwood, MO · Member since 2017 · 40 posts · 21 votes
8y
In my area and in most of America a 1500 sqft house would cost $1000 a month. That same house would cost $100,000. At 4% interest it would cost you $740 a month for 15 years. You can budget 260 a month for taxes and maintenance and repair. After 15 years you live rent free. Honestly people suck at math and that's why when someone says something like owning a home is for idiots, they just repeat what he says.

Don't forget that moving is also very expensive. You can't just break your lease and move next day. You also need to pay an application fee when you first rent. Also you rent will keep going up, and probably by the 15th year your $1000 a month rent will be $1500 a month. Also that $100k house will be worth $150k.
You can do whatever you want to your house. You can have whoever you want over your house. You don't need to ask your landlord permission if your friend want to live in with you. You can remodel the kitchen or bathroom. You don't have to be worried that owner will kick you out if he wants to sell the house.
The real question should be why are 50% of Americans still renting. This is exactly why the rich stay rich and the poor remain poor.
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Laith Ali
Hazelwood, MO · Member since 2017 · 40 posts · 21 votes
8y
Originally posted by @Russell Brazil:

Average net worth of Homeowners:$199,557
Average net worth of renters: $2,208.
Don't show that to Bernie Sanders lol.
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