Financial Expert on Why Buying a Home Is a Bad Idea
The kind of guy to make a lofty statement like that and then follow it up with an extensive and pretty good argument as to why he's even bothering to say it, clearly can go on and on about such advice. So AOL him up at home in his New York state rental home for a chat:
People have a hard time accepting the idea that buying a home is a bad idea and that renting is actually smarter. Besides ticking off real estate brokers, this is also critical of the American dream. What do you say to the continued naysayers?
James Altucher: It's simply a bad investment because it's not liquid. You can't get your money out during hard times. It's an investment where you are not diversifying yourself. Buying a home is
the biggest part of your portfolio, like 80 percent. You can leverage a stock 2 to 1; you leverage 5 to 1 with a mortgage. People tend to put the lowest down payment, so it has every quality of a bad investment.
Can you explain how stocks are a better investment than owning the place you live in?
Historically, housing doesn't out perform the stock market. You pay a dividend to your home. You don't have to pay dividends with other stocks. You pay maintenance on you house and all these other expenses. You have all this work you have to always do on your investment: mow the lawn, shovel the snow. People are constantly spending money to maintain their house and they don't count those hidden costs.
If you really believe housing is a great investment, you can buy housing stocks, stock that relate to the housing market. But owning a home just isn't a good investment. Your cash is completley gone. The closing costs, the maintenance, the taxes. People who say when you own a house you aren't affected by inflation, but that's wrong. Property taxes go up. When you're renting you don't put money into a down payment. That can be $100,000 gone. But if you're renting you still have that $100,000 in the bank and you can buy stocks with it and start a business with that money. It's still working for you and can be liquid easier than when it's gone forever. Plus, the average American moves every five years, and that definitely doesn't pay off.
What are some good home stocks to buy?
Home builder stocks. There are stocks that track the price of a house you could buy if you believe housing is a good investment. Lennar is one....REITs [real estate investment trusts] track residential housing. I think housing is a good investment right now as a stock. I believe in those stocks and I think those stocks will go up.
It's a smart way to think about renting when you say the landlord, the super, the Sears delivery guy all work for you.
It's much easier to deal with a broken dishwasher if the landlord has to fix it. If there are five inches of snow outside, your landlord has to shovel it. But when you own a house and there's a leak and your basement floods, you have to get the shovel and the bucket. There is a lot of stress in owning. You have to work on things and pay for things and dedicate your weekends to this stuff. Your rent the becomes an enormously valuable investment because it's fixed and has maintenance included in everything.
It's easy for you to say don't buy after you yourself have previously bought, do we all need to learn the hard way?
My hope is that my arguments are strong enough that people will realize that I am correct without having to go through the hard experience. I have 2,000 emails from people telling me how much they agree with me and wish they'd known. I think people are ingrained with the American myth and the American religion. That everyone should own a home and everyone should go to college. That's American mythology. It's a scam. Corporations wanted their employees to be trapped and close to them so they encouraged them to own homes. Then the corporations could hire new people as new adults are created and grow up. People who own homes can't pick up and leave jobs if they want. Renting gives you more flexibility with the kinds of jobs so that way then your income can be higher because you have options. Not having ownership of a home you have power and choice over the employer and corporation.
So buying a home means your buying into American mythology?
Corporations and banks all want you to own homes because that is how they make money. So they spent a trillion dollars on marketing homes as part of the American dream. They need all that money and have to advertise as much as they can that home ownership is the way to success. Fannie Mae and Freddie Mac is the government helping the corporations with that. Now more people own homes and now people are miserable and foreclosed on. It's all a circle. Even if housing is a good investment, I won't participate in the scam again. I believe you can rent in any part of the country and I don't believe it has to be tenement housing. You just have to look hard.
Would you ever suggest DIYing on the lawyers, title insurance, and moving costs to cut out that 2 to 3 percent spent?
Don't do it yourself. You could get in trouble that way. And it takes too much time and effort. My overall goal in life is to not have stress and my second goal is to help people not have stress. The American religion is against that. Remember, you want cash in bank and more opportunities and to be flexible.
But owning a home allows you to buy make your home your home. You can knock down walls, build a pool, etc.
Well, remember zoning prohibits you from doing almost anything you want to do. It's hard and stressful to get that and sometimes they say no in the end to the pool and growing or knocking down the tree. They reject you and then they raise your property taxes!
What about when people say it's smarter for them to own a home because they make too much money and they need that tax write-off?
When you match that against the increase in property taxes and maintenance costs. When you match all these things, that savings in taxes is just part of the mess. The meager savings on the taxes you get to write off, the interest savings on your mortgage is all offset by raised property taxes and maintenance costs and the time and stress it take to maintain the house.
So what about second home ownership?
A lot of people like to do the second home thing. But why would you take a vacation in the same place for twenty years? You still will have the stress of owning a home there. You have to maintain it the whole year. I think second home ownership makes far less sense than first home sense.
Does all this still pertain to those with children and are seeking stability?
I have kids, also. Kids dont know whether you own or rent. Kids are fine with change. You can rent in the same place for twenty years. That's just an excuse.
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