Home Ownership Doesn't Build Wealth

42 Replies

A new study that was a collaboration of three universities concluded that in the nations 24 largest markets, only 4 showed median price increases between 2010 and 2016. (Three of four were in Northern California and the fourth was Miami). The study concluded that in most markets, renting and investing the money-saved would get a bigger return that buying a home.

This is an interesting study because it challenges the notion that "a home is your best investment". It also indicates there are very few markets where "appreciation only" strategies work. Here is a summary of the study from CNBC:

https://www.cnbc.com/2017/11/16/homeownership-does...

I originally saw this study reported on Nightly Business Report, where they also made reference to multi-family housing starts being up 37% in October from September. They analyzed this as a continuing trend away from ownership towards renting. Here is a report talking about October building starts and permits:

http://usblogs.pwc.com/industrialinsights/2017/11/...

Originally posted by @Joe Splitrock :

A new study that was a collaboration of three universities concluded that in the nations 24 largest markets, only 4 showed median price increases between 2010 and 2016. (Three of four were in Northern California and the fourth was Miami). The study concluded that in most markets, renting and investing the money-saved would get a bigger return that buying a home.

This is an interesting study because it challenges the notion that "a home is your best investment". It also indicates there are very few markets where "appreciation only" strategies work. Here is a summary of the study from CNBC:

https://www.cnbc.com/2017/11/16/homeownership-does...

I originally saw this study reported on Nightly Business Report, where they also made reference to multi-family housing starts being up 37% in October from September. They analyzed this as a continuing trend away from ownership towards renting. Here is a report talking about October building starts and permits:

http://usblogs.pwc.com/industrialinsights/2017/11/...

 The studies I have seen conclude the same thing, even with the mortgage deduction calculated in. 

What studies like that fail to realize is:

1) While true when investing for the long term, IF people are consistent about adding to their investing. However, most people are not disciplined enough to sufficiently add to their 401k. Most 401k's are reaching retirement with $75,000 in them - a far cry from the $1,000,000 needed for a secure retirement. The creator of the 401k recently said it was a big mistake to create the 401k and he wishes he hadn't done so.

2) I can buy a house with less that 20% down but then I have roofs, AC Units, tenants, toilets etc. But I have to pay 100% for a stock purchase. So, that ends up being a personal choice.

3) The Stock Market has "flash crashes" where large hedge funds transact a sell order in split seconds, long before you even hear that you should sell. You get to sell long after the stock has dropped. Yes, the market will "correct" again at some point. It is common to lose 35% to 50% of your 401k in a matter of weeks. "Those who fail to read history are doomed to repeat it."

4) 401ks have hidden fees that keep the custodians happy, and you not so happy.

5) Most people don't think far enough into the future to be concerned about whether property or stocks (mutual funds, 401k, etc) are a better choice. For those of us who care, the safety side of investing is overwhelmingly in favor of real estate. For a whole lot of reasons not posted here. Sure, there will be those who post that Stocks are a better & safer choice, but respectfully, they're nuts. ;-)

Owning a personal home is probably not even close to the best investment. Keeping that in mind, I do own my personal residence. However I bought it the same way that I buy my investment properties.

That means that I bought it at a discount. I paid significantly less than the ARV for my home. The home cost far less than the bank was willing to lend me (less than half what I was preapproved to buy). I then put money into fixing it up and bringing it's value up. Also when I purchased the house, I made sure that I bought a property that would cash flow when I rent it out, my plan from the beginning was to turn it into a rental when I decide to move out.

I have already gained over $40,000 in equity in the one year since I purchased the home thanks to the work that was done.

Reality . A personal home is a life style choice never a investment for the vast majority of regular people. When you consider all mortgage costs, repairs/maintenance/upkeep, taxes, insurance etc. etc., etc. in the average homeowners life their personal home will cost them more than it will ever be worth.

Best case a personal home is no more than forced savings.

I could do far better without a personal home and would be a renter however my wife's life style decision trumps my desires every time.

Account Closed I agree with your points. I should have clarified that the study focused on buying a primary residence versus renting and re-investing the difference. I think they mirror the argument of people like Grant Cardone or Robert Kiyosaki that your primary residence is a bad investment. Part of the analysis indicated that the younger generations are moving more towards renting. That is a good thing for those of us that own rental properties.

Owning a primary residence shouldn’t be considered an investment by anyone who knows what a true investment is. That being said rentals can be an excellent investment and I believe stocks can be too.

To simply write off the entire stock market as not a good investment is also not a good idea.

I have a mixed viewpoint on this. My home is a liability in the sense that it costs me money to live there and does not produce any income. On the other hand, my home is also an investment because it is appreciating in value. If I decide to sell 15 years or so down the road, I will have a nice profit from my free and clear home. Yes I could rent instead of paying off a mortgage, but where could I rent so much house for the low amount I am currently paying to debt service (2.625% APR). Renting my home in my neighborhood would cost me three times as much in rent as I am paying now in PITI (I have owned this home for the past 20 years, free and clear in seven more years).

My equity in the home is increasing each month as I make a loan payment and also increasing due to appreciation.  If I sold my home today, I could net about 50% more than I paid for it (forced savings yes, but I have to pay for someplace to live anyway).  Property taxes and mortgage interest are deductible, while renters don't have those expenses but then again, the landlord is paying mortgage interest and property taxes from my rent and probably has some left over to add to his bank account.  

I do agree with the current studies that say home ownership is more expensive than renting but this is because today's lifestyles inhibit long term home ownership.  If I get a job transfer every three or four years, or change jobs every three or four years and have to sell my home to move to a new location, today's real estate reality is that I most likely will not have a profit on the sale if I pay a real estate commission.  I could pay the same amount of money in rent that I am paying now for a mortgage, but I would have to downsize my living space considerably and would not have any equity to show for it.

I would say for 80% of the people out there, owning a home is a better investment than renting. 

I hear from these great theologians how owning a house is an expense and not an investment. Well what do you think renting is? Thats an expense too. And guess what, in many areas, its actually cheaper to own than it is to rent.

So why in the world would you not want to own? 

Lets say you had 2,000 mo for your residence and investing. And renting a house cost you 1,400/mo. Owning the same house would cost you 1,000/mo - plus you'd get principal paydown, tax writeoffs and appreciation. Plus you'd have an additional 400/mo more to invest in something else.

So why in the world would it make sense to rent there?

Those are actual numbers from one of my typical rentals. PITI is roughly 1,000/mo even though the rents are 1,400/mo. And that PITI is based on roughly 5 to 8k or so out of pocket (hard money lender at 100% purchase and rehab).

Now i understand why they picked the coast for the report. The cost of homes is way out of whack with what most of us in the US are paying and the rents don't come close to what the PITI would be on those homes.

But typically, even those reports tend to be schewed considerably to fit some stupid reporter's claim. i.e. They tell you that homes only went up 3% or 4% a year whereas stocks went up 10%.  The difference there though is, again, when it comes to stocks, you're paying 100% of the price. When it comes to real estate, you may only have 10 to 20% down on it. 

So if you own a 700k house and it goes up 4%, your return is more than 4% there because your down payment was 70k or 140k or something.  140k to return 28k is not a 3% return, its 20%. 

If you really wanted to do a report, go look at what the net worth is of people who rented their entire lives and then compare that to the people that owned their own homes. I would say that if you compared people in same areas with same jobs, the people that owned their own homes ended up with a higher net worth than those that rented their entire lives.

So where is that study? And why can't we see the numbers on the reality of what some of these silly theologians keep professing would be better? Simple. Because its 99.9% of the time going to come out that owners ended up with more net worth.  

Again, certain areas, like the coast that might make some sense. Houses that cost 4k a month for PITI but could rent for 2,500, then I'd suggest maybe that works.

But again, try telling that to anyone that bought on the coast in the 80s or 90's and saw their homes go from 200k to 800k in value and their houses are now paid off.  They're sitting on 800k nest egg. What do you think the people that rented all those years are sitting on? Their bottoms would be my guess.....

So no, I don't think you can ever convince me that it makes more sense to rent than to buy. Not from a financial standpoint anyway. 

The one thing it does allow you to be is mobile. So if you're an individual that likes to move a lot, then I'd say it makes more sense to rent. Other than that, the numbers don't add up if you add them up correctly and don't twist the numbers to suit you (i.e. 3% gain in appreciation is not 3% return).

Originally posted by @Mike H. :

I would say for 80% of the people out there, owning a home is a better investment than renting. 

I hear from these great theologians how owning a house is an expense and not an investment. Well what do you think renting is? Thats an expense too. And guess what, in many areas, its actually cheaper to own than it is to rent.

So why in the world would you not want to own? 

Lets say you had 2,000 mo for your residence and investing. And renting a house cost you 1,400/mo. Owning the same house would cost you 1,000/mo - plus you'd get principal paydown, tax writeoffs and appreciation. Plus you'd have an additional 400/mo more to invest in something else.

So why in the world would it make sense to rent there?

Those are actual numbers from one of my typical rentals. PITI is roughly 1,000/mo even though the rents are 1,400/mo. And that PITI is based on roughly 5 to 8k or so out of pocket (hard money lender at 100% purchase and rehab).

Now i understand why they picked the coast for the report. The cost of homes is way out of whack with what most of us in the US are paying and the rents don't come close to what the PITI would be on those homes.

But typically, even those reports tend to be schewed considerably to fit some stupid reporter's claim. i.e. They tell you that homes only went up 3% or 4% a year whereas stocks went up 10%.  The difference there though is, again, when it comes to stocks, you're paying 100% of the price. When it comes to real estate, you may only have 10 to 20% down on it. 

So if you own a 700k house and it goes up 4%, your return is more than 4% there because your down payment was 70k or 140k or something.  140k to return 28k is not a 3% return, its 20%. 

If you really wanted to do a report, go look at what the net worth is of people who rented their entire lives and then compare that to the people that owned their own homes. I would say that if you compared people in same areas with same jobs, the people that owned their own homes ended up with a higher net worth than those that rented their entire lives.

So where is that study? And why can't we see the numbers on the reality of what some of these silly theologians keep professing would be better? Simple. Because its 99.9% of the time going to come out that owners ended up with more net worth.  

Again, certain areas, like the coast that might make some sense. Houses that cost 4k a month for PITI but could rent for 2,500, then I'd suggest maybe that works.

But again, try telling that to anyone that bought on the coast in the 80s or 90's and saw their homes go from 200k to 800k in value and their houses are now paid off.  They're sitting on 800k nest egg. What do you think the people that rented all those years are sitting on? Their bottoms would be my guess.....

So no, I don't think you can ever convince me that it makes more sense to rent than to buy. Not from a financial standpoint anyway. 

The one thing it does allow you to be is mobile. So if you're an individual that likes to move a lot, then I'd say it makes more sense to rent. Other than that, the numbers don't add up if you add them up correctly and don't twist the numbers to suit you (i.e. 3% gain in appreciation is not 3% return).

I did look for the source study to see the specific examples and wasn't able to find it. Like you I was interested in seeing the actual numbers, because we all know numbers can be twisted. Trust me, I am never blindly in support of any academic study. I still think there is an argument that in certain markets home ownership isn't as great as people think it is. I know many people who have lost money selling their homes. Of course it depends on when you buy versus when you sell and where you are located. This study was comparing returns to the stock market, which performed very well from 2010 to 2016. It was also in large markets, where I am sure the price swings are much greater.

I agree if you plan to sit in your home for 20 or 30 years, then buying makes sense. I will also argue that times have changed. Millennials hop jobs and move around the country. If you are staying in a home 2-3 years, then buying can be very dangerous. Selling costs alone can suck up a couple years worth of appreciation. 

Another consideration is that housing value charts show average home values increasing, but part of that increase is larger size and inflation. When you level set the numbers and subtract inflation, many markets see low appreciation. Yet, during that time the owner had to do repairs and maintenance to keep the property at that value. 

I personally own a home. I could rent it for less than what my payment would be, if I had a payment. I could invest all the money I have tied up in this house and get a better return. I am not planning to do that. I like having control of my home and the security of my equity. It is less a mathematical decision and more emotional for me.

Interesting point you bring up about appreciation versus return. I agree that needs to be considered. But using a 30 year example, it may not be as great as you think. Lets say you put $10K down payment on a $70K house back in 1987 with a 30 year mortgage. Today that house is worth $190K (using my parents home as an example). If you put $10K in the S&P 500 back in 1987, it would be worth well over $200K today. Over those 30 years, you replaced the roof, furnace, water heater twice, remodeled, new carpet, etc. You probably end up putting $25K into the home over that time. When you go to sell the house, selling fees take over 7% off the top. Of course during that time, your mortgage payment was steady, while your rents increased. Still if we go back in time, rates were over 9% in 1987 and your payment would have been over $700 per month. You could have rented a nice place for $700 back in 1987, or more likely paid less and reinvested even more money in the market. My point is when you really dig into the numbers, it is not a slam dunk that owning was better than renting.

Just to be clear, I am not trying to convince you either way. I think it is interesting to analyze and I could argue either side pretty effectively. I appreciate your well thought out response. 

Robert Shiller of Case Shiller concluded the samething years ago. There could be exceptions (CA and only in certain exact spots) Although his study covered virtually any 30 year span. 

When you think about it, SFHs were not designed to be investments or for investors returns. However, commercial, stocks, funds etc are 100% designed investments. 

@Joe Splitrock   You should read what all of the research shows about the last 75 years.  To look at a six year period on a very long term investment is ridiculous.

One of the main benefits from buying a home is the "forced savings" effect.

You should also notice the historic stock market run up that they are comparing it to.

Historically homes have been one of the best ways to create multigenerational wealth.

Does that mean buy any house at full retail price and expect to get rich?  No.

Originally posted by @Joe Splitrock :
Originally posted by @Mike H.:

I would say for 80% of the people out there, owning a home is a better investment than renting. 

I hear from these great theologians how owning a house is an expense and not an investment. Well what do you think renting is? Thats an expense too. And guess what, in many areas, its actually cheaper to own than it is to rent.

So why in the world would you not want to own? 

Lets say you had 2,000 mo for your residence and investing. And renting a house cost you 1,400/mo. Owning the same house would cost you 1,000/mo - plus you'd get principal paydown, tax writeoffs and appreciation. Plus you'd have an additional 400/mo more to invest in something else.

So why in the world would it make sense to rent there?

Those are actual numbers from one of my typical rentals. PITI is roughly 1,000/mo even though the rents are 1,400/mo. And that PITI is based on roughly 5 to 8k or so out of pocket (hard money lender at 100% purchase and rehab).

Now i understand why they picked the coast for the report. The cost of homes is way out of whack with what most of us in the US are paying and the rents don't come close to what the PITI would be on those homes.

But typically, even those reports tend to be schewed considerably to fit some stupid reporter's claim. i.e. They tell you that homes only went up 3% or 4% a year whereas stocks went up 10%.  The difference there though is, again, when it comes to stocks, you're paying 100% of the price. When it comes to real estate, you may only have 10 to 20% down on it. 

So if you own a 700k house and it goes up 4%, your return is more than 4% there because your down payment was 70k or 140k or something.  140k to return 28k is not a 3% return, its 20%. 

If you really wanted to do a report, go look at what the net worth is of people who rented their entire lives and then compare that to the people that owned their own homes. I would say that if you compared people in same areas with same jobs, the people that owned their own homes ended up with a higher net worth than those that rented their entire lives.

So where is that study? And why can't we see the numbers on the reality of what some of these silly theologians keep professing would be better? Simple. Because its 99.9% of the time going to come out that owners ended up with more net worth.  

Again, certain areas, like the coast that might make some sense. Houses that cost 4k a month for PITI but could rent for 2,500, then I'd suggest maybe that works.

But again, try telling that to anyone that bought on the coast in the 80s or 90's and saw their homes go from 200k to 800k in value and their houses are now paid off.  They're sitting on 800k nest egg. What do you think the people that rented all those years are sitting on? Their bottoms would be my guess.....

So no, I don't think you can ever convince me that it makes more sense to rent than to buy. Not from a financial standpoint anyway. 

The one thing it does allow you to be is mobile. So if you're an individual that likes to move a lot, then I'd say it makes more sense to rent. Other than that, the numbers don't add up if you add them up correctly and don't twist the numbers to suit you (i.e. 3% gain in appreciation is not 3% return).

I did look for the source study to see the specific examples and wasn't able to find it. Like you I was interested in seeing the actual numbers, because we all know numbers can be twisted. Trust me, I am never blindly in support of any academic study. I still think there is an argument that in certain markets home ownership isn't as great as people think it is. I know many people who have lost money selling their homes. Of course it depends on when you buy versus when you sell and where you are located. This study was comparing returns to the stock market, which performed very well from 2010 to 2016. It was also in large markets, where I am sure the price swings are much greater.

I agree if you plan to sit in your home for 20 or 30 years, then buying makes sense. I will also argue that times have changed. Millennials hop jobs and move around the country. If you are staying in a home 2-3 years, then buying can be very dangerous. Selling costs alone can suck up a couple years worth of appreciation. 

Another consideration is that housing value charts show average home values increasing, but part of that increase is larger size and inflation. When you level set the numbers and subtract inflation, many markets see low appreciation. Yet, during that time the owner had to do repairs and maintenance to keep the property at that value. 

I personally own a home. I could rent it for less than what my payment would be, if I had a payment. I could invest all the money I have tied up in this house and get a better return. I am not planning to do that. I like having control of my home and the security of my equity. It is less a mathematical decision and more emotional for me.

Interesting point you bring up about appreciation versus return. I agree that needs to be considered. But using a 30 year example, it may not be as great as you think. Lets say you put $10K down payment on a $70K house back in 1987 with a 30 year mortgage. Today that house is worth $190K (using my parents home as an example). If you put $10K in the S&P 500 back in 1987, it would be worth well over $200K today. Over those 30 years, you replaced the roof, furnace, water heater twice, remodeled, new carpet, etc. You probably end up putting $25K into the home over that time. When you go to sell the house, selling fees take over 7% off the top. Of course during that time, your mortgage payment was steady, while your rents increased. Still if we go back in time, rates were over 9% in 1987 and your payment would have been over $700 per month. You could have rented a nice place for $700 back in 1987, or more likely paid less and reinvested even more money in the market. My point is when you really dig into the numbers, it is not a slam dunk that owning was better than renting.

Just to be clear, I am not trying to convince you either way. I think it is interesting to analyze and I could argue either side pretty effectively. I appreciate your well thought out response. 

 Did you know that when you have been in a home for 30 years and the mortgage is paid off, you still need a place to live? ;-) Just because a house goes up in value & the mortgage gets paid off, doesn't mean you will then have that equity as a liquid asset. There are plenty of people who won't move "because this is the neighborhood they raised the  family in" and become asset rich and cash poor. When you reach my age (hmm, I actually remember Kennedy getting shot, I was young but I remember) and at this stage I don't care how much "equity" I have in my properties, (which is substantial) I am more about cash flow. I can travel because I have cash flow. Let that sink in.

I built wealth in Real Estate investments. It all depends on location location location.

Southern California is a great place to build wealth. Mid West is the worst.

I was a math major in college.  My statistics teacher said something on the first day of class that has stuck with me to this day, "Statistics can be used to prove any argument as being true, you just have to carefully choose which statistics to use."

The article references how only 4 out of 24 metro areas had higher average appreciation rates than the stock market returns during that timeframe. Which means if the stock market went up by 7% annually, home appreciation would have to be at least 8%. The problem is I don't know of many people who simply purchase a home with cash and let it ride. If you are like the average American and purchase with 20% down payment, that 8% appreciation turns into a 40% CoC return. Historically the stock market averages roughly 10% once you factor in dividend reinvestments. This means a home at 20% down only needs to average roughly 2% appreciation to initially keep pace.

We can argue about whether a home is an investment, or a liability, the answer is really a matter of how you choose to define the terms.  But one thing is for certain, renting is an economic liability.  Money that is spent on renting is simply gone, never to be seen again.  Where as owning you may eventually see some of that money again when you sell.  Generally speaking owning has much lower monthly payments which will more than cover any repairs.  As @Mike H. pointed out his mortgage is 1k, and rents the property out at 1400.  This leaves a yearly difference of 4800, and nobody is going to have 5k a year capex/repairs on a property of this value.  Which means it is not only cheaper to own that property, but you also get debt paydown.

@Joe Splitrock While the numbers on the surface of your example would tend to say that the stock market wins, (200k worth of stocks versus roughly 151k for the home (190*.93)-25) there is still more to it than that.  Stocks would likely be subject to at least 15% tax rate unless you like waiting until retirement to see your money with a Roth, while the sale of the home would be tax free, changing the numbers to 170 vs 151.  Additionally that 9% mortgage would have been refinanced out of to something much lower a long time ago lowering the monthly payments.  And while 700 may have been a good rental price in 1987 and a good mortgage payment amount, the price of a rental today would probably be double that at 1400.  Meaning that there is a growing gap between what a current renter pays, versus what your parents pay because they have locked in their rate 30 years ago.  This ever growing gap of money can be reinvested at a rate of 700*12 = 8400 a year that a renter would not have which quickly shifts things in favor of owning, rather than renting.  Fun Fact:  if you take a purely hypothetical 'break even' property at 100k with 20% down, where the rents equal the mortgage plus expenses, and assume that rents rise at the same level as inflation then after the first year your break even property will start to turn a small profit since rent went up, and while your expenses went up, they did not go up as fast because your biggest expense (debt service) stays constant.  Each year your profits go up a tiny bit more and more as inflation hits.  If you take this profit and put it into the stock market you will actually have more money in the stock market at the end of 30 years this way, than if you had simply put the whole 20k into the market in the first place assuming 9% returns and 4% inflation.  This seems funny since in the case of buying the house you start with 0 money in the market, versus starting with 20k in the market, and because putting the entire amount into the market immediately maximizes the number of years that it is allowed to compound, but with the house you start to have regular ADDITIONAL deposits into the market since you start slowly making yearly profits from the house.  These additional deposits are trivial at first, and grow to the point where they end up very significant.  Not to mention you also own the house free and clear.  Given these hypothetical numbers, buying the house and slowly investing the rental profits into the market is slightly over double the economic gain than simply buying the stocks would have been.

The only time that renting is better than owning, is if you plan on constantly buying and selling every couple of years as you move around the country searching for a better job as those realtor fees add up quick.

But for anyone that continues to believe that renting is that pathway to economic success, I currently have a vacant SFR in phoenix and it would tickle me to death to be able to 'help' you achieve financial independence by allowing you to pay me rent.

Your primary can be an investment or a liability, it's up to you how you want to classify it. In my case, I build my own homes, it takes about 8 months and all of a sudden I have another $150k in equity. I will live in it for 2-3 years and sell tax free and do it again. If I wasnt building my own homes and selling them, then my house just becomes an instrument for my family to use with not much financial upside. I personally think the worst thing you can do is own your primary house outright if you don't plan on selling it. Your literally sitting on a pile of cash. (Unless you get a heloc). Cash is king, and if you can trade $1500 a month for $300k cash money, you have to do it. Use your primary as a piggy bank for your other investments, then your house because an investment because it's essentially funding your other projects. 

Nothing is absolutely true all the time.  

People need a place to live and to keep their stuff.  Either they own a home, co own a home (with a lender) or they rent a home owned by another.

Location makes a difference in whether one owns or rents.  An average earner can't afford mkt rate rents or ownership in places like NYC and LA. The cost of entry is too high, while inheriting long held property could ease that. A 2 hr commute could give the same earner a home ownership opportunity.  Thus a long commute is exchanged for the chance to own.  But it's not everyone's cup of tea.

Not all rules apply to every situation. Time and consistency can result in "wealth" simply by staying current and in the same place. Full/part deferral of appreciation on sale or free transfer of property gains is written into the tax law and benefits those who own offering a tax-free tangible asset that can be monetized to fund education, new businesses, investments or living expenses.  Owning can give a boost to those who got in & managed to hold.  While renting returns little and requires extra discipline to bank or invest the "savings" difference assuming there's anything left after the expenses are paid.

Originally posted by @Karen O. :

Nothing is absolutely true all the time.  

People need a place to live and to keep their stuff.  Either they own a home, co own a home (with a lender) or they rent a home owned by another.

Location makes a difference in whether one owns or rents.  An average earner can't afford mkt rate rents or ownership in places like NYC and LA. The cost of entry is too high, while inheriting long held property could ease that. A 2 hr commute could give the same earner a home ownership opportunity.  Thus a long commute is exchanged for the chance to own.  But it's not everyone's cup of tea.

Not all rules apply to every situation. Time and consistency can result in "wealth" simply by staying current and in the same place. Full/part deferral of appreciation on sale or free transfer of property gains is written into the tax law and benefits those who own offering a tax-free tangible asset that can be monetized to fund education, new businesses, investments or living expenses.  Owning can give a boost to those who got in & managed to hold.  While renting returns little and requires extra discipline to bank or invest the "savings" difference assuming there's anything left after the expenses are paid.

 You say "Nothing is absolutely true all the time." interesting Opinion

If you jump off of a building will you fall 100% of the time? If a car hits you at 60 mph will it always hurt? You are a little brash in your beliefs ;-)

Originally posted by Account Closed:
Originally posted by @Karen O.:

Nothing is absolutely true all the time.  

People need a place to live and to keep their stuff.  Either they own a home, co own a home (with a lender) or they rent a home owned by another.

Location makes a difference in whether one owns or rents.  An average earner can't afford mkt rate rents or ownership in places like NYC and LA. The cost of entry is too high, while inheriting long held property could ease that. A 2 hr commute could give the same earner a home ownership opportunity.  Thus a long commute is exchanged for the chance to own.  But it's not everyone's cup of tea.

Not all rules apply to every situation. Time and consistency can result in "wealth" simply by staying current and in the same place. Full/part deferral of appreciation on sale or free transfer of property gains is written into the tax law and benefits those who own offering a tax-free tangible asset that can be monetized to fund education, new businesses, investments or living expenses.  Owning can give a boost to those who got in & managed to hold.  While renting returns little and requires extra discipline to bank or invest the "savings" difference assuming there's anything left after the expenses are paid.

 You say "Nothing is absolutely true all the time." interesting Opinion

If you jump off of a building will you fall 100% of the time? If a car hits you at 60 mph will it always hurt? You are a little brash in your beliefs ;-)

Except we're not talking about jumping off buildings and getting hit by cars.  But point taken.  I'll be careful to be more specific so as not to confuse those who might not understand my reference.  Thanks for the reminder.

Originally posted by @Clancy Catelli :

Your primary can be an investment or a liability, it's up to you how you want to classify it. In my case, I build my own homes, it takes about 8 months and all of a sudden I have another $150k in equity. I will live in it for 2-3 years and sell tax free and do it again. If I wasnt building my own homes and selling them, then my house just becomes an instrument for my family to use with not much financial upside. I personally think the worst thing you can do is own your primary house outright if you don't plan on selling it. Your literally sitting on a pile of cash. (Unless you get a heloc). Cash is king, and if you can trade $1500 a month for $300k cash money, you have to do it. Use your primary as a piggy bank for your other investments, then your house because an investment because it's essentially funding your other projects. 

 Is Sequim a real place? Pronounced "See q um"? Just kidding, "Sqwim" sounds better. I'm originally from "See at ul". Welcome to the conversation.

Originally posted by @Ben Zimmerman :

I was a math major in college.  My statistics teacher said something on the first day of class that has stuck with me to this day, "Statistics can be used to prove any argument as being true, you just have to carefully choose which statistics to use."

The article references how only 4 out of 24 metro areas had higher average appreciation rates than the stock market returns during that timeframe. Which means if the stock market went up by 7% annually, home appreciation would have to be at least 8%. The problem is I don't know of many people who simply purchase a home with cash and let it ride. If you are like the average American and purchase with 20% down payment, that 8% appreciation turns into a 40% CoC return. Historically the stock market averages roughly 10% once you factor in dividend reinvestments. This means a home at 20% down only needs to average roughly 2% appreciation to initially keep pace.

We can argue about whether a home is an investment, or a liability, the answer is really a matter of how you choose to define the terms.  But one thing is for certain, renting is an economic liability.  Money that is spent on renting is simply gone, never to be seen again.  Where as owning you may eventually see some of that money again when you sell.  Generally speaking owning has much lower monthly payments which will more than cover any repairs.  As @Mike H. pointed out his mortgage is 1k, and rents the property out at 1400.  This leaves a yearly difference of 4800, and nobody is going to have 5k a year capex/repairs on a property of this value.  Which means it is not only cheaper to own that property, but you also get debt paydown.

@Joe Splitrock While the numbers on the surface of your example would tend to say that the stock market wins, (200k worth of stocks versus roughly 151k for the home (190*.93)-25) there is still more to it than that.  Stocks would likely be subject to at least 15% tax rate unless you like waiting until retirement to see your money with a Roth, while the sale of the home would be tax free, changing the numbers to 170 vs 151.  Additionally that 9% mortgage would have been refinanced out of to something much lower a long time ago lowering the monthly payments.  And while 700 may have been a good rental price in 1987 and a good mortgage payment amount, the price of a rental today would probably be double that at 1400.  Meaning that there is a growing gap between what a current renter pays, versus what your parents pay because they have locked in their rate 30 years ago.  This ever growing gap of money can be reinvested at a rate of 700*12 = 8400 a year that a renter would not have which quickly shifts things in favor of owning, rather than renting.  Fun Fact:  if you take a purely hypothetical 'break even' property at 100k with 20% down, where the rents equal the mortgage plus expenses, and assume that rents rise at the same level as inflation then after the first year your break even property will start to turn a small profit since rent went up, and while your expenses went up, they did not go up as fast because your biggest expense (debt service) stays constant.  Each year your profits go up a tiny bit more and more as inflation hits.  If you take this profit and put it into the stock market you will actually have more money in the stock market at the end of 30 years this way, than if you had simply put the whole 20k into the market in the first place assuming 9% returns and 4% inflation.  This seems funny since in the case of buying the house you start with 0 money in the market, versus starting with 20k in the market, and because putting the entire amount into the market immediately maximizes the number of years that it is allowed to compound, but with the house you start to have regular ADDITIONAL deposits into the market since you start slowly making yearly profits from the house.  These additional deposits are trivial at first, and grow to the point where they end up very significant.  Not to mention you also own the house free and clear.  Given these hypothetical numbers, buying the house and slowly investing the rental profits into the market is slightly over double the economic gain than simply buying the stocks would have been.

The only time that renting is better than owning, is if you plan on constantly buying and selling every couple of years as you move around the country searching for a better job as those realtor fees add up quick.

But for anyone that continues to believe that renting is that pathway to economic success, I currently have a vacant SFR in phoenix and it would tickle me to death to be able to 'help' you achieve financial independence by allowing you to pay me rent.

I was a math major in college. My statistics teacher said something on the first day of class that has stuck with me to this day, "Statistics can be used to prove any argument as being true, you just have to carefully choose which statistics to use."

When I took Stats we were taught that "there are lies, damn lies & statistics". I got pretty good at making those statistics prove the conclusion I had previously decided upon. ;-)

I would take any of these studies with a grain of salt.  However, there is a logic to renting in gateway cities, when it is more expensive to own a property than to rent it.  This happens when appreciation out paces rent increases.  I would suggest that renting a primary residence and redeploying the money to another investment, with a greater return, is a good strategy.    

Owning your home provides a better quality of life imo.  I have a big dog and barbecue every weekend.

My in laws are long term renters and we’re informed their lease would not be renewed, right before the holidays.  Those 3 reasons are enough for me.

Building wealth is possible either way, renting or buying however, I believe forced saving of buying is less tedious than other investment vehicles.

Originally posted by Account Closed:
Originally posted by @Karen O.:

Nothing is absolutely true all the time.  

People need a place to live and to keep their stuff.  Either they own a home, co own a home (with a lender) or they rent a home owned by another.

Location makes a difference in whether one owns or rents.  An average earner can't afford mkt rate rents or ownership in places like NYC and LA. The cost of entry is too high, while inheriting long held property could ease that. A 2 hr commute could give the same earner a home ownership opportunity.  Thus a long commute is exchanged for the chance to own.  But it's not everyone's cup of tea.

Not all rules apply to every situation. Time and consistency can result in "wealth" simply by staying current and in the same place. Full/part deferral of appreciation on sale or free transfer of property gains is written into the tax law and benefits those who own offering a tax-free tangible asset that can be monetized to fund education, new businesses, investments or living expenses.  Owning can give a boost to those who got in & managed to hold.  While renting returns little and requires extra discipline to bank or invest the "savings" difference assuming there's anything left after the expenses are paid.

 You say "Nothing is absolutely true all the time." interesting Opinion

If you jump off of a building will you fall 100% of the time? If a car hits you at 60 mph will it always hurt? You are a little brash in your beliefs ;-)

Question one depends on the height of the building. Let's say one side of the building was underground, so the roof was at ground level, you would not fall. Or in another situation if there was an adjoining building of similar height, you would not fall, you would walk on to the adjoining building. Also keep in mind that falling depends on gravity, so any building in a low gravity environment would result in you floating away, not really falling.

If a car hits you at 60 mph, it will not always hurt. There is a small percentage of the population that has congenital insensitivity to pain with anhidrosis, or CIPA. This genetic disorder blocks all pain from being felt. Or in another situation a car hitting you could result in instant death. You could die faster than your pain receptors can respond and you would feel nothing. It is also well known that people can experience major trauma and feel no pain. The body has natural mechanisms to block pain in severe trauma.

Very little is absolute. Truth is usually a matter of perspective, which is why multiple people can share different truths. For example, I believe this to be true, but you may believe this to be my opinion. 

In building wealth, there is no certain path. Diversification in wealth accumulation is key-personal residence, 401(k), stocks, rentals etc. are all ways to accumulate wealth. Erasing debt over time is critical.

Paying rent each month is a waste of money. Paying a mortgage is forced savings that you get back when you sell. When you move from a rental, you have nothing to show for it. 

Assets-Liabilities = Net Worth (wealth).

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