Why Buying A Home Is Usually A Terrible Investment
HTML-код
- Опубликовано: 8 сен 2024
- "A lot of people will tell you that buying a home is a good investment - and that couldn't be further from the truth."
» Subscribe to CNBC Make It.: cnb.cx/2kxl2rf
A lot of people will tell you that buying a home is a good investment, but “that couldn’t be further from the truth,” says Peter Mallouk, a certified financial planner and president of wealth management firm Creative Planning.
“In reality, it’s usually a terrible investment,” he says. That’s because, at the end of the day, owning a home takes money out of your pocket: “You’re paying property taxes, you’re paying maintenance, you’re paying insurance. There are all of these other things that happen with your home that you’ve got to pay for.”
Young homeowners in particular have figured that out the hard way: Underestimating the hidden costs is the No. 1 reason millennials who do own homes have regrets.
Over time, your home might increase in value, Mallouk says, but it probably won’t appreciate enough to offset all of the costs. Instead, if you took what you’d save from not buying a house and invested it in something that’s likely to grow in value, such as stocks and bonds, chances are you’d end up with more money in the long term.
Say you live in Brooklyn, New York, and pay $2,500 a month to rent. If you buy your own place, you might pay $5,000 a month between your mortgage, taxes and other maintenance costs, Mallouk gives as an example. (Other financial experts estimate that, thanks to home ownership costs, buying could cost you about 40% more than renting.)
“If you take the difference and you save it, that extra $2,500 you’re saving in a diversified portfolio is almost certainly, over a long period of time, going to grow to be worth more than what your home equity would have been worth if you had just put the money into a home,” he says.
Ramit Sethi, self-made millionaire and author of “I Will Teach You to be Rich,” has made the same argument. Think about it this way, Sethi suggests: “Generally we can assume that over the long term, if we invest in a low-cost diversified index fund, we get about 7%” in terms of annualized returns. “Can you beat that in your area, over time, with real estate appreciation?”
Both Sethi and Mallouk emphasize the importance of crunching the numbers before buying a home: Take stock of your own financial standing and then look into the average cost of buying versus renting a home in your area. Try to project whether or not buying makes sense for you, and ask yourself whether you’re better off renting and putting the money that you’d save into investments such as mutual funds.
“If you run the numbers, like me, you might discover that for where you live it actually makes no financial sense to buy,” says Sethi. “Are there other reasons to buy? Of course. Maybe you want to buy because you want to knock that wall down. Maybe you want to buy because you want your kids to go to a certain school. Fine. But run the numbers.”
“For the biggest purchase of your life,” he adds, “you should know all the math and how it plays out 20 years in the future.”
One major benefit that comes with buying a home is that it can be a type of “forced savings” because, by making monthly payments on a mortgage, you’re using money in a constructive way by putting into an asset that you could later sell. As Mallouk explains: “You’ve got to find the money every month to put into your home to pay that mortgage, so it forces you to build equity.” Keep in mind that, when you have a mortgage, you will pay interest to your lender.
There are other benefits, too: Wealth manager David Bach says that “buying a home is the escalator to wealth in America ” and it can even help you retire early if you can pay off your mortgage.
Still, Mallouk contends, if you’re disciplined enough to take whatever savings you have from renting instead of buying and invest it, “you’re going to be in far better shape than if you had invested that in a property that continues to take money from you.”
About CNBC Make It.: CNBC Make It. is a new section of CNBC dedicated to making you smarter about managing your business, career, and money.
Connect with CNBC Make It. Online
Get the latest updates: www.cnbc.com/ma...
Find CNBC Make It. on Facebook: cnb.cx/LikeCNBC...
Find CNBC Make It. on Twitter: cnb.cx/FollowCN...
Find CNBC Make It. on Instagram: bit.ly/Instagra...
Find CNBC Make It. on LinkedIn: cnb.cx/2OIdwqJ
#CNBC
#CNBCMakeI
#MyFirstHome
Wealth manager: Buying a home is ‘usually a terrible investment’-here’s why | CNBC Make It.
Unless you're a flipper. A house is not an investment.
99% of people buy a house to live in.
It is an investment, homes have consistently appreciated every year, typically 1 percent a year. In addition you get special tax credits and buying a house is less expensive than renting a house.
When you rent an apartment, none of your money goes towards equity in the apartment, it goes straight to the landlord. Renting an apartment is typically for the young, city dwellers or the poor.
Landlord 👉🏼 investment 💰💰💰💰💰💰
If you don't intend to live long. Buy a home is pointless..
As someone who has had their family evicted from a rental house, the peace of mind of owning a home is enough. Screw the investment. Plus my mortgage is the same as what these knuckleheads are paying for small apartments.
This is incorrect since about half of the population rents. Which means 50% of the population have landlords or buy real estate as investment.
Thank you, I'm so tired of everyone saying renting money is throwing away money. No one thinks about interest, maintenance, and HOA as costs that don't build equity.
By renting a house you're paying all the taxes, mortgage, and maintenance etc. If your landlord is smart, and getting no ownership out of it. If it's an apartment, it's more likely to be spread out over multiple tenants so you may be saving money.
I think what he said in the beginning is key. Buy a home but nothing extraordinary. Keep the interest, closing costs, taxes, and maintenance to a minimum.
Realtors and the banks started selling that trope and boomers support that talking point.
So everyone who watched this BS 4 years ago are now happy with paying a parabolic rent ? while homeowners are only paying the fixed rate (if you where smart rather taking a gambling variable rate one ) they took before everything went crazy...
@@LM-gg5zh That's a myth Dave Ramsey and the real estate industry keep saying and use extreme places like NYC or L.A. to feed that lie. Rents are actually dropping across the country.
FORTUNATELY my tenants pay my mortgage, property taxes and utilities.
Hardeep Singh
Buy what you rent, and rent where you live
True! Buying a home is a good investment if you rent it to someone
@@corey407woc rent what you own, rent where you live.
@@corey407woc in a suburb of a large city close to public transportation, schools and shopping centers.
Nice hack!
Who goes into a home purchase treating it as an "investment"? Sure, you ride the ebb and flow of the market and hope to see equity in your house, but in the end, you are just happy to be the owner of your own home. I invest money in stocks and I also have a home. I don't want to deal with neighbors in an apartment complex and I definitely don't want a landlord controlling my property or my future. "Oh we would like to sell this rental now, so find a new place." I'm good. I can invest and I can actually live comfortably. This isn't sound advice from a person with our best interest in mind. It's a paid actor trying to sway young people into pumping more money into brokerage, 401k and IRA accounts, which in turn benefits those banks and stockbrokers. Owning a home is a wonderful thing and oh ya, one more thing, you can *invest* in stocks and a diversified portfolio too! Investing and being able to own your own home aren't mutually exclusive.
Like...most of the home buyers lol. Go to an open house or go on TikTok to listen to a realtors pitch. They're all the same sales pitch. They emphasize investment to would be home buyers to use the equity to buy a second home or sell and upgrade a home🤣 Rinse and repeat.
I was looking into purchasing a very modest home for $240k. I was only going to put the minimum down (3%) for a conventional because I dont like tying up a lot of cash flow for something like this. Despite 3% of 240k only being $7,200, the lender told me my total cash at closing would be $20,000 at least. So I am supposed to pay that extra near $13k for what exactly? Sounds like a ripoff when I can use the same cash and put it into solid ETFs, max out I-bonds (9.62% baby!), and put a little into physical precious metals for SHTF protection (and a hard asset that, unlike real estate, can travel with me). Absolutely bonkers that people think buying a personal residence is worth the cost.
@@matthewphillips5483 Exactly! I never understood the idea of putting down so much money to buy something to get into debt. In other words, you're essentially paying for the right to go into debt LMAO. But hey, i guess you can flex later about your equity like everyone else😅
Everything is an investment. Either good or bad.
Says the guy who probably has about 20 investment rental properties
That was one of the most ignorant things you could have said in this situation. Of course, if anything, in a world where almost everyone rents, most homeowners would be the ones that rent them out, OBVIOUSLY someone has to rent out the house. Getting positive cash flow with those properties can be very hard. A home can be a good investment, but for most, along with their car, is the biggest reason they are not financially free. And remember, you don't own your house, the bank does, even if you made all of your payments
StormSurge landlords need to have a profit. If not within 2-3 years they won’t be landlords. One or two investment properties won’t replace anyone’s main job.
The very last statement is factually incorrect. In real estate, you own the property outright. The deed is under the owners name unlike a car where the lender still owns the car and can repo it.
If the mortgage is not paid, there is a breach of contract. The lender then has to file a lawsuit in civil court, a process that can take months up to several years while a court determines there has been one and a judgement is entered. And then goes through a bidding process in which the property is sold, some of the time the bank can bid to keep it and hold on to it and sell it at a later time.
But outright owner is the person(s) on the deed.
Homes =/= investment properties
he isn't talking about rental investments, he is talking about the McMansions people buy
StormSurge so in short, it’s not really ignorant what they said because successful landlords are highly profitable
Wow.. Just WOW! I don't know how this could guy LOOK INTO THE CAMERA and SAY THIS WITH A STRAIGHT FACE! Even FOUR YEARS AGO when this was recorded I don't see how this could have ever been true in the parts of the US that have a decent economy or are showing even the slightest postive growth. Using my own life as an example - I bought my first property in 2008 for $347K. Today its worth is estimated to be $742K. I bought a second property in 2010 for $199K, today it's worth (estimated) $584K - and the renter pays the mortgage and then some! As I write this, I owe $373,000 for both, and have approximately $954,000 in equity. I'm nothing special - I did this on a firefighters salary, with two kids, and a wife that only worked part time in sales. I also worked hard, did a second part-time job, drove a beater car, and saved money for the down payments. That was 15 years ago. Now, please show me a single investment portfolio anywhere that will have a yield anywhere close to the equity I have. Sure, I've had to pay property taxes, insurance, put on a new roof, fix plumbing issues, buy a new fridge, etc, etc..., but there is no way that could even put a dent in the personal wealth my property has brought me! Is paying rent tax deductible? NO But your house payment is. Why pay somebody elses mortgage so they can get rich? Unless you are in a blighted area with no signs of recovery, you seriously need to look into buying a home! I will admit that it's generally CHEAPER to pay rent in most high-market areas than it is to buy a home, but once you pay rent that money is GONE. When you pay a mortgage at least some of it is going INTO your home; that money did not leave you. And it will grow and multiply and reward you better than any 'portfolio' this guy might want to sell you. Feel free to leave me a comment about how I'm right or wrong; I love learning from others.
This assumes you live in a large city with sky high housing costs. We bought a house and our PITI is less than we paid in rent. Overall, yes we now pay more because we have home repair and increased utilities, but we also have the ability to update our kitchen because we didn’t like the colors. Or actually improve our quality of life. I had 0 incentive to improve anything or invest when I was renting.
There’s one no “right” answer to this. Trying to make absolute rule about something so completely variable as housing is impossible. But the calculation really isn’t that hard. People just need to use logic and put a couple of numbers on paper.
This is the only logical, unbiased answer to this topic. There are a ton of variables here. For you, purchasing a home made sense. For me, it would be a horrible idea since I live in a big city. We both had the right idea.
There is another option. Build up your portfolio so you can buy a home in cash mortgage free. Your portfolio should also be large enough that you have money left over in dividends stock so you get money back monthly that will help towards your monthly expenses. The problem is it takes time to build up that portfolio and people want satisfaction now so they put a tiny down payment on a house and by the time they pay off their mortgage they’ve paid for the home twofold or more. I don’t think people realize a mortgage is just like a credit card. You could buy outright or you could buy something with a credit card and make the minimum payment when in the end that item you bought has cost far more than the initial purchase price.
@@sharinglungs3226 buying a house is the biggest business in the world, but you're on the wrong end of that business. You're the sucker who pays the high price
People who say "I pay less in mortgage than I did in rent" is pointless. We need to know how much you paid cash at closing vs deposit on a rental and factor that huge Matzo ball into the equation (and compare the opportunity cost of missing out on stock market/bond gains)
@@sharinglungs3226 Agreed. Buying a home CAN be an alright move financially but only if you purchase in cash. A mortgage is a suckers game. Recall the phrase: "Those who understand interest make it; those that don't pay it"
Its sad that this will actual convince people not to buy a house. Hopefully they read the comments on here before they make the mistake of listening to this fool.
If no one buys homes prices will go down.
@@vicepresidentmikepence889 Okay but the video is saying its a financial disaster for everyone. How Im I a fool for saying that isnt true when you just said it yourself? lol Call someone a fool and agreeing with them....wow smh
@@negritorican Take away the easy and cheap money and lending standards and then tell me how much your house is worth. If mortgage loans went away tomorrow, your home value would plummet.
When you find have a mortgage you have to find the money every month!
But when you rent you have to...
I guess the difference is that if you rent and cannot find the money you can move somewhere cheaper easily. If you own house you will get foreclosed and there are many many fees involved with that.
Is this the "forced savings" argument? This is a funny argument because it is like saying "if I am a financially irresponsible person then I will do better as an owner than a renter" but 1) this is false because lending standards have tightened so you are unlikely to get a mortgage if you are financially irresponsible 2) just try being a financially responsible person and you can do better than "forced savings"
@@matthewphillips5483 thanks for the insight 3 years later my dude
@@justinlopilato7468 Glad you are okay 3 years later bro
But you cant live in a portfolio.
I bought a house because i need a home to live.
Your portfolio can pay for your rent or home. A portfolio of dividends stock can pay for your monthly expenses be it rent or a mortgage if your portfolio is large enough. The trick is build your portfolio up so you can buy a home in cash instead of throwing money away to the banks in interest payments.
@@sharinglungs3226 Valid point
Sharing Lungs Do you know how big your portfolio has to be in order to do that?
@@Pens4Life85 If that is true, it is because people are terrible with money. It really should not be that hard. If you are saving 10% of your gross income and placing them into indexed funds (approx. 10% average returns) then you should be able to build wealth fairly quickly.
@@phillippascual9959 If compared with a 30yr fixed mortgage, it doesnt seem that large of a task. I can pretty much assure you that most people can be "wealthy" in 30 yrs if they invest 10% of their gross income in index funds like SP500 (SPY/VOO) and reinvest the dividends.
My parents bought their home in San Jose CA in 1992 for $190k. That house is now worth 750k. They paid it off in 20 years because they gave more than the minimum payment. I think that was a very good investment.....
190k invested in the S&P would now be worth 1.5million, double than that. Your parents are almost breaking even, accounting for the inflation in the last 27 years by the way...
@@josejuangomez9326 but they don't spend in rent plus they are just paying amortization they didn't buy it with cash
The good investment your parents did was to put a bigger down payment ( which not everyone could/can afford). Buying the house is NOT the investment.and FYI , that was a different time period, it's different now.
James Alvarado that was a horrible investment. Taking twenty years to pay for their home probably means half of the payments was interest. Once adjusted for inflation I think your parents probably lost money. 75k invested in Apple @ $75 a share in 2008, a few years later went to $700 a share. That’s a good investment even after paying capital gains which you could have shielded in an ira.
@@sharinglungs3226 Please tell us the next stock to sink all our savings into that you know for sure will blow up in the next seven years. If not, then stfu. Real estate is a safer investment which you can live in, enjoy, and get tax write-offs for.
Buying a house is not an investment. The closing cost and down payment are pretty substantial...I could use that same cash to invest into real estate and potentially double it/triple it (which I have) I could rent, put little money down and use my stack of cash in a better way. if you want to be broke, buy a house lol
Except people don’t just live for money... they want peace and quiet, away from noisy renters.
Jonathan Patterson rental homes are available
@@sunflowersamuels767 you think rental homes are cheaper if I live 10 years in it?
@@mygamepowerdotcom Yes and I have proven that myself. I have lived in my current rental home for 10 years and, if I had bought this place 10 years ago, my mortgage would still be higher than my current rent. Also consider that I would be out all of the cash at closing that I would have had to pay.
Renting is a great way to eventually get kicked out of a nice neighborhood due to rising rent costs.
Exactly and that's what im going thru now. Except the neighborhood isn't that nice, so me paying $2045 to love in it will soon be a thing of the past, might as well finance a house🤷🏽♀️
My situation maybe different from others. My rent is $1000 a month, utilities around $200 give or take. I understand what he’s saying, unless you plan on flipping your house, you are not going to make a return on money. Here in New Jersey the taxes are crazy. Of course my landlord is making money off me, but I literally do not have to worry about anything other than becoming financially independent. I make around $80k per year, of course I could buy a house but saving up a nice nest egg, having a diverse portfolio, and saving up for retirement is a better at an earlier age. Imagine, 10 years into your mortgage and you lose your job... the bank is still going to take your house even though you spent 10 years paying off the principal. On the flip side in 10 years your spent paying off debt and investing hard... which situation word fare better? I know I’m gonna get some hate for my comment, I’ve read the pro-house comments. Everyone’s situation is different, raising a family would definitely be difficult in an apartment so owning a house would be justified.
This is a good point. Many people forget the importance of keeping a lot of positive cash flow. Home ownership removes cash flow; it doesn't add it. Investing adds a ton of positive cash flow. I look at renting my residence as an expenditure like car insurance or food. It gives me a "creature comfort" but otherwise, it is worthless. Owning a home is a dreamy idea but more of a nightmarish reality.
Investing in what?
Quick Math: **$100k down payment on $400k home** vs **Investing $100k**
Assumptions: 25% upfront payment; mortgage interest of 3%; property tax of 2%; rent of 7%
Mortgage:
$100k invested upfront
-> 28k saved on rent
-> 12k paid in interest
-> 8k paid in tax
Y1: 8k return on 100k = 8% return (very simplified since I ignored all costs)
I've maintained my portfolio's returns at over 20% so I stick with renting. If you fall below that 8%, opt for home ownership. Note that a small down payment can boost that 8% figure.
Lol we bought a house for 405,000 7 years ago it's worth $940,000 now. Used the equity to buy another property where we can subdivide and build 2-3 houses. Currently rented have very little mortgage payments. In the future thats a couple million. No plan on selling any just collect rent, that's passive income.
In that seven years how much cost was spent on your home? You could have invested all that into apple and quadrupled or more your return and bought your home in cash free of no mortgage with enough to retire.
@@sharinglungs3226 It's actually worth 1 million got an appraisal done. That equity that we didn't touch got us 3 more homes, not going to risk putting that into a stock... Our Real Estate market here is been in a growth period for a while, why wouldn't we invest in it LOL? Did you invest in apple? Rather rent or get a home that's passive income for life? That house is free, didn't cost us anything we rented a room out LOL. Buy it for cash 7 years later for 1 million or earlier for less than half gtfo
Sharing Lungs Apple has not quadruple in the last seven years, it hasn't even douboed
radicalkills Exactly and you can't leverage stock or collect passive income unless it's a dividend paying stock and the cash flow is so little my portfolio is partly stock but the majority of my money is in real-estate
You are a smart dude, I’m thinking of building a modern house. Then renting it out, would that be smart?? Then build another one for me to live in. I have no wife or kids. Would this work?
This guy lives in a home... I guarantee it. “Forced to pay the monthly mortgage”.... you’re “forced” to pay the monthly RENT too. Either way, you are forced. 🤦♂️
Forced with different amount of money
Shaojiong Wee not always true. I’ve rented & owned homes at the same monthly price. Buy a home that you can actually afford & nothing more.
Probably owns a home that his portfolio paid for. That portfolio probably has dividend stocks that pay for his rent or home expenses monthly. There is much more to this strategy. The only real advantage is you can buy a home with very little down. The downside is by the time you pay off your mortgage you paid for your home at least twofold. The portfolio strategy takes time. It’s essentially the difference of saving to buy something versus buying on a credit card where you only make the minimum payments.
I think his point was that with a mortgage you are forced to build equity, whereas with renting you aren’t forced to invest which makes it more difficult to discipline yourself to come out ahead.
Lmao, bought a townhouse in Brooklyn for $800K 7 years ago and now it’s $1,500,000. I think it’s a good investment. Yes stocks and stores make cash BUT, it’s unstable. Homes r the most stable areas to put cash. Can’t pay mortgage? I can just rent that 2 family home out.
And I bet you've paid less than $200,000 on that mortgage which means your investment has multiplied 8x. If you cash out now you have a profit equivalent to 20 plus years of FREE rent after paying off the bank.
Well done mate
99% of Americans can't afford a $800K home. Good for you! NY & SF are cash cows.
Stocks are unstable? Wow. The stock market has outperformed RE over 100 years. Not sure how much more stability you need.
This is bad advice, many Americans are forced to rent, or forced to pay someone else. I'm on house #2 and tenants make my mortgage for me...
I definitely agree! And even without tenants, when you buy, it's almost the difference between paying someone else (renting) and playing yourself (buying). Because #1 if you buy right, you can get your money back. And even if you broke even when selling when including all the maintenance, it's still better than putting money in to rent, that you never get back. #2 Where I live, the monthly expense of owning is lower than that of renting and owning has greater tax benefits. #3 Owning makes you more flexible and financially independent. You can chose to change things in the home as you like (within means and depending on if there is an HOA). You can also chose to place a tenant in the home anytime to provide income. Due to the Value of the home, one could also borrow money from their own mortgage. Endless growth opportunities with owning, though renting is also great because sometimes it can be found significantly lower and maintenance not a large worry. Renting can also be great as a good saving mechanism for someone who is unable to buy yet, because there are a lot of up front fees associated with buying.
Yeah In that case a house/real estate is a good investment. If you buy it to live in it, not a good investment. Only if it pays/cash flows aka rental properties.
Agreed
Hows it been going in 2020?
People are myopic and cannot understand the truth. Okie dokie!
IRC section 121 exclusion: on sale of your home, $250k capital gains exemption if you’re single and $500k exemption if you’re married. When you sell your stocks, pay 15-20% in taxes on your capital gains, 30% if short term gains. 0% tax on gains or 20%?
If you sell stocks during your working years you may (depending on your MAGI) pay 15-20% tax on it for long-term gains. In general if you're a committed saver there's typically no good reason you should need to sell your well-diversified stocks until retirement, at which point you could have up to $79k (married) in retirement income and pay 0% capital gains on your stock sale. The stock sale would also have $0 in transaction costs (assuming you're using good mutual funds/ETFs), while selling a house will have 3-6% net of value transaction cost assuming you sell through a realtor, and you then you need a place to live, which will either result in now becoming a renter, or paying more transaction costs to buy again. This is assuming it's your primary home you're selling, since the capital gain exemption doesn't apply to investment properties.
Edward s capital gains can be prevented in tax shielded trading accounts such as tfsa or ira or whatever type you have in your country. I live in Canada and we have rrsp and tfsa accounts where I trade Canadian stocks free of capital gains. They work great for building up my retirement. Some of those accounts have penalties for early withdrawals but can work great if that’s not your case and you plan on waiting to access those funds when you retire.
@@sharinglungs3226 In the US we have IRAs and 401k retirement accounts. 5500/yr and 19000/yr for those 2. Depending on which method you chose, traditional or roth, you can indeed withdraw after you're 59.5 years old tax free if you have less than 79k in income. It does work for the majority of people, but not necessarily for high income earners or those who have passive income over 79k/year. I don't like that my money is stuck in a retirement account until I'm 59 when I could be leveraging it to make way more money than any index fund could ever make. Yes, there are backdoor roths and self-directed IRAs for this purpose, but the amount of $ utilized is insignificant. I always say... stick to what you know best. For me, I know I can make more in real estate than index funds and for others, they may only be familiar with index funds so stick with that method for retirement.
@@chillycheese1203 I'm a real estate agent - Selling your home is actually more like 8-9% after you pay 6% in commissions and 1-3% in closing costs depending on the sale price of your home. For buyers, the transaction cost is very minimal so repurchasing after selling is not as expensive. However, selling can be very expensive if you transact multiple times in your lifetime. Investment properties can defer 100% of capital gains in perpetuity thru IRS section 1031 exchange and can be passed to beneficiaries at a stepped up basis and therefore eliminate all capital gains. I think the key difference here is leveraging your money in real estate instead of putting it in index funds to grow passively.
@@edwardseid5571 true, I was mostly (errantly) considering the market in which I live, and similar hot markets, in which closing costs are almost always paid by the buyer. Experienced sellers can also get by using a less-than-full-service agent, such as through Redfin, which only charges a 3% REA commission.
The main issue with deferring your capital gains in perpetuity, until it's stepped up through inheritance, is that it doesn't do you much good as an investment in your lifetime; I'm assuming most people want access to their invested capital at some point to support retirement or other goals.
Leverage is a great tool, but RE investing is undeniably more work than index fund investing, and to some people already working full-time, that added stress isn't worth it. Hence, I wanted to make the point that when properly managed and planned, stock/index investing can result in 0% long-term capital gains, making the value proposition closer to RE investing than if you actually had to pay 15-20% in tax on all your stock-based LTCG.
I’ve never heard of this advice. Even his example doesn’t make any sense. Btw buying a home is NOT an Investment, it’s a home, personal use. Real Estate on the other hand can be an investment...
Back to his example buy a home for 200k, 10 years later sell it for 300k.
Assuming this example was a FHA loan and put 3.5% down with mortgage rates of 10 years ago at 5%. This person will owe $157k,
300-157k is 143k ‘revenue’
Expenses will be, a year
3000 in property taxes
1500 home insurance
2400 maintenance
Plus mortgage interest and PMI
That’s $1450 in these expenses a month or 174000 or so over 10 years
143000-174000 = -31000
Or -258 a month to live this house
Rent for a typical 300k home is $1500 currently or about $1200 ten years ago.
That’s around $162,000 in rent expense or $131,000 higher then owning a home...
95% of the time is better to own a home. Some housing areas appreciation has doubled in the last 10 years even with the housing crisis...
If I were to rent with my current mortgage, I would be able to afford a 400 sq foot studio within 30 miles. 1200 foot home...
It’s generally assumed it cost more to buy a home than it is to rent on a per monthly basis. I know in my case it’s double and that’s with 30% down payment. He’s talking about investing the difference which typically yields a better rate of return than house appreciation. With investing you rely on compounding such as reinvest any profits and dividends you make. Eventually your portfolio can grow large enough that the dividends alone will pay for your rent and you can pocket the difference in profit. So instead of throwing away money to the banks in interest and the government in taxes you use the difference to build up your savings making you more liquid. Having all your savings tied up in one asset is foolish.
Sharing Lungs I totally understand that it’s more upfront costs to buy a home. But what this person, Peter Mallouk, fails to mention is inflation. In large part the biggest factor of overall CPI (inflation) is rent.
www.google.com/amp/s/www.marketwatch.com/amp/story/guid/A6C36CB2-26D4-11E8-BC5F-E951E72EAD42
The Wall Street Journal mentions,
“Rent inflation is still outpacing overall inflation, but the slowdown could ease what had already been limited price pressures from across the economy. “
In its fourth paragraph.
There has been a slowdown but still rent has had a faster rate of inflation then overall inflation. While a fixed rate mortgage will not increase in the 30 years. Home insurance and property taxes usually account for about 10-40% of the mortgage depending the state, but shouldn’t have a major impact in the overall.
www.google.com/amp/s/www.wsj.com/amp/articles/BL-REB-37937%3fresponsive=y
Landlords will always make money on rents. If they don’t profit, they won’t be one for long.
Housing that you live in is not an investment but it doesn't mean it is a bad use of your money. If you are going to be stable for more than 10 years, there is absolutely no reason to not do it. When you rent, you also pay property taxes, upkeep, and the other incidental expenses of home ownership because your landlord has to cover those costs for the profit they plan to make. Not only are you paying these costs but you are also paying their profit plus any management fees. Sure, the home isn't appreciating as an asset that you can make a lot of money off of but you are saving a great deal instead of renting. If you need to move fairly frequently, it makes no sense to buy. If you or like me who is licensed only in one state and runs a thriving business that is inherently local, there's no reason to rent long-term
My opinion we need to stop this war between Renting vs buying. Pros and Cons. Home buyers need to stop looking at Renters like their losers. The goal is to be in a position that you have OPTIONS to either rent or buy. If you renting make sure your investing and that your portfolio growing. If you own a home make sure you have time to enjoy the house. Some people have 2 jobs, cant go on vacations, broke becoming a slave to the house. You just have to way out your options Renting gives you freedom, Buying gives you appreciation and hopefully one day IF YOU STAY IN THAT SAME HOUSE mortgage will be done. So if you are renting make sure your investing you could still build wealth. If rent goes up Move. Everything is market driven. Nothing written in Stones! No winners or losers!
This is a fair point. I am a renter but I do so because I want to invest my money in diversified investments over putting everything into one static asset (house). Most home owners view renters as a bunch of financially irresponsible people who spend every dollar they make. They might be surprised that some renters have far more cash flow than they do.
Exactly.
Portfolio? You mean a mutual fund?
A home is like a car. It’s an expense not an investment
I think people don’t understand that homes depreciate and the land is what appreciates.
best to do is buy a home rent it out, it pays for it self.
Not in California, it wont.
This fails to consider that once you pay off the home you live rent-free! Save tax/insurance. But when you rent you are paying the landlord's taxes, insurance, and mortgage and providing him with a profit. Now that I paid it off, I can live for the next 25-30 or more years with no payment! Saving what I was paying on the mortgage and those savings are building rapidly. Additionally, you will not understand the relief of not having a house payment or monthly rent. Further, the disparity in rents is nowhere close to this example of 50% (2500 to rent and 5k to own), its 86%. That is, rent is 86% of the mortgage on similar property. Notwithstanding the challenges new grads and young people face today. It will take them longer to get into a house. But if you plan on being somewhere for many years, work hard, save, and buy at the right time.
Everybody who buys a house think they are making the deal of their lives...
lol, true. Most end up regretting it whether they admit it openly or not.
Renters are evicted with 30 days notice while bank will take along process to evict during times of crisis. So there is that security aspect of it.
You are missing another huge point....leverage. All videos on this topic miss the point that mortgage is the cheapest leverage available. I used only $40k to buy a $450k home which is now $880k in just 6 years. And I am saving on rent. There are tax deduction on interest paid. Benefits of renting are flexibility of relocating and avoiding risk of owning home like foundation crack or flooding etc.
Financial advisors tell not to buy a home but invest in instruments where they get big commissions.
Give an example of one successful person who rents except for people living in Manhattan.
"Renters are evicted with 30 days notice while bank will take along process to evict during times of crisis" This is a complete straw man argument. A 30 day notice is not an eviction. A landlord cannot even file for an Unlawful Detainer (eviction) until notice has been given and completed. In CA, you have to give 60 days if the tenant has been there at least 1 year. Once the eviction paperwork is filed, the tenant can respond and the process can take as long as 6 months. In times of crisis (pandemic, for example), there was an eviction moratorium as well as the foreclosure moratorium. In CA, the renters got more time than the homeowners did. Your post is complete BS.
@@matthewphillips5483 I am $400k richer by buying a house and that is not BS and my family is enjoying a 4000 sft home. No one is stopping you be a loser renter. go ahead and blow your money on rent.
Your home isn't an investment, it's a place to live. The fact that people see property as an investment and buy up rental properties has caused rent inflation and an over leveraged property market
Even in my 20s when they were relatively cheap compared to now (90s) I didn't want to buy one when I saw how many costs were involved. If I had have bought it then it would have been with deep reluctance. There's too much money tied up in it and too many running costs. It only makes sense to rent it out.
Your home appreciating in value is not how you make return on your purchase. You must earn rental income from your home, or buy a fixer upper and put sweat equity into it to double your renovation investment. Appreciation is just a bonus
Maybe this is how Brooklyn works but where I live a 4 bedroom house goes for $1800/month mortgage while a 3 bedroom apartment is the same. Yes, there are maintenance costs but like others have said apartment rent can go up at any time (on average $75-150/year here) your mortgage is consistent.
You mortgage can also go up anytime. Put your facts in order
This is a common line repeated by RE agents (boy, they have the public trained, don't they?) Thing is, renting allows you to hold onto your cash flow whereas buying takes a huge chunk of money at closing to get into it. Also, you need to keep a much larger emergency buffer to account for home repairs than a renter. A renter can keep a fairly lean emergency fund and invest the rest. Also, inflation will hit you whether you buy or rent. Even if your mortgage is fixed, food costs go up, utility costs go up (and owners tend to have higher utility bills than renters), insurance goes up (mortgage insurance is higher than renter insurance), transportation costs go up. I would rather rent, invest, and keep more money in my pocket than putting all my eggs in the basket of a huge immoveable object. I can always move if my rent gets too high.
This guys a fraud, a house can be a great investment. It’s not just about the house, but the community it’s in. Buy a house in a city that will grow in population tremendously in 15 years and you will see it pay off. This guy just wants your money to make low interest investments lol. He’s right, houses aren’t ALWAYS good investments but they can be a lot of the time.
Still wrong, dude. Saying it is a "good investment" is pointless without data. Facts: The SP500 historically is a MUCH better annual yield than housing appreciation. Also consider that you do not pay fees to maintain the SP500 shares. A home requires maintenance, property tax, insurance, etc. Also, the equity in your home means nothing until you sell. Sure, you can take out a HELOC but this is debt, not wealth. Paying interest on money is not a sound financial strategy. It is much easier to keep a solid cash flow position as a renter over a buyer.
"Let's assume you live in Brooklyn...."
If you live in Brooklyn, 90% chance you're not thinking of owning a home.
That's a dam lie, i live in Brooklyn and I'm omw to purchasing my own home, cus the rent out here is ridiculous i might as well invest it in my own home!!
Lovely K If you’re living in NYC it makes more sense to buy a home. A lot of these ‘buying homes is not an investment’ fail to consider that rents are going up, mortgages will eventually end, and more importantly mortgages are a depreciation loan if adjusted for inflation - that’s why people call it a good loan.
And if you rent you are paying for taxes, repairs, and vacancy as well. Do you think landlords are taking a bath? Here's the cold hard truth. The houses will be paid off in 30 years and the tenants will cover all expenses if you buy smart. And at 20% down a 3% appreciation per year is really 15% ROI which beats stocks and doesn't take into consideration tax write offs or cash flow as rents go up. Ouch!
Jordan L WAAC dude then 30 year mortgage, he’s still right
Lolz. I’ve had stocks gain 15% after an earnings report or rumours of a hostile takeover in one day. I’ve bought stocks that have doubled in under a year. I get better returns than 3% in dividends alone let alone what the actual stock returns on top of that. Ouch.
Dude, you are trippin if you think RE gives a consistent 15% annual yield. Show me ANY research done by a reputable organization that backs this up?
Buying a house to live in yourself is a liability not an investment...
In some markets rent is higher than ownership even when you factor in extra cost. His solution doesn't appear to take many factors into consideration.
Like most pundits on major networks, he fails to account for the flyover states and the opportunities there.
This is region specific. I live in CA so renting is a way better deal than owning. Nebraska is likely the inverse. If so, I plan to retire there and pay cash for a residence.
Mine was great, I bought a 1 bedroom apartment, did Airbnb in my room and slept on my couch. Two years later the apartment I bought for 138K is worth 160K, plus all the proceedings from Airbnb.
Andres Orozco lol that sounds horrible dude
@@victoriahale5254 Not at all! Everyone was nice.
So basically you broke even and lived a miserable existence for two years. You could have bought Apple and got over 100% return in the same time frame.
@@sharinglungs3226 You could buy yolo options and be millionaire Or you could buy ARK invest with margins and lose all your money. He made a low risk financial decision and accomplished what he wanted not depending of external factors out of his control (like individual stocks). He did great
@@sharinglungs3226 Nice reply and hilarious! The foolishness these RE fanboys tout cannot be made up! They would rather share their home over just admitting that the market is the best place to park funds.
There is a difference between a home and a house. You don't look at a home as a financial investment. A home is a life investment. A house is a good investment when you rent it out to someone.
No mate, a house you rent to someone is not a good investment. It the shittiest investment ever
@@europeanfootballbetting8659 Agreed. I have no clue why people would prefer to make low yields as a landlord with all of the drama, screening, dealing with people, repairs, etc over making truly passive income from dividend stocks, bonds and bond ETFs, even REITs if you want to be exposed to real estate.
@@matthewphillips5483 they're brain dead, looking at what everyone else is doing. They suffered and think a house will cure them. Then they get bored and rent it, which is as we agreed, a prison like investment
That's terrible advice. By his logic eating mcdonalds everyday is smarter than drinking a frap everyday or vice versa? You have to live somewhere, so why choose to live and put money in someone else's pocket when you could live and own and likely see a small return on your ownership down the line (at the very least break even)? You will never see rent money again so whatever you "saved' and invested (with an ideal ROI of 2-7%) into the market is offset by the HUGE loss of money via rent.
PSA: Renters pay property tax, they just dont know that it's included in the rental price.
You do realize those mortgage payments is putting money into the banks pockets right? You also ignore dividend paying stocks where your portfolio puts money back into your pockets or towards your rent. Stocks generally have far greater returns especially short term than real estate. An active investor should be selling and reinvesting their portfolio so it grows over time. In a home you can’t do that. You can’t be as liquid and are at the mercy of the real estate market. With a large enough portfolio or what would be a paid off mortgage the dividends alone would pay for your rent and monthly expenses.
@@sharinglungs3226
You're assuming all mortgages go thru banks and the fact is that they do not. Private lending is viable and equity can be had at close to no rate of return for the lender if you as the borrower are aggressive in repayment. This is largely an exception in real estate when it should be the rule. More importantly mortgages do NOT offset the benefits of ownership because by your very own definition - the bank owns said house so ownership DOES pay. Otherwise banks would NOT be known as lenders they'd be known as stockholders. Trading options and putting your money in aggressive stocks and bonds cause capital gains taxes and the profit you think you're making is very quickly mitigated. Look to Enron and WorldCom to see how trading short term stocks causes successive greed and inherently an economic dilemma when you fail to accurately represent profits to Uncle Sam because of insider trading. When you say active investor, you do realize that 99.9% of the US demographic doesnt have the literacy (or wherewithal) to actively invest OR more importantly, the ability to forecast gains as guarantees in a tidal global market. Being at the mercy of the real estate market? Is that why 1% of the world's wealthy control the majority of real estate globally? Liquidity is over-rated - just ask Warren Buffet. You, me and joe shmoe down the block will never have a large enough of a portfolio to pay for monthly expenses AND rent - you'd have to be a majority shareholder OR broker, and if you were either you wouldnt have the time to be watching this video because you'd be too busy OWNING things. The equation is quite simple for the masses, limited land yields appreciating demand. There is simply not the same demand for intangibles.
@@NishantVarghese Wow, this is a tonedeaf post.
No. Make sure you buy the right ones and don't pay too much.
*I have been saying this all my life. Nice to see the knowledge is actually going mainstream. If everyone is doing it and most are broke and in debt what does that tell you. Run the numbers people.*
But hey, you pay the interest first. Figure out who's getting rich from this business. The one who gets paid first, isn't it my friends?
@@europeanfootballbetting8659 Homeowners throw their money away on closing costs, upkeep, upgrades, taxes and mortgage interest. HOS too if you have it.
I'm terrible with numbers. What does it mean?😅
A home isn't an investment to begin with
Videos like this are just meant to help millennials feel better about lack of home ownership. You can’t live in your 401(k)!
But your investment portfolio can pay for you to live. At the very least a dividend portfolio will give you money back monthly. I know in my case I’ve had a few months rent paid by the dividends while the profit on my portfolio pays for big purchases. Once my portfolio grows to a certain size say the amount of buying a home outright it will pay for my entire year in expenses and rent.
Who needs to live in a 401k? The portfolio will pay you passive income that allows you to pay whatever bills you need.
I'd be willing this fellow either owns a bunch of property that he rents out or works for a realty company that specializes in renting properties. Most people dont buy a house as an investment. It's a home. Peace of mind knowing you're not going to get evicted, or that your landlord dies and leaves you high and dry. I have had my home paid off for more than a decade now, and I will NEVER regret purchasing this house.
Good for you but that still doesnt make it a good investment. No one said home owning doesnt have benefits for some but it is still a terrible investment when compared to alternatives.
@@matthewphillips5483 maybe it's just me, but If I'm gonna be writing a check every month, I'd rather be buying my house rather making those same payments on someone else's. I'm sure you're right that it's not right for some, but for me, at least, it's the only way to go. I no longer have to write a check to any bank, landlord, or mortgage company. Now I have that 1200 bucks a month to spend on other things that I need. I'm not doubting that you're right that renting or whatever is a better option, and for some, the only feasible option. But if someone can buy a place just as easily as renting, especially if they have no intentions of moving to a new location any time soon, I just can't see why someone wouldn't buy their own home rather than someone else's.
If buying is just a bit more, I still prefer buying simply because of the freedom to do what you want in your own place.
You can do what you want to as long as the local authorities say you can. If you are in an HOA, good luck with that! :D
Renting IS throwing money away in most big cities in America. Real estate valuations ARE outperforming the stock market in the past 4 years since this video was posted. Crappy advice.
This is as dumb as Kevin O'Leary saying not to ever buy a car. Not everyone lives in a city.
This guy is making the inaccurate assumption that renting is cheaper than buying. False. Take Jacksonville, Florida for instance. Rent on 3 bedroom, 2 bath, $220,000 house is $1600 a month. Net equity gain from rent- $0. Buying the same house is $850 monthly, plus taxes and insurance. Comes to $1200 a month- a savings of $400 a month, PLUS the gain from equity AND APPRECIATION! Yes, houses APPRECIATE. Generally, a home purchase is the best thing you can do for building wealth. Don't listen to this guy.
Ok. I get the message. I used to pay $865,00 CAD every month in a appartement. So multiple this amount by 12 months. I was full of this. Anyway it was so difficult to have services from the owner. I bought a house. Actually there is nothing to do on it. It was just renovated. I just have to pay taxes. I pay less by month than with renting. Since I have nothing to do on the house. I pay my bills and the rest goes to savings and investments. I invest in VTI. The house was built in 1950 for $50 000,00. Now it's almost 4 times the value.
Simon, great for your. You'll figure out the cost later. When you change your mind
Even aside from maintenance, tell us how much cash at closing you needed to get into that place? I will know if you are full of BS depending on your answer.
I think the word "terrible" is subjective. It think the decision to buy depends on a individuals personal preference and financial goals..But i think people should consider the actual cost of a home after the interest is paid over the duration of the loan.Mathemattically if someone as in his example bought a home for 200,000 and the interest rate was 4 % after 10 years they would pay 80,000 in interest if they sold it for 300,000 ten years later they would make a profit depending on property taxes, fees what was spent on updgrades etc.. If the person that bought the house had a 15 year mortgage at 4% they'd pay 120k in interest after 15 years..a 30 year loan would be 240k after 30 years..
I think most homeowners are willfully ignorant to the outflows of buying property. They say absurd things like "I bought my home for 200k and sold it for 400k so I made 200k!" which is not at all how things work.
What a bunch of complete bollocks. Why does this guy not want you to buy your own property? Because there's no commission in that deal for him.
Every location and situation is different.
A home more value than just investment very few realize until it's too late after years of chasing short term satisfactions .
haha, this is ridiculous. So you are telling me that a paid off home is of more value than an investment portfolio that pays you more passive income than what you make from work? You cannot be serious. Recall: investments pay you whereas you pay for your home
Instead of making assumptions o can use my real life example as to why this is wrong. 10 years ago I started renting the house I’m currently in (All prices similar in areas and cheapest around) rent was $1200, was given the opportunity to buy for 190k and declined because I was following this same plan as he’s talking about. Rent now is $2400 ( again still cheapest around) and house is now around 500k.
In that 10 years I’ve paid roughly over 200k. I would just about have it paid off by now and would actually be saving a lot more since at the time the mortgage would have been only $900.
I dont think you are looking at all of the variables here though. Did you pay $0 cash at closing to get into your home? Or did you pay a large down payment + closing costs + junk fees, etc? All of that cash at closing could have been invested into ETFs along with the money saved in the early years of the mortgage. Also, you can move if your rental gets too expensive. $0 repairs, $0 property tax, renters insurance is cheaper than mortgage insurance, the list goes on.
@@matthewphillips5483 my original comment aged perfectly, still holds even more true. And move where? Renters base their rents of comps in the area. You can only keep moving away so far.
Do the math on markets that aren't NYC, Orange County (CA), or any other massively inflated urban area, and the result is different. Rent is 100% expense. You never get that money back. Buying a reasonable home that you can afford means that after expenses, you're putting your money into equity. The key is to *not* over-buy, and to stick to a 15 year mortgage so you can make some headway on equity.
If we are being honest though, most home owners are tapping that equity with a HELOC and then paying it back WITH INTEREST. This is stupidity at its finest. And I do not see why people in flyover states cannot just save and buy a home outright. Mortgages are for suckers.
If you buy a home you pay property taxes. You pay maintenance. You pay insurance and so on.
If you rent a home you pay the owner property taxes, the owner maintenance costs, the owner insurance, plus the owner clean profit.
spot on! a lot of people don't understand this concept... buying a home is consumption, most people buy way more home than they would rent, this is a huge lifestyle upgrade.. in fact a lot of people spend much much more simply because the cost of entry into home ownership these days is extremely high.
A lot of you viewers missed the message. It is considered terrible to own a home because that extra money you spent on the home, could have been invested in the stock market. Lets say, 15 years back, you invested that money into Apple, Tesla, Amazon, etc. You would have made a huge return on investment.
And do what with? Buy squash balls?
darcylicious22 you can buy whatever you want without credit like even a home. Having a mortgage is not the only way to buy a home. Also you could retire early. The amount of missed trades I could be well over a million in the bank.
@@darcylicious22 lol, your mind is closed.
here in southern California you are screwed either way rents keep going up and home prices are just outrageous and overpriced
You ever consider Nevada?
Gilbert or Chandler Arizona
Yup which is why no one should ever live in so cal.
Come to Texas. Many Californians are here. Also OKC is great and always hiring.
This guy lost me when he said go invest in a diversified portfolio instead. People with little savings should be focused on increasing income. Invest in yourself first.
I disagree. Most everyone wants to live a consumerist lifestyle. Some people are minimalists and can live on little and are happy doing so. True wealth is when you can build a portfolio that pays you enough passive income to perpetuate your standard of living without needing to work. This level will be different for everyone but the point is that the income is passive as opposed to trading your labor for money. That, in my view, beats a death box that you slave away to support for 30 years until you "own" it (but still need property tax!)
Now that I’m ready to purchase a home from the investment money I saved for like stocks. You’re telling me to still continue renting? I’m old now and I need a stable home for god sake!!
This is why you wait and buy the house you want! If I'm in a good financial space meaning I own multiple thriving businesses then I'm going to buy a nice home. I don't mind paying because It's not going to hurt my pockets and I'm still in great shape to invest into other business endeavors.
This is serious cope. You are essentially saying "I know buying a home is a terrible investment but I have enough money to do it anyway." This is fine but admit that it is still a terrible investment.
@@matthewphillips5483 When your'e at a certain level financially, it's not even about it being an investment. It comes down to " I like it, so I'm going to buy it".
@@matthewphillips5483 Where you want to live isn't always an investment decision. Sometimes you just want your own house because you don't have a landlord telling you what you can and can't do.
What kind of businesses?
Majority of the comments dislike this. Surprised more aren't disliking the video. We cut our primary monthly living expense in half switching from a nice rental apartment to a fixer upper house.
I have made money on real estate always, but never in the stock market. And seriously paying someone to manager your own money? Lol! A broker charges you up to 6% to manage your funds win or lose....
That's why you get a self directed investment account and buy index funds.
Here is how to make money in the stock market without an advisor (free of charge): 1) buy SP500 ETFs (SPY/VOO) 2) purchase shares over time as you can afford (dollar cost averaging) 3) continue 1 and 2 and wait until you are rich. That is it.
He's not telling the whole story and he is leaving a lot of important points about home purchase out. To make blanket statements about purchasing a home that apply to all purchases is very misleading. He is an investor. What does he want you to do...invest in the market or buy a house? So what about that the house payment stays fixed for 30 years while rent goes up? What about tax deductions for interest paid and property taxes paid? There is no tax deduction when you rent. What about home improvement and repairs to the home as tax deductions when the house is sold? What about the equity in the home out-performing the stock market in many areas of the country? What about inheritance of the home to your children when you pass? There is nothing to inherit when you rent. What about re-financing the home to a lower monthly payment in the future when the mortgage balance is lower and interest rates are lower? Ask a landlord to lower your rent...LOL. Where do people invest when the stock market is down?...real estate. I've probably forgotten a few other points. Stock market returns can be great when the market is bullish, but to say that purchasing a home is a terrible investment is ridiculous. Smart people invest in both.
When you rent a home you are paying for all of them added on
Exactly, otherwise, where else is the profit
No true at all. Market determines this, not the landlords cost. Dont believe me? What about old landlords who paid off their rental unit and pay lower prop tax than young investor? He can undercut your price and they will rent from him instead.
Look at the mortgage + property tax you are paying, compare it to the rent in your area. If they are almost the same, it's a great investment.
Right my landlord wants to go up in rent to $2045 a month plus we pay all utilities including hot water and heat!! My mortgage may be around $2100, what u think is best?
This is not a complete picture. Am I to believe that you paid $0 cash at closing to get into this property? Amazing that all homeowners forget about the King's ransom cash at closing. That was real money you spent there.
I don’t agree with this geek
Same
Based on the number of real estate geniuses here I guess I'm the only one but both were a terrible investment for me. In 2000 I put the max in my 401k and bought a house. In 2008 I couldn't have sold my house for half what I paid for it and my 401k had dropped to half of what it was in 2007. Staying in my apartment and going to the casino every weekend would have been a better investment. In 2019 my 401k is back to what it was and I could break even on my house. So yes a terrible investment if you are hoping to break even in 20 years.
Thank you! At least someone is honest. In 20 years, you are guaranteed to double your money if you buy Treasury EE bonds. RE? I wouldnt be so sure. When you consider the high outlay (cash at closing, maintenance, etc.) then I would be surprised.
Hmm save the $2500 a month? How about the property appreciation of $400,000 of the property value?
Sure you can get 8% returns on your $2500
But you can also get 2-5% on $400,000 year over year.
Rent will always go up. If you have a fixed rate mortgage, it will stay the same and eventually be paid off.
Taxes and interest is a tax deduction
Every post like this is an oversimplification of the realities of buying real estate for most people. The truth is that you pay a King's ransom to get into a house at closing. This is already a massive opportunity cost that decimates most average people's cash flow position and takes away many future dollars made through investing in index funds and other stable and high yielding assets.
@@matthewphillips5483 not if the closing costs are covered by the seller or the lender.
houses tie up too much liquidity if you're young and don't have a ton of cash. stock investing is nice because you can pull the money out much more easily than the equities in your home
Exactly. Cash flow is most important thing. Who cares about wealth that cannot be accessed?
DO NOT LISTEN TO THIS MAN. My parents bought their first home for about 129,000. Value of the home is currently 220,000. Yes you are paying a monthly mortgage but that is bringing down the principal balance owed. After 7 years of ownership they owe about 85,000 if they wish to sell the house they they can easily walk away with 100,000 after all closing fees and etc fees
Thus, it was a great investment for them.
Also in 7 years of ownership cost of maintenance was roughly 5,000. Take care of your property from day one and it’ll be a great investment
Marvin Giri why do people post the most pathetic roi? Ok, how about you factor in interest costs, acquisition costs, selling costs, taxes, insurance, etc? Then you have to factor in inflation over those seven years. I think you’ll find your parents did poorly while in that seven years their down payment would have returned far better.
I think Wall Street is out here trying to convince people that renting is the way to go. If a home rents for $2500 a month, chances are that owning the same house might only cost you $2200-$2300 a month with taxes and insurance included. The person and or investment company that owns that rental will never eat the cost of increasing taxes and insurance, the renter pays it. Just like in California when renters vote for bonds, “code words for higher taxes”, they scratch their heads wondering why their rent went up. Renters are a gullible bunch, believe me, I was one of them back in the days, but after renting for so many years and never getting anything back really sucks. I’ve personally found buying to be better cause at the end of the day you have to pay someone somewhere to live in a home. Might as well get something out of it rather than nothing at all.
So, instead of buying a home, just sell it to someone who will rent it to you for less. Genius
You might think this is funny but it happens all of the time in CA.
You have to consider the motive of the person making the video. In this case, I was referred to this video by someone who said, “here’s an alternative view on owning a home.” I thought to myself, “it’s probably an investment manager making the video.” Sure enough, I was right. Obviously, he has incentive in convincing people that their money is better off invested with him than in a home. That doesn’t make what he says untrue, but it’s definitely something to consider.
Mate, the thing is that there are far more people who try to convince you buying a house than buying stocks. Haven't you figured out why yet? Apply your own logic, you smart ...
You dont need to invest with him. You can simply invest in SP500 and Treasury I-bonds and do far better than buying a home. Run the numbers yourself if you dont believe it.
Home purchase is not supposed to be an investment. But you still need to have an insurance against inflating housing cost.
Buying or loaning? There's a difference. Ask people from 08' to 10' who had to give up their homes.
Exactly. Owning a home is alright if you 1) purchase below your means 2) purchase in cash without a bank (no mortgage). Otherwise, it is a scam.
So easy for him to say when his pockets are full.
They got full from not buying a primary residence. :D
Bad video, wrong information.
A home is more than an investment...it is a way to lock in shelter for you and your family at a fixed price. When you rent, you are subject to unpredictable price increases and you may find that at some point you cannot rent equivalent shelter unless your sources of income keep pace with rent inflation. When you buy a home, if you go with a fixed-rate mortgage, what you pay in rent stays relatively stable (there is some variation due to property tax changes, but you will not find yourself paying 1.5x to 2x more to live in the same size accommodations in 10 years). Also, if you stay in the home (or rollover your equity when you purchase a new home after selling your old home), you will eventually pay off your mortgage - meaning you now have shelter for the rest of your life for only the cost of the property taxes (far, far less than rents in most cities). When most people retire, they need to have ways to dramatically reduce their living expenses...shelter for free because you've paid off your mortgage provides that. I'm all for sound investing, but in my opinion, your home should be considered mainly as shelter, not as an investment.
If you had a robust portfolio generating you passive income then you wouldnt be worried about retirement, would you? Primary homes take cash flow, they dont give it.
Most rent is higher per month than a mortgage payment with good credit.
Not in CA
Grant Cardone, finally they share your message. Don’t buy a home! Only if you have the FU money.
Rent where you live and own what you can rent!
I can't live in a Google stock.
If you took a 20% down payment for a home in the early 2000s and put it into Google stock at the IPO, you could have bought that home in cash now and still had many dollars left over.
I agree from savings perspective but what abt old age they can't change home regularly
If your portfolio has grown then you should be able to afford a modest home in a 55+ mobile home park in cash without spending too much of your investments.
It might be a bad investment today but my friend's parents bought a brownstone in bed stuy for 16k cash in the '60s and It's now worth $2M even with all the work.
If you purchased most equities in the 60s and held them, they would probably be worth more than that today. Imagine if you purchased Walmart stock even in the early 70s? RE is still not impressive.
My friends 3 bedroom 3 bathroom home is $1,800.00/month. 1 bedroom apartments in our area are about $1,600.00/month. Rent keeps going up. In 15 years that home will still be $1,800 a month but an apartment will probably be over $2,000,00. Then in 30 years when the home is paid off you just pay taxes at probably $600/month while renters are still paying like $2,500/month in rent. How is that not an investment??? Also what if you live there for a few years and then rent it out and go back to renting. Isn't that an investment? This video doesn't make sense.
Elizabeth Bartley all you’re talking about is inflation. The home ownership costs after the mortgage is paid off will go up too due to inflation. You need to look at the opportunity cost lost by that down payment not being invested. If your friend looks at how much their home actually cost them in interest alone it probably is the same as the initial price. What the guy is saying over time your portfolio will be larger than someone who bought a home. A good portfolio will also include dividend stocks which will pay you monthly. A large enough portfolio will pay you back to pay for your rent and or monthly expenses.
You should never buy a 'home' with the idea of using it for investment. A 'home' is a normal cost of living, just like a car. It costs money to live so don't get the two confused.
someone speaking sense at lastttttttttttttttttttttttttttttt thank youuuuu
If you rent in Brooklyn for 2500 chances are you will not buy a home in Brooklyn. You also get back the principle that you have payed for the house for the amount years you have lived there. With rent you dont get back the rent. In many scenarios buying home is better unless you choose a dying neighborhood and overplayed for a home. This video has other intentions.
Who cares if you dont get the rent back? You take all of the money you saved on a down payment, closing costs, and junk fees and put it into cash flow generating investments. Also renters pay less for insurance (renter vs mortgage), less for utilities on average (rentals are generally smaller), and less for repairs ($0 for renters). Even the raw payment every month is less for renters for the first 7 years or so in most markets (if comparing two comp homes). The "principle" you get back is all of the cash flow you missed out on as a homeowner and the gains from the investments you gave up.
It looks like the guy is telling us how bad homeownership is from the comfort of his LA beachfront house. Doesn't inspire a lot of confidence.
Smh. Did you ever think a good portfolio will allow you to buy a home in cash without a mortgage? Plus that portfolio will pay for your monthly expenses in either profit made on the portfolio or by dividends or both.
This might be true, but for most Americans, it's the debt that's the killer not the home itself. We should put down 20 percent or higher , which lowers the monthly payment and and interest it costs you. If you have the cash buying almost every time is better.
If you buy a modest property and can purchase it in cash then it is a fine idea. Mortgage is for suckers; especially the 30yr fixed.
*As if renting is so secure. What then when the land lord raises the rent? Sells the property and you have to live further away from work and school and search for another rental in a possible down economy? What about when an unforseen emergency occurs and you want to pull equity out... Oh, you can't...*
lol, this is a weak argument. As for if my landlord raises the rent, I treat it like I do when deciding whether to renew my Netflix: I either pay the increase or I move along elsewhere. It isnt a big deal to me. As for "unforeseen emergency", this is why I don't want to buy a home. I keep my "equity" in the form of liquid investments that I actually own and don't borrow (debt) against my assets. Paying back money with interest is a losers game and a poor strategy. Imagine how much "equity" you would have if you had invested your cash at closing into indexed funds and keep all of that money liquid? You wont go broke from an emergency, trust me.
Right so let me rent for the rest of my life and give my money to someone else.
Exactly smdh
I think of rent as a "convenience fee" so I dont have to sleep in my car. I love being able to invest knowing that if the pipes burst, the roof leaks, or the foundation cracks then it is a big cup of "not my problem."
A residential property's utility as a Financial Instrument is inversely proportional to it's utility as a Habitat.
This is poetry. Beautiful.
Yes !, buy a home is the worst investment !, is better to invest in diversified portfolio , you will make more money in a business , company or investing in your own country in properties for rent ; this is the big mistake in the USA , you will be broke , if you purchase a house to live , remeber taxes , condo association , insurance , repairs , you will be on debt your entire life !, and you get old and bank will take over if you don't paid !, and then bankcrupcy !
The last thing I want to do is trust a money manager with my money.
How about a low fee mutual fund like what Vanguard offers?
@@dosadoodle you are on the right track, but there are more to do.
@@Dosflamingos What's the alternative that you prefer?
@@dosadoodle I do algorithmic trading with buy and hold as a base using Python. I use Vanguard and iShare and SPDR.
@@Dosflamingos Alright, I'll stick with Vanguard. Thanks for sharing!
[not shown portion of the video]
Interviewer: So how many homes do you own?
Guy: Uh... 2
You can buy a home outright with a solid portfolio. Please do continue making the banks richer with paying that front loaded interest mortgage payments.
Probably 5 or six
@@sharinglungs3226 Say you fund a portfolio for 30 years vs. paying a mortgage. After 30 years, in one scenario you'll only be able to buy a home if the portfolio value is worth whatever a house 30 years from now costs. In the other, you'll have a home free and clear along with added appreciation of the property
@@darcylicious22 I am quite sure the portfolio will be worth far more than the house.
It is a terrible investment because that land is not for you. It is for the next less expensive laborer to rent. We HAVE nothing in this country. This video is actually advocating investing in the stock market over trying to own your own home. Just take a second to consider how topsy turvy that is.
it depands in what country you live in. In Indonesia, I bought a house for 50 K usd, within 3 years, I sold the house for 150 K Usd
It works that way here in America too. I've bought and sold 3 homes already