Is Buying a home for idiots?
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Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y@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
- Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes8yYoung people often think that buying a home and having kids is for idiots. I was one of them. Now I have multiples of each and I can tell I was an idiot when I was younger. Buying a home is a grown up game. You have to do it to feel it and once you do it you will not go back period.
- Investor · Overland Park, KS · Member since 2015 · 26 posts · 19 votes8yIt all depends on your situation. If you buy the house right, you will not have any trouble getting out of it quickly if you have an opportunity you need to move for. Buy low, live below your means and pick a good location and it will almost always be a great decision.
- Real Estate Agent · Palm Beach Gardens, FL · Member since 2017 · 205 posts · 124 votes8y
We have been better off owning vs Renting. We have a truck and a dog and when we were looking for a rental in a few key areas of South Florida we were most often blown out by the HOA restrictions be it "no trucks allowed" or the landlord saying "no pets." I gave up. We had sold our house and could not find a deal that made sense fast enough so we were in limbo. We put our stuff in storage and temporarily moved in with family while we continued to search for a deal. Rents can be very high in Florida so it makes more sense for us to buy.
I've only rented for a short time frame when in transition and the landlady I had was so particular it was not worth the stress. I kept the place immaculate and it didn't matter, she had to point out an inch long piece of dust behind the laundry room door. Really???
- Flipper/Rehabber · Springfield, MA · Member since 2017 · 106 posts · 51 votes8yBefore I clicked on it I knew this had something to do with grant cardone 😂
- Rental Property Investor · wyoming · Member since 2017 · 76 posts · 73 votes8y
Like everything else - it depends.
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes8y
Originally posted by @Anthony Dooley:
@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.
Well, my primary has been earning me more than $40k per year since 2008. Cheers...
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes8y
@Russell Brazil 70% of Americans live paycheck to paycheck, 62% of Americans do not have $1,000 in the bank, and 53% have saved nothing toward retirement. Owning rental property classifies someone as a "homeowner" regardless if they live in a rental or not.
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes8y
Grant Cardone has sure made this thread super popular.
Apparently, he has that effect lol :)
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Russell Brazil:
Average net worth of Homeowners:$199,557
Average net worth of renters: $2,208.
These numbers include a sampling of the entire US population, so the renter number is heavily skewed by poor, low wage earners. Wage, education and age are more significant factors that correlate to net worth.
The Grant Cardone message is really about "making more money" rather than "saving more money". His point with renting is that mobility affords you higher income opportunities. That is true for many people.
For someone established in a career and geographic area, home ownership clearly has economic and emotional benefits.
The right answer depends on your objectives. Classifying people you disagree with as idiots is small minded thinking.
Full census study:
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes8y
By no means am I saying that buying is stupid or that renting is answer.... but why do so many people skip over the fact that a person can be a renter AND have investment properties?
A very realistic bay area example could be250k for down payment to get near rent prices (2-300/mo)
OR
250k for investments.
I guess we could go round and round about how to divvy up that money to meet ones goal... but I think it's pretty easily agreeable that w/ relative ease you could put that 250k to work in a manner that should more than cover your rent.
Again I get the bay area isn't like most if any place else... but that doesn't make this example any less realistic for a lot of people. - 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Anthony Dooley:
@Russell Brazil 70% of Americans live paycheck to paycheck, 62% of Americans do not have $1,000 in the bank, and 53% have saved nothing toward retirement. Owning rental property classifies someone as a "homeowner" regardless if they live in a rental or not.
and the average credit score in the deep south is 600 ..make buying a home tougher for sure.
one of the never ending questions I get from folks that know what we do ( IE pretty involved in rentals on a debt side) always ask.. how come at these price points are these tenants not buying the home .. owning is CHEAPER than rent a lot of times by 50% or more..
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes8yI didn’t start out doing it on purpose but I have basically done live in flips. All 4 houses were fixers in great neighborhoods that were bought 20% below market value and renovated as we could through cash flow. Total equity built in 10 years and 4 homes is $360k. That includes the real estate bust and not particularly starting with that strategy. Going forward, I think I like the idea of building semi custom spec homes, living in them for 2 years while building the next one. I have seen quite a few people build up over $1m in Equity in ten years or less doing that in my area. You can hit much higher numbers in a more expensive market. This blog post from Ken Deleon, one of the top real estate agents in the world that does $700m+ per year in sales, explains how he built over $5m in equity through live in flips. Granted his area is much different than most of the world but the concept is the same. I hope this is ok to link, I am promoting another realtor/investors idea and not myself: https://deleonrealty.com/2017/maximize-profit-homeownership/
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes8yDepends how you do it. I think this blog explains a solid strategy. https://deleonrealty.com/2017/maximize-profit-homeownership/
- Real Estate Agent · Dallas, TX · Member since 2015 · 19 posts · 9 votes8y
Assuming we aren't talking about multi-families and rentals, if we're talking about residential real estate, folks not living below their means is why this question has so many different answers. The problem is that homes are more like trophies or toys for most people, not a vehicle for increasing one's net wealth. A modest property is a way better alternative to renting but striving to live up to the Jones' just sucks the fuel from the rockets on your net worth trajectory. Also, if we are keeping it real here, the cost of selling your home really blurs the line between asset and liability.
For example: If you sell a home for $300k, and the Realtor convinces you into paying 6%, that $18,000 in commissions is 40 months worth of average principle payments (equity) for a 5% down mortgage. Another way of looking at it is if you make 75 grand a year, the commission is more than 3.5 months of your after tax salary. I can't personally see how residential real estate as an investment is anything but a feel-good conversation or justification.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes8y
I went through an in-depth questionnaire online to decide if it would be better to rent or buy. It was a pretty legit comparison and had a lot of detailed questions.
It came out to: You should buy even if you are able to rent for free.
It all depends on the mkt.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes8y
Originally posted by @Luka Milicevic:
I went through an in-depth questionnaire online to decide if it would be better to rent or buy. It was a pretty legit comparison and had a lot of detailed questions.
It came out to: You should buy even if you are able to rent for free.
It all depends on the mkt.
How does that make sense? If you could live rent free, why not invest vs paying to buy a primary?
- Jackson , MS · Member since 2017 · 7 posts · 9 votes8y
I'm 27, single, and ZERO children.
Have a couple of rental properties and living with a buddy in an A class neighborhood for $450/month.
Best of both worlds!
If I didn't have the option to live in a nice place at such a good price I do believe I would purchase a home though. Paying high rent absolutely makes no sense in my circumstance!
In other words I don't think there is a correct answer to the OP's question. It depends on so many variables in one's life that there is no one answer that fits all.
- Philadelphia, PA · Member since 2017 · 364 posts · 109 votes8y
Originally posted by @Richie Long:
I'm 27, single, and ZERO children.
Have a couple of rental properties and living with a buddy in an A class neighborhood for $450/month.
Best of both worlds!
If I didn't have the option to live in a nice place at such a good price I do believe I would purchase a home though. Paying high rent absolutely makes no sense in my circumstance!
In other words I don't think there is a correct answer to the OP's question. It depends on so many variables in one's life that there is no one answer that fits all.
You said ZERO children . Who are those kids on the picture LOL!
- Jackson , MS · Member since 2017 · 7 posts · 9 votes8y
Originally posted by @Lana Lee:
Originally posted by @Richie Long:
I'm 27, single, and ZERO children.
Have a couple of rental properties and living with a buddy in an A class neighborhood for $450/month.
Best of both worlds!
If I didn't have the option to live in a nice place at such a good price I do believe I would purchase a home though. Paying high rent absolutely makes no sense in my circumstance!
In other words I don't think there is a correct answer to the OP's question. It depends on so many variables in one's life that there is no one answer that fits all.
You said ZERO children . Who are those kids on the picture LOL!
I am the best Uncle East of the Mississippi River!! Best birth control there ever was!!
- Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes8y
Originally posted by @Matt K.:
@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.
Yes. Or, capital preservation over growth. Or, tax sheltering. Or, because their 22yo daughter is moving out and the parents want to maintain some influence over her. Or, because the new owners want to guarantee their young kid can go to a certain public school. Or, the new owner owns a restaurant down the street and needs a place for his chef to stay.
My point is just that none of these people really care about "home ownership" ... it's just that buying that condo at that price is a solution to what they do care about, and buying instead of renting is 100% rational for them.
Not trying to argue against what you're saying ... just that the motivation for "home ownership" is much much broader than just a dude who's looking for a place to live.
PS: I've personally seen all of the examples, including the chef one. :)
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes8y
Originally posted by @Justin R.:
Originally posted by @Matt K.:
@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.
Yes. Or, capital preservation over growth. Or, tax sheltering. Or, because their 22yo daughter is moving out and the parents want to maintain some influence over her. Or, because the new owners want to guarantee their young kid can go to a certain public school. Or, the new owner owns a restaurant down the street and needs a place for his chef to stay.
My point is just that none of these people really care about "home ownership" ... it's just that buying that condo at that price is a solution to what they do care about, and buying instead of renting is 100% rational for them.
Not trying to argue against what you're saying ... just that the motivation for "home ownership" is much much broader than just a dude who's looking for a place to live.
PS: I've personally seen all of the examples, including the chef one. :)
But isn't home ownership the one thing all those examples you gave have in common? I never said it was simply a place to live. Whatever the definition or motivation for ownership doesn't really matter... because it's still the same thing (something that lead them to buy a home).
- 8yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
In San Diego you can definitely rent a SFR for less than the cost of retail buying. However, if you buy with a fixed rate loan your home expense is mostly fixed or nearly fixed (prop taxes have increases capped due to prop 13). Rents have gone up over 25% in the last 3 years. A recent USC study forecasts San Diego rents will rise another $121/month by 2019. In the last year I have raised the rents of over half my units by $100/month.
So if 3 years ago you decided to rent in San Diego because it was "cheaper" your rent has gone up on average greater than 25% and is projected to go up another $121/month on average. So the rent that was cheaper when the decision was made to rent a few years later has increased versus the SFR home purchase costs have mostly not risen (certainly have not risen anywhere close to the same amount).
In addition the San Diego real estate has appreciated at least 7% every year since 2012 with a high year of ~20%.
In the San Diego market purchasing has been a better financial decision in virtually all cases in the last 5 years as long as you did not need to sell shortly after purchase.
I realize coastal So Cal is not a typical market. However, it does point to that there is not a decision to rent versus buy that holds in every market or every situation. The decision has to weigh things like longevity of purchase, appreciating or depreciating market, cost of loss of mobility, rent versus purchase cost, comfort of owning versus freedom of renting, etc.
I would personally chose to purchase even if it had a small cost over renting as I like knowing that no one can force me to move, that I will enjoy my upgrades for as long as I desire, that my costs are mostly fixed, etc.
- New Brunswick, NJ · Member since 2017 · 3 posts · 1 vote8y
I'm in my first property right now. At this point I'm not experienced enough to comment but I sure hope there's some room for positive margins!
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes8y
Originally posted by @Dan H.:
In San Diego you can definitely rent a SFR for less than the cost of retail buying. However, if you buy with a fixed rate loan your home expense is mostly fixed or nearly fixed (prop taxes have increases capped due to prop 13). Rents have gone up over 25% in the last 3 years. A recent USC study forecasts San Diego rents will rise another $121/month by 2019. In the last year I have raised the rents of over half my units by $100/month.
So if 3 years ago you decided to rent in San Diego because it was "cheaper" your rent has gone up on average greater than 25% and is projected to go up another $121/month on average. So the rent that was cheaper when the decision was made to rent a few years later has increased versus the SFR home purchase costs have mostly not risen (certainly have not risen anywhere close to the same amount).
In addition the San Diego real estate has appreciated at least 7% every year since 2012 with a high year of ~20%.
In the San Diego market purchasing has been a better financial decision in virtually all cases in the last 5 years as long as you did not need to sell shortly after purchase.
I realize coastal So Cal is not a typical market. However, it does point to that there is not a decision to rent versus buy that holds in every market or every situation. The decision has to weigh things like longevity of purchase, appreciating or depreciating market, cost of loss of mobility, rent versus purchase cost, comfort of owning versus freedom of renting, etc.
I would personally chose to purchase even if it had a small cost over renting as I like knowing that no one can force me to move, that I will enjoy my upgrades for as long as I desire, that my costs are mostly fixed, etc.
If homes (on average) are all going up 7% per year since 2012.... how does that benefit you the home owner? There has to be obvious answer I'm overlooking because all I can come up w/ is that you can either use a HELOC or cash out refi to get the equity out...... at which point you've basically just resold your house to yourself at a higher price point?
- 8yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Matt K.:
Originally posted by @Dan H.:
In San Diego you can definitely rent a SFR for less than the cost of retail buying. However, if you buy with a fixed rate loan your home expense is mostly fixed or nearly fixed (prop taxes have increases capped due to prop 13). Rents have gone up over 25% in the last 3 years. A recent USC study forecasts San Diego rents will rise another $121/month by 2019. In the last year I have raised the rents of over half my units by $100/month.
So if 3 years ago you decided to rent in San Diego because it was "cheaper" your rent has gone up on average greater than 25% and is projected to go up another $121/month on average. So the rent that was cheaper when the decision was made to rent a few years later has increased versus the SFR home purchase costs have mostly not risen (certainly have not risen anywhere close to the same amount).
In addition the San Diego real estate has appreciated at least 7% every year since 2012 with a high year of ~20%.
In the San Diego market purchasing has been a better financial decision in virtually all cases in the last 5 years as long as you did not need to sell shortly after purchase.
I realize coastal So Cal is not a typical market. However, it does point to that there is not a decision to rent versus buy that holds in every market or every situation. The decision has to weigh things like longevity of purchase, appreciating or depreciating market, cost of loss of mobility, rent versus purchase cost, comfort of owning versus freedom of renting, etc.
I would personally chose to purchase even if it had a small cost over renting as I like knowing that no one can force me to move, that I will enjoy my upgrades for as long as I desire, that my costs are mostly fixed, etc.
If homes (on average) are all going up 7% per year since 2012.... how does that benefit you the home owner? There has to be obvious answer I'm overlooking because all I can come up w/ is that you can either use a HELOC or cash out refi to get the equity out...... at which point you've basically just resold your house to yourself at a higher price point?
They have gone up a lot more than 7% per year on average. The lowest year (2016) they went up 7%.
When you sell to yourself you pocket the gains. These gains can be used to invest elsewhere including if desired into more RE investments. It is little different than the Refinance in BRRRR. It can get your initial investment out of the property greatly increasing the ROI.
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