Why I Would Rather Shoot Myself In the Head Than Own a Home

tila

I only had one friend in MySpace when I joined in 2005. “Tom”. In fact, all 100 million people who had joined MySpace had one friend. “Tom”. He welcomed us all to our new cyber home and made us feel as comfortable as possible there. “Tom” is Tom Anderson, a cofounder of the MySpace, the first member of the 100 million community and automatic friend to everyone who signed up.

So, through a strange set of circumstances and coincidences, that very same Tom just emailed me. A great crime had been committed against me and Tom Anderson, my first friend on MySpace, wanted me to know about it.

Somebody had disagreed with me.

Tom sent me a link to a site, “realtytrac.com”

He wrote me, “Btw, saw a rebuttal to your home-ownership article today that I thought you might be interested in:” Here’s the article he’s referring to.

Someone named Rick Sharga wrote a column there arguing against my recent column: Why I would Never own a Home Again.

(Tila Tequila, the most popular person on MySpace)


It took Rick only about four lines to insult me which shows he doesn’t read my stuff very closely. He said I would probably recommend that people buy “stocks” or my “fund of funds”. In other words, he’s suggesting that the only reason I could have an opinion is out of complete self-interest. I guess in most cases that’s how the world works, which is a shame. I have no self-interest at all in this opinion. I want to help people.

My theory is that complete honesty frees me from the shackles that bind me to stress, anxiety, financial insecurity, spiritual insecurity, and so on. Most people who read my blog think that I’m almost sabotaging my self-interest by revealing all that I do. In fact, its the reverse. My self interest is freedom in my head.

For instance, in contrast to Mr. Sharga’s opinions on my self-interest, I recently wrote a column: 10 Reasons You Should Never Buy Stocks Again. And, I also happen to think most hedge funds are scams and would never run a fund of hedge funds again. So, all self-interest is out.

(the classic white picket fence)

I legitimately believe that people would be happier if they don’t mortgage their lives away, if they don’t fall into the myth of the white picket fence leading to happiness.  If they pull themselves away from the American Religion and find their own path to follow.

So Mr. Sharga starts off already being completely wrong by misrepresenting me to his readers. But that’s fine. People seem to do that all the time.

Next he makes his argument with another highly intelligent point: “

The context that Mr. Altucher lays out is actually more hysterical than historical. The notion that homeownership was some sort of deep, dark conspiracy foisted on innocent rubes by diabolical business owners to keep them permanently grounded (and therefore, unable to escape their low wage, dead end jobs) is just pointy-headed nonsense.”

I do not have a pointy head. Its more block-headed. But, it’s a fact that many early factories would often provide housing for their employees and then charge them for the “rent” and deduct it from their salaries. This was a standard technique only 100 years ago. Often employees would get in debt to the factories, keeping them, in fact, “grounded”.

(I don't think I have a 'pointy-head')

Lets get even more hysterical. Lets look at the trillion dollar banking industry. This is the best business in the world, until it isn’t (2008).

How do banks make money? Very simple. They borrow from you at cheap interest rates and then lend to you at higher interest rates. What? How do they do that? Well, when they pay you 0.5% on your checking account its as if they are borrowing from you at a very cheap interest rate. When they then turn around and give you a 6% mortgage loan, they are lending to you. They make money on the difference between the 6% and the 0.5%. It’s a great business and I often advise people to become the bank when they have that opportunity.

It’s such a great business, in fact, that banks have spent 200 years drilling it into us with billions in advertising that the “American Dream” is to own the white picket fence, the paved driveway, maybe borrow more to make an extension to the house. Put in a swimming pool. Tear down some walls. Nobody can ever kick you out. You’re not flushing your rent down the toilet. You’re owning! You’re keeping up with the Joneses (the most successful, yet mysterious, family in American mythology, that we all have to keep up with. What happens behind closed doors when the beatings occur, when little Bobby Jones cries himself to sleep, the Joneses will never tell us) At least, in 30 years you will own. But at least you’ve fixed in a mortgage rate so inflation won’t kill you. And having your own home means you now have “roots”.

As Mr. Sharga says: “Simply going back to the beginnings of the U.S., the concepts of “wealth” and “land ownership” went hand-in-hand.” I guess that’s true. I can’t find it in the Constitution anywhere but the man knows what he’s talking about.

He also states: “going back to medieval times, the feudal lords basically were land barons; the serfs, the working poor of the age, were allowed to live on the lands in exchange for paying exorbitant amounts of money to the lords. However, much the lords decided to collect. Or you could leave (on your own, or in pieces). Sounds like a renter’s lot in life to me.”

(Serfs paying their feudal lords)

I’m a serf and always will be. I’ll never be a “feudal lord”. Fortunately, because of innovation, entrepreneurship, and the rise of economic growth throughout most of the world, the life of a “serf” right now is probably one million times better than any feudal lord could’ve ever hoped for back then. Here are some benefits of being a serf right now:

–          More cash. You never have to put down a down payment that uses up most of the cash in your bank account. You’re never going to see that cash again if you use it as a downpayment. It’s just gone into an illiquid investment and when you most need it, that’s when you are most likely not able to get at it.

–          Less debt. It’s true a mortgage locks in your payment. But you’re greatly in debt so you are paying interest straight to the bank that has nothing to do with increasing your ownership.  In many cases it will take 20 to 30 years before you stop paying that extra interest to the bank.

–          Less inflation risk. Property taxes often goes up faster than inflation whereas usually rent does not go up faster than inflation (by definition, since government calculated inflation uses rents instead of home prices).

–          No maintenance. Homeowners have to take care of all maintenance. Some years that might be nothing (unlikely) and some years that may go up much faster than inflation.

–          Less overall costs. When property taxes and maintenance go up faster than inflation it means you are probably not covering the costs (plus the mortgage) via renting.

–          More flexibility. In a global economy, opportunities can be anywhere. I like having my flexibility.

 

In other words, if you are a feudal lord today, you are laying out more cash than the renter/serf, and being caught in the spider web of escalating costs in every direction. Whereas the serf has only one payment, which is often contractually laid out for years (I have a contract that specifies my rent for the next ten years with my option to renew).

Which means that the serf can diversify his portfolio to a much greater extent than the feudal baron and the serf can more easily move to take advantage of opportunities in other geographical areas (as opposed to the serfs of medieval times that Mr. Sharga compares us to).

That downpayment that the feudal baron put out will only go up in value if housing goes up in value and its completely illiquid and usually a major part of his portfolio (little diversification). And he’s flushing money down the toilet with interest (which usually doesn’t go up with inflation), property taxes(which often go up faster than inflation), and maintenance (which goes up with inflation).  The serf is flushing money down with rent. But has more cash in the bank, a more diversified portfolio, and is generating liquid cash (hopefully) from other investments. Or has the cash to be an entrepreneur, move around to take advantage of other opportunities, etc. This (in my experience) more than makes up for the rent.

Some people, for their own personal reasons, like to own a home. I have nothing against that. Go for it. Just make sure its not because of the hypnosis provided by the American banking industry which props up the American Mythology.

Mr. Sharga gives a parting shot at me. I’m not sure why. I’ve never met the man. Nor am I saying anything bad about him here. Just commenting on his article. But he seems to know me pretty well to make generalizations about me and my personality: “For Mr. Altucher, the notion of homeownership seems downright scary. And he shouldn’t own a home. He probably shouldn’t own a car either — or a goldfish. He wants the combination of limited responsibility, someone else “taking care of things,” and the ability to move to Sri Lanka on a moment’s notice. And he wants his investments to all be liquid (so maybe I should re-think the goldfish part).

He’s  absolutely right about all of those things. I would never own a goldfish (disgusting) and I lease my car (well, my wife does. You need a license to own a car). And I love the fact that I can move to Sri Lanka at a moment’s notice although I actually really like where I live right now. And owning a home is downright scary to me. Leveraging up 400% in an illiquid investment with no diversification is a scary concept to me and should be to any rational person.

I don’t like to quote people without their permission. But I’m grateful Tom Anderson pointed out that article to me because I think the article misrepresents some of the things I said by implying I have self-interest attached to my opinion (I have zero). Tom has already experienced great success as an entrepreneur and will continue to do so. As he states in his email to me: “The fact that I’m finding articles on realtytrac might give you some idea of what I’m up to.”

Tom Anderson is going to succeed at whatever he sets his mind to. As for Mr. Sharga, I’m going to give him constructive criticism. He shouldn’t try to bring me down (“self interest”, “scared to own a goldfish”,  “hysterical”, etc) to make his point. That’s bad writing in general. He should read my “33 Unusual Tips to Being a Better Writer” and the next time he lays out his argument I’m sure it will be better.

Will housing be a great investment? Who knows? There will be many great investments out there in the years to come. Innovation is not ending. A year ago nobody owned an iPad. Google is making cars that drive on highways without drivers, companies are curing cancer, and when I finish my teleportation machine things are going to get a lot better around here.

Last night my oldest daughter went to her first middle-school dance. She had a fun time and is sleeping late in her room. This morning, hopefully, the rain will stop because my youngest daughter is begging me to walk her to the river even though its pouring. I had an orange for breakfast and I still might convince Claudia to make me waffles. This morning, in my self-interest, everyone is happy in my house.

—-

Related Links:

Follow me on Twitter.

Is it bad that I wanted my first kid to be aborted. (I put this here as another example of my self interest)

10 reasons to never donate to charity (more self interest from me)

 

 

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  • Anonymous

     I thought you said to only have one (1) thing for breakfast? Orange and waffles are pushing it, right?

    Polite rebuttal. I don’t think anyone could fault you for your reasoning, and Mr. Sharga certainly takes some liberties for the sake of his audience. But he has a business to protect, and let’s face it, it’s probably pretty rough for him right now.

  • http://27183.myopenid.com/ Your Name

     Very nicely said.

    • Amitptel

      so no home
      no stocks

      so where does one invest? 

  • Andrej

    It’s not true that banks make money on the difference between the interest rates on deposits and the interest rates on loans. Banks make money from leveraging deposits at least 1/10, so from every 1000 dollars you have on your checking account, they create at least 9000 dollars of loans and then get 6 per cent on 9000 instead of 1000. It’s the same principle as trading on margin an it’s called fractional reserve banking. That’s the real reason why they love to give out new loans.’s the real reason why they love to give out new loans.

    • CptCook70

      …banks wish debt on everyone……debt slaves……

  • http://twitter.com/woongiap woongiap

    Don’t you have a family? How could you possibly have the freedom of not owning a house? 

    • http://www.facebook.com/people/Edie-Spencer/1476372604 Edie Spencer

      He can take his family with him. He can rent a good apartment in NYC and have his girls enjoy the very best cultural offerings of North America, all with a Metro card.

      My mom owned our home in Bed Stuy, and it was wonderful, but with hindsight it may have been less stressful for her to have a very large rent controlled apartment instead.

      • Diocletian

        Oh, right. It’s “less stressful” to live like a parasite at a landlord’s forced expense by his being forced by the local government’s rent control laws to accept an artificially low rent.

        That’s a pretty bloody despicable mindset you have there, boy.

        Rent controls are based upon the false premise that one has a “right” to housing, especially if one is elderly, or poor, or both. It implicitly regards the rental property owner as a slave to both his tenants and the government that imposes the controls. They demonstrates an arrogant lack of recognition and respect for a rental property owner’s private property rights, as well as a completely willfull ignorance of the destructive reality of the consequences of rent controls wherever they have been imposed.

        Rent controls create a disincentive to the property “owner” to maintain the property. You disagree ? You obviously never visited rent controlled areas of NYC and taken a close look at those neighborhoods, many of which look like war zones, and that decay and ruin is largely the result of rent control, not crime (although rent controls play a causal role in it).

        Rent controls create a disincentive to build more housing units, which causes the supply of such units to be artificially low, which, in turn, puts upward pressure on the rents in the non-rent-controlled housing stock.

        Your mother may have found home ownership stressful (although you don’t know that for certain); nevertheless, she was living there in a respectful, dignified manner because she didn’t live parasitically at someone else’s forced expense as she would have in a rent-controlled apartment.

  • http://twitter.com/woongiap woongiap

     Don’t you have a family? How could you possibly have the freedom for not owning a house?

  • RobbieO

    If anyone has their self-interest’s driving their opinions here it’s Sharga. Isn’t he as close to the housing industry (if not more so) than you are to investing James?

    • http://jamesaltucher.com James Altucher

      I hope everything goes up: stocks ,housing, etc. I think people will be a bit happier then. (Money doesn’t solve all of your problems but it solves your money problems). But I’m not necessarily close to stocks. And, I do give credit for Rick Sharga just doing his job with his rebuttal against me. He had to do it. 

      • Traderez

         http://www.flrainbow.org/TipiVillage/TipiVillage_files/pickup.jpg

        JamesA the only way to live if no kids are involved.

        in wi-fi campgrounds  ; )

      • Mary Kemp

        Everyone has been told to think that homeownership is good but a 1860 blackman in Georgia was told that his own slavery was good as well. The Established Order (aka, Slavemasters, Central Bankers and their Polititcal Terrorists.) tell you al sorts of goofy things in order to keep you enslaved and productive. The mindset of Mr. Sharga is the mindset of the indoctrinated Tribal/Statist slave. He resents those who do not want to be slaves. It’s Envy.

    • http://jamesaltucher.com James Altucher

      I hope everything goes up: stocks ,housing, etc. I think people will be a bit happier then. (Money doesn’t solve all of your problems but it solves your money problems). But I’m not necessarily close to stocks. And, I do give credit for Rick Sharga just doing his job with his rebuttal against me. He had to do it. 

  • Gene

    Boom.  Another great article.

  • Shmuli

     Well said James, Heads up your link to twitter are leading to other articles.. :) 

  • Steven L Goff

     “when I finish my teleportation machine things are going to get a lot better around here”..LMOA

    Look James…I told ya The Flux Capacitor…will be ready when it’s ready…now dont rush me!
    I just now have the time to dedicate to it’d further development….now that I dont have the burden of monthly rent (roof over my head) let alone a mortgage and rampantly rising property taxes to come in USA….because I negotiated “special and advantageous circumstance deals” w/ my landlord and am more creative in my thinking now w/out that burden.

  • Steven L Goff

    There’s a great book (one of my favs in fact) about removing the burden of debt/obligations/BILLS in a developed society to spur stifled creativity and growth and  a transitional leap in it’s intelligence level as a species. It’s the middle book of Schrodinger’s Cat Trilogy By Robert Anton Wilson “The Trick Top Hat”  People get bored (not at first but after awhile) of not having to go to work daily to eat or pay mortgage/rent or keep the electric and gas on. Creativity explodes exponentially in the society from say Bob and John being bored of having nothing to do. So the start tinkering/making the Flux Capacitor (that make time travel possible BTW)

    In The Trick Top Hat, President Hubbard, a woman, promotes a scientific approach to the improvement of life, offering rewards to anyone who can design a robot/machine to do their job or develop methods to prolong life. Eventually Unistat becomes a Utopia. She makes the whole law system into three different laws: victimless crimes, which have no punishment; crimes against property, which involve debt and payment; and serious crimes, such as murder, which result in being sent to Hell, a place like jail but not quite. It’s encased in laser shielding and is like a primitive world all its own. It is, in fact, the State of Mississippi. The original Pocket Books edition of The Trick Top Hat contains many passages, some sexually explicit, that are not included in later editions, including the Dell softcover. Much of this material first appeared in Wilson’s earlier novel, The Sex Magicians, published as pornography by Sheffield House in 1973.

    http://en.wikipedia.org/wiki/Schr%C3%B6dinger's_Cat_Trilogy

    • http://jamesaltucher.com James Altucher

      Wow, sounds interesting (the trick top hat). I’m going to check it out. 

    • http://jamesaltucher.com James Altucher

      Wow, sounds interesting (the trick top hat). I’m going to check it out. 

  • http://twitter.com/karthickk Karthick Kalidoss

    What do you think abt Buy vs Rent calculator ? I think it makes sense to Buy when the calculator says so. http://www.nytimes.com/interactive/business/buy-rent-calculator.html

    • http://jamesaltucher.com James Altucher

       It doesn’t take into account all of the other costs I mention. 
      It doesn’t take into account the stress. 
      It doesn’t take into account the opportunity cost. 
      It doesn’t take into account the value of having liquid, diversified assets versus illiquid assets (and there is a real quantifiable cost to that). 

      And I say all this without even looking at it. 

      • Michael

        Actually, it does take into account maintenance and renovation costs (not sure if those are the “other costs” you mean).
        It does take into account opportunity cost.
        Look at the advanced settings for people who are interested in setting the details of these different from the default values.

        It’s true that it doesn’t take into account stress or liquid vs illiquid assets, but an accompanying article did mention these subjects.  It also mentions some of the things people like about homeownership that you aren’t so hot on.

        I don’t necessarily disagree with any of your main points, but this particular rent vs buy calculator is at least really well done.
         

    • https://jarvisapp.com/ Jay Shirley

      I just plugged in my own figures, and it said that buying would be better after 6 years!

      It’s a total lie. The amount of “better” at 10 years is still lower than the cost of repairs I’ve put in on this house and we’ve only owned it for 10 months (it was a foreclosure and was neglected, but a wonderful home).

      Having said that, I love my house and I love upgrading it. I love tweaking things, it makes me happy.

      I still agree with James, though. Most people should stop thinking it’s the only way. I work out of my home so was able to pick any location. We picked this area and bought with the timeline of 20 years and then will move.

  • Steven L Goff

    Side note : I wanna do bad and nasty things to Tila Tequila’s body…end note

  • Drippy

    Good article. I’ve also heard that homes are not a good hedge against inflation. Because they are so highly leveraged, any rise in interest rates makes them less affordable and drives down prices. I haven’t heard this from many people. Does this make sense?

  • Drippy

    It was very nice of you not to say that Rick was a shill, which he is.

    • http://jamesaltucher.com James Altucher

      Everybody has to make a living, though. Rick at some point in his life has fallen in love with homes and has devoted his life to it. He probably didn’t mean on purpose to come across that way but I just think his style could’ve been improved. 

    • http://jamesaltucher.com James Altucher

      Everybody has to make a living, though. Rick at some point in his life has fallen in love with homes and has devoted his life to it. He probably didn’t mean on purpose to come across that way but I just think his style could’ve been improved. 

      • Sooz

         I thought that Realty Trac was a scam some time ago?
        They supply Trulia, yahoo..etc with foreclosure info also charging/monthly to prospective customer’s(most often not updated or redundant info). Not to mention, needing a law degree to read between the lines, the false dollar amounts placed along with bank owned properties, when in fact those prices reflected what was owed in liens(alone) and not the purchase price of the defaulted home..

        How much money has Mr Sharga made as RealtyTrac’s Chairman and CEO  since October 2000?
        (talk about alterior motives)

        • Sooz

           edit:
          meant to type ‘Altucherior’ motives!
          WTH is up with that..:))

          • Sooz

             btw:
            I use to have a nice amount of equity in my home back in 1999~2000(that was when ‘we’ hit bubbletime in the ‘Burbs’ where I reside).
            Someday,  I will sell this beast and move far~far away(from ‘Richville’) where life is simple and stress free.
            Maybe that’s just a dream, too.
            I’ll keep you posted.

  • Ljnes1

    People like James should be in the running for the Nobel Prize.  Does anyone have any recommendations for other blogs that they like?  This blog destroys all others on my list.

  • http://twitter.com/HGhouleh Hussein Ghouleh

    the fact that u have mentioned his name gave him more readers lol. but then again, the guy needs to protect his business i guess. and is not exactly fair or convenient to mention his name alongside entrepreneurs such as your self and Mr. Tom.

    but then again, maybe he learned something… all profs to your good well im sure :-)
     

  • http://twitter.com/HGhouleh Hussein Ghouleh

    and the concept of buying a house, is not only related to financial reasons. i surly dont want to know that in 20 or 30 years, this is the place i am going to end up in… especially not after being reminded of that at every installment i pay to the bank.

    by that time, i believe I am going to be hating that house :-)

  • http://www.kennyshen.com littlemog

     Goldfish? That made me laugh so hard first thing this morning.

  • http://www.fourpillars.net Danny

    > “I have no self-interest at all in this opinion. I want to help people.”

    This is still a kind of self-interest, James.
    Wanting to help people.
    Why this “want to help” ? Trying to feel better about your-self?
    I have been in that boat too, and I now call it ‘helper’s disease’
    One day I sat down and had some reflection on my helping ways.
    How does it feel when somebody else tells me that he is ‘only trying to help me’?
    Well, it is rather condescending.
    What makes that guy think he can or should help me?
    And what makes him think I need or even want his help? I didn’t ask for it..
    So I came to see that ‘wanting to help’ , when it is unasked for, is actually a subtle form of arrogance.
    It is self-interest.

    • http://jamesaltucher.com James Altucher

       Danny, I don’t know what to tell you. Nobody is forcing any help on you. Nor am I doing anything but just stating my opinion (and, in this article, responding to a rebuttal against my opinion. Something I have a right to do here). I think this frustration with “helping ways” might come from your own experience with it. Maybe just hold you wife and hug her for a little while. 

    • http://jamesaltucher.com James Altucher

       Danny, I don’t know what to tell you. Nobody is forcing any help on you. Nor am I doing anything but just stating my opinion (and, in this article, responding to a rebuttal against my opinion. Something I have a right to do here). I think this frustration with “helping ways” might come from your own experience with it. Maybe just hold you wife and hug her for a little while. 

      • http://www.fourpillars.net Danny

        James. I was not saying that help is forced on me.
        Just trying to point out that your “wanting to help people” is an attitude that rarely comes without ‘self-interest’. 
        I was not frustrated with ‘helping ways’, just came to see that putting myself up as the ‘helper’ with others down there as those in need of (my) help, that’s just not a very respectful way of looking at others. Who am I?
        And by the way, the ‘go hug your wife’ comment is also rather condescending, no matter how carefully you formulate it.
        But I guess you were trying to help again.. 
        That’s what I mean by ‘helpers disease’.

        ‘Stating opinions’ is a more balanced attitude. Everybody is entitled to have one and communicate it. So it is non-hierarchical in nature.
        ‘Wanting to help’ is hierarchical, as the helper stands above the helped.
        That’s one of the reasons why our so-called ‘charity’ is not always as nice and good as it looks.
        That’s my opinion.

        • Jeanne

          I disagree here Danny.  Help is not always hierarchical. Helping with the expectation of receiving something in return is hierarchical and unhealthy in my opinion. I don’t see James doing that, however I don’t know him personally, so maybe he is. If he is, it will show itself in a form of resentment toward his readership at a later date. I’ve seen that happen. It’s very interesting. Perhaps some day James will write a post calling us all a bunch of ungrateful little bastards and I will be proven wrong.  But, I really don’t think that will happen. (I do think it would be very funny, though.)  A non-hierarchical form of helping is helping without strings attached. From my perspective, James has discovered that there is a need in our society for people to change their thinking and reduce their stress levels. I think many people are asking for a solution to stress. In fact over 18,000 people per month perform a google search asking “how to reduce stress”. Maybe you’re not one of those 18,000 people, but I’d wager a guess that those are the people James is talking to. Wanting to help is not a bad thing when you are clear about your motives and practice a little self awareness. Helping without strings attached is healthy behavior, in my opinion, and that’s what I see James doing here.

          • http://www.fourpillars.net Danny

            Jeanne.
            Well, at least you seem to agree that not all “wanting to help” is ‘pure’, some is coming with strings attached. It is not always without self-interest ( and that self-interest need not be something material ). 
            I don’t claim to be able to look into James’ mind (or heart) either. All I was saying is that “wanting to help” is not automatically without self-interest.

            If people ask for help it is a different thing.
            If they are not able to ask (e.g. unconscious) it is also a different thing.
            And letting people know that one is ready to help when asked, that is OK too.
            But helping unaskedly can be very arrogant, and a trespass into another person’s life.

          • Wil Brawley

            Danny, what does it mean that you can’t let this go and move on?

          • http://www.fourpillars.net Danny

            Hi Wil,

            Pure ‘self-interest’, of course.
            But I didn’t say there is anything wrong with ‘self-interest’.

            When you have people who talk about doing things without any self-interest, just wanting to help others…, then I am always at least a bit : really??
            That always sounds like a great example of “holier than thou” to me.

            So, why I am still responding to comments here?
            Well , why not?
            Are we supposed to move on as soon as somebody disagrees with us?

             

          • Drippy

            Danny, I agree with you to a point. A lot of charity is condescension. I’m helping you out. I’m better than you. You should be thankful to me. It’s a way to assuage guilt. Donating time is better than donating money.

            I think large charities use this superiority complex as a way to gain more donations. That’s why I don’t donate to any charities at all. Living in a competitive society, there will always be those which are better off than others. As for really helping those who need it, Costco has done more to help “the poor” than any charity. 

          • http://www.facebook.com/jmichaeledwards Michael Edwards

            James, I find your blog very helpful. I need your help. I appreciate your help. Thank you for helping. Please continue to help!

             

      • http://sovereignspeculator.com SovSpec

        James, from 1966 to 1982 the Dow went through a rollercoaster but finished where it started (around 1000) as the price level tripled. In real terms, owning stocks was a 75% loss during that phase of inflation. Same thing from 1907 to 1921 – the Dow bounced around 50-120 for more than a decade although there was high inflation in the ’10s. 

        The great bull markets of the ’20s and ’80s-90s started after inflation subsided. 

        Simply holding T-bills or TIPS is a decent way to preserve buying power without the risk or volatility, since interest rates tend to move with inflation. 

        As for gold, a study of 400 years of data by Roy Jastram concluded that gold has done better in real terms during deflations than inflations (even without a gold standard). Just look at gold’s loss from 1980 to 2000 as the price level more than doubled. 

      • Gary_UK

        Nice bit of JA obsfucation again, very subtle, but well spotted by Danny. 

      • Gary_UK

        Nice bit of JA obsfucation again, very subtle, but well spotted by Danny. 

    • Irishgirlsusie

      Danny,

      I didn’t get what you were trying to communicate until I read some of the responses you made to the other posters comments.

      But, I think I get it now.  It’s like the guy/girl who always winds up dating someone they need to “fix”.  We all know it’s not because they can only find “broken” or “screwed up” people to date.  It’s because they get something fullfilled within themselves when they “fix” the other person.  

      I don’t think this helper’s disease, as you call it, applies with James.  Not always when one shares ideas does it mean they are doing it from the place where it’s been done because they think they are so much smarter than everyone else.  I think James shares his ideas and experiences as a way to provide a perspective outside of what might be considered the traditional way of thinking. 

      I was always raised that home ownership is the way to go.  I’ve never once heard anyone challenge this idea prior to the recession.  I wish someone would have!  I am trapped here in a crappy economy in Michigan with a house I couldn’t sell without loosing my shirt on.  Yes, I did put down over 20% when I bought my house 10 years ago, but with our recession being so deep, it hasn’t mattered as the values have plummeted so badly. My only saving grace is I’m still employed and make a decent living.  Too bad I hate my job.  I can’t move because I can’t sell my house (yea, I could try and rent it out), can’t quit, can’t find a new job within the state, etc.  Crummy situation. 

      But, I like owning a home.  Except for the hillbilly neighbors on the one side of me.  I’m a girl though, we like to nest.  Now, if I could just find a guy to nest with, I’d be all set.  Too bad I don’t like being tied down in a relationship.  Maybe someone will come along and help me with that problem!  :-)

  • Anonymous

    James, I agree with you 100% but I still understand why many “rational” first-time-buyers step onto the first rung of the “property ladder”.
    If you firmly believe in inflation, which most people do over a long enough time period, say 20-30 years, then buying a house is a hard-to-beat investment.
    You “know” that you house will be worth more at the end of your mortgage period than now.
    As a result you can put down say $50k with tremendous risk-reward characteristics.
    Sure you could lose the lot, if you can’t make the payments and get foreclosed, but who thinks about that when they are at the early stages of their career??
    On the upside, your $200k condo would be worth $250k in 5 years with just 5% inflation!
    You’re doubling your money.
    Then of course, you are earning more, and have a much larger deposit.
    So you move into a $500k Mini-McMansion – or equity release yourself into that poverty-spec Merc you have been coveting.

    For optimists the “investment” in a house is very hard to top.
    Unless you have a prime brokerage account at Morgan Stanley or  are happy trading options with your Schwab IRA getting that 400% leverage is tough.

    A money-doubling investment that has a very simple “what you have to believe”, namely long-term inflation, is a very easy sell.

    • http://jamesaltucher.com James Altucher

       Well, the best hedge against inflation is just owning a basket of stocks. And if you like housing you can buy a basket of housing stocks and use similar leverage by doing it via options. This way you get the positives of housing as an investment and not the negatives that I describe in the article. Additionally, some economists (i’m not one of thme) think that this next inflation will the things that we dont necessarily want to go up (food, oil) and not the things we need to go up (housing, etc). BUt we’ll see. But in general, better to own McDonalds if you are worried about inflation. 

      • Anonymous

        20 year options?
        Zero volatility cost?
        Simple?
        Low maintenance?
        Diversification? (Your IRA is already going into a basket of stocks, buying a house to live in is substantial diversification AWAY from that basket.)

        I think the key part of the argument is that owning a house ties you down and hence makes you less likely to move jobs even when you really should.
        Since, you James, subscribe so strongly to the “leave your current job” mantra, it is very difficult to advocate owning a home at the same time.

        As I said, I do believe that you are right for a great number of current homeowners. But for a not-inconsiderable minority, owning a home makes rational sense.

        Let’s assume the interest-only part of a 100% mortgage is roughly equivalent to the rental cost.

        1. Cash – you are getting a tax-free return of c.5-6% on your cash since it is tied up in a deposit on the house. Without that deposit you have a larger mortgage on which you are paying 5-6%. If you rent that cash is certainly more liquid and possibly at risk (in a basket of stocks) with no guaranteed return. Or sitting in a deposit account generating 0.01% or whatever.
        2. Less debt. This is just an accounting trick. Your off balance sheet debt as a renter is exactly equivalent to the on balance sheet mortgage debt. You still have to live somewhere and pay for it.
        3. Less inflation risk. Well yes, more risk on higher property taxes. But are they rising structurally faster than any other particular tax?
        4. No maintenance. The cost of maintenance should be included in higher rent, unless the landlord is irrational. Perhaps most of them are since they think that capital appreciation will swamp any minor 1-2 point annual delta on the lease vs. buy equation. I doubt it.
        5. Less overall costs. That argument again requires irrational landlords.
        6. More flexibility. I can’t argue with that. But it is probably FAR more valuable to you, than to your average Joe.

      • http://sovereignspeculator.com SovSpec

        James, from 1966 to 1982 the Dow went through a rollercoaster but finished where it started (around 1000) as the price level tripled. In real terms, owning stocks was a 75% loss during that phase of inflation. Same thing from 1907 to 1921 – the Dow bounced around 50-120 for more than a decade although there was high inflation in the ’10s. The great bull markets of the ’20s and ’80s-90s started after inflation subsided. Simply holding T-bills or TIPS is a decent way to preserve buying power without the risk or volatility, since interest rates tend to move with inflation. As for gold, a study of 400 years of data by Roy Jastram concluded that gold has done better in real terms during deflations than inflations (even without a gold standard). Just look at gold’s loss from 1980 to 2000 as the price level more than doubled. 

      • UraniumC

        or, if you like Real Estate as an inflation hedge:  REITS.  I use this one:  VGSLX 

      • UraniumC

        or, if you like Real Estate as an inflation hedge:  REITS.  I use this one:  VGSLX 

    • http://jamesaltucher.com James Altucher

       Well, the best hedge against inflation is just owning a basket of stocks. And if you like housing you can buy a basket of housing stocks and use similar leverage by doing it via options. This way you get the positives of housing as an investment and not the negatives that I describe in the article. Additionally, some economists (i’m not one of thme) think that this next inflation will the things that we dont necessarily want to go up (food, oil) and not the things we need to go up (housing, etc). BUt we’ll see. But in general, better to own McDonalds if you are worried about inflation. 

  • http://www.beatingdebt.org Eric

    Great post!

    Keep up the good work,
    Eric

  • razorsedge

    i like your ideas, have friends thats rent everywhere. as for investments they buy art. i bought into the housing market 2yrs ago after selling in 2006. i had the same feeling about renting u do. i was content to rent the rest of my life. them rents started to go up! and the housing market where i am got so low (like a stock that over corrects) i bought because it is cheaper than rent. including taxes repairs ect. but i plan to sell in 2 years even with the market down it will be a money maker for me. 

  • razorsedge

    i like your ideas, have friends thats rent everywhere. as for investments they buy art. i bought into the housing market 2yrs ago after selling in 2006. i had the same feeling about renting u do. i was content to rent the rest of my life. them rents started to go up! and the housing market where i am got so low (like a stock that over corrects) i bought because it is cheaper than rent. including taxes repairs ect. but i plan to sell in 2 years even with the market down it will be a money maker for me. 

  • Marc Hansen

     Home ownership isn’t for everyone. I didn’t borrow to buy my home – I bought it outright. It was cheap and a great value (only a few of hundred in closing costs), and yes, what I would’ve paid towards a mortgage is put into investments. Property taxes are cheap! I’ve rented about 20+ different apartments through the years. All of them were too small, too noisy and the rent always kept going up. I like doing maintenance, I like mowing the yard and I like shoveling snow. I don’t look at a house as an investment but as a place to live.

  • Claudia

     James, how come you did not write this post in 2003?… maybe you did… Should have met you earlier!  

    Owning a home was the biggest mistake I ever made, I completely bought into the dream, the American Dream, in 2004 I thought that I was rich because the banks were throwing money at me, even the real estate agent put 1000 dollars of her own money for my downpayment!

    So I believed only to end up fired in the recesion, with a huge mortgage I could not afford and having to sell at a lose before foreclosure.  I was lucky to only lose 10K (plus the 15K I put into repairs)… I am glad the neightmare is over…  

    I think the American Dream is different these days, and I am with you on the waffles and morning with the girls. That is it

    • http://pulse.yahoo.com/_HMC2LD7NVB62VQZBRTCW7MTXDQ R B

      Well, next time, don’t buy a house you can’t afford, moron. 

      • Jdeweyl2000

        Did you read she was “fired”from her job? Most of us could not afford our houses without an income, moron!

        • Jquick99

           she doesn’t write that she was fired from her job.  she does write that she felt rich, which leads me to think that some lender told her she could afford $xxx house…and she blindly took them up on that. 
           
          that said, only losing $10k on the house in nothing.  mine is still down 33%, i’d gladly take a $10k loss.  so… stop yer bitching.

          • Bob

            You’re an idiot. She did too write that she was fired.

  • http://pulse.yahoo.com/_W7DNYX3Y6RZK7JBRP5SYBYG4TE RockStar

    The most interesting part (for me) is that Rick Sharga’s article is out of self interest, and he claims yours is?  LOL

    Rick is clearly doing damage control and a poor job at that. 

    Until I can buy a home that’s dirt cheap to where it’s less than paying rent, I’ll stay a serf but it won’t be poor.

    Keep up the good work!

  • Rich

    I like your blog posts – like this one. But even more I like their endings.

    “This morning, hopefully, the rain will stop because my youngest daughter is begging me to walk her to the river even though its pouring. I had an orange for breakfast and I still might convince Claudia to make me waffles. This morning, in my self-interest, everyone is happy in my house”.

    James – that ending is poetic. I’m feeling the happiness through your words.

  • BostonCoffeeGirl

    I agree!!

    Two years ago, though, I wasn’t in agreement. At that time I was in my giant confliction on life.  I was 33, had a great job, loved the place I was in, but was unhappy. I wanted to flee – just like I had done every couple of years before that…moved on to a new place, new people, new adventures.  But, I loved everything of where I was.  Then I found it.

    The little HUD home – abandoned, full of potential, and a cute little brown picket fence.  Hey – it was almost the american dream. I’ll fix it up! I’ll have friends over! I’ll BBQ every Saturday in the backyard!  Maybe I’ll adopt a little monster.

    Here’s what I got – A house that (after $80K in renovation) was still falling apart.  All of my free time dedicated to fixing *something*. Debt. Lots of Debt.  I was always broke. I had to have roommates to keep up with the neverending heating bills.  I hate having people live with me. I’m so far behind on every damn bill ever made, and I feel like I never do anything fun.  Add to that – my credit is now screwed.  I went from “meh” to a couple months behind and “eww” credit.

    Until 27 days from now. A wonderful young family is buying my house. I had the fastest and easiest sale ever done – mostly because my goal was because of your Life Goals B & C. I wanted unhappiness out of my life and I wanted to do it without hassles. 

    I could have waited longer, argued more, bargained more, fixed the house up more – and made more money. But – I made enough to be completely debt free and take a summer off from my life and travel the country.  Well, three countries, 25 states, 14 ballparks, and a month on a beach doing….well….nothing.

    Buying the house was a happy accident – but I can never get back that two years of depression.  If I had it to do all over again, I’m not sure I ever would. But, I sure as HELL won’t ever do it again.

  • http://www.greaterseas.com Mike @GreaterSeas

    “I legitimately believe that people would be happier if they don’t
    mortgage their lives away, if they don’t fall into the myth of the white
    picket fence leading to happiness.  If they pull themselves away from
    the American Religion and find their own path to follow.”

    Buying a house isn’t an American Religion for everyone. It is very much possible to find your own path to follow and still end up happily buying a home. In fact there are a lot of great reasons to buy a home – you just have to adjust your mindset and expectations. If you don’t come into a mortgage expecting to make money then it ends up being a fun and rewarding purchase for your entire life; especially if you are able to pass the home (in good shape) to the next generation of your family.
     

  • http://www.greaterseas.com Mike @GreaterSeas

    “I legitimately believe that people would be happier if they don’t
    mortgage their lives away, if they don’t fall into the myth of the white
    picket fence leading to happiness.  If they pull themselves away from
    the American Religion and find their own path to follow.”

    Buying a house isn’t an American Religion for everyone. It is very much possible to find your own path to follow and still end up happily buying a home. In fact there are a lot of great reasons to buy a home – you just have to adjust your mindset and expectations. If you don’t come into a mortgage expecting to make money then it ends up being a fun and rewarding purchase for your entire life; especially if you are able to pass the home (in good shape) to the next generation of your family.
     

  • murali

     James,

    I like the way you end the post. I almost expect an off-beat ending. Brilliant. :)

  • Wil Brawley

    James, you make a very good case here. It’s obvious to anybody who reads
    your stuff that you are simply being honest and (often) saying the
    things that many people think but wouldn’t dare to say. Your honesty is
    refreshing.

    I’m curious your thoughts on renting in cities and towns that aren’t pedestrian-friendly like NYC.

  • UnhappyHomeOwner

     It is not so much owning a house a that is the problem. it is having a mortgage. Buying an illiquid asset with a 30 year note in which you dont get to pay the principal down significantly the first 15 years is highway robbery. Make it possible to buy a house with a 5 to 10 year note with an amortization that allows me to pay down the principal equally with each payment and then I might consider a house. The 30 year mortgage is a modern day slavery.  is a modern day slavery. 

  • http://twitter.com/JFinDallas JFinDallas

    Buying a house was by far the single worst financial decision I have ever made, and I trade stocks for a living so I make bad financial decisions all the time… Life was so much easier and cheaper when I was renting, I miss it…

  • CMS

    I was a full time Realtor for ten years, and only sold 3 homes. I stuck to property and asset management.  I never figured out how real estate sales people sleep at night. It’s disgusting to see them operate.  Their mantras: “this house will go up in value”, “this is best time to buy” . Even the Chief ‘Economist’, David Lereah, of the NAR wrote a book: Why the Real Estate Boom Will Not Bust—And How You Can Profit from It.   ‘Why the boom will not bust': what kind of economics it that? I can see (theoretically) how someone could trust a guy with the title of ‘chief economist’ but how and why they trust the average numbskull Realtor with a big chunk of change is beyond me.  Realtors as a whole are some of the most wacky, clown-like, business people out there.

     Even as a Realtor, I never owned a home.

  • http://www.736hundred.tumblr.com 736hundred

    I can’t believe that Mr. Sharga would want his name associated with that article he wrote. I mean really ?!….how old is he?

  • Bootdaddy

    Spot on Jim!  I was just having this conversation with a princeton wharton friend who has been talking me out of real estate pending my divorce. The historical average increase of real estate is 2%…so I assume that average in my decisions.
    I moved from 10,000+ sq ft house ex-wife and I designed to 2,500 little house right in town in NJ, both owned along with summer house. My 4 kids love the community aspect of my small home and generates “proximity” love for us when together. Less is more in houses with kids contrary to my past building folly!
    Likely will rent primary home when divorce final, own summer house (retirement place) and rent it to offset taxes and maintenance. This will give me freedom to move to NYC or Cali when kids are in college. In the meantime, dollars going into next start-up biz and high-volatility funds as my age is 43…
    The Joneses bit is very funny and has been used by marketers to flare up people’s ego and make them take the bait!

  • MikeyMcD

    Though I wholeheartedly agree with your thesis (I think home ownership is over rated) I found the use of suicide in the blog title to be in poor taste.  Your thesis and writing does not need cheap hooks.  

  • Ryan Mindigo

    James, I agree. I bought a condo in 2008 and am selling it right now. Even though I will probably sell it for the same price I purchased I know I have much less liquid cash now then I would have when renting. Between the mortgage payment, HOA, property taxes, etc.. owning property only makes sense in my view if you have LOTS of money in the bank and the purchase is a small dent. 

  • http://twitter.com/johneday John Day

    I wonder if the majority of those who have saved money by renting have more “cash in the bank” or not. While some properly allocate the savings to investments, I would bet that the majority do not.  It then becomes a question if the risk of being locked into a leveraged, illiquid investment outweighs the benefits of a terrible savings vehicle. Sometimes restrictive debt covenants in a LBO help the company. For those who need it, perhaps forced “savings” will help streamline their finances. 

    Naah … they will just need more debt.

  • Tom

    You live in an area with a large rental stock.  However, there are plenty of places in this country that don’t have nearly the amount of attractive choices for rental that Manhattan does.  It’s a practical point that I don’t think you covered in the article.

    You place a large emphasis on freedom versus “putting down roots”.  Many people place a different value or marginal utility upon those aspects of home ownership versus renting.  I know personally that I get a lot of enjoyment out of ham-fisted amateur landscaping (planting trees that have no reason to grown in my area, etc).  I would never do that in a rental, but it would be something that I’d miss.  I suppose I value having the freedom to do that more than I dread the inevitable calls to roofers and plumbers.  We are all wired differently.

  • Tressa Breindel

    What is your interpretation of this?
    http://www.nytimes.com/interactive/business/buy-rent-calculator.html?smid=fb-nytimes&WT.mc_id=BU-SM-E-FB-SM-LIN-IIB-051211-NYT-NA&WT.mc_ev=click

    Only looking at investing in a house as a better long term investment (in this graph, they demonstrate how much money you would save buying over renting in the long run).  Also, IF i bought a home early enough, say an affordable condo or town home with little maintenance (no picket fence, at least not one that the HOA wouldn’t fix), then it would seem that when I was 70, it would be nice to get all that money back I invested in the mortgage over the years.

    Also, a note on Mr. Sharga’s viciousness.  We could look at that as his ego-structure constructed to defend against holes in his own sense of self, ie, insecurity.  That’s his issue and is not a refection in anything inherent in you (or anyone else he chooses to stomp on).  Doesn’t feel much better, but c’est la vie.

  • Mike Nadel

    Aside from his generally poor writing style and name-calling, Rick Sharga’s main problem was accusing Altucher of having ulterior motives while, in fact it’s Sharga (a realtor) who has serious bias here.

    The absolutely perfect point Altucher is making is that one should never buy a house as an investment. If a house makes a person happy, gives comfort, provides a feeling of belonging or whatever — and if that person really can afford the house and all the expenses involved in homeownership — then said person should feel great about buying a house. If all of those things aren’t true, the person almost surely would be better off renting.

    My wife and I were renters early in our marriage, homeowners from 1985-2007 and renters again from 2007 until just a few months ago, when we paid cash for a home. Of the first four houses we owned, we lost money on three of them (when all expenses are counted). We were extremely lucky on the fourth, a small bungalow in Chicago we bought just as the market was taking off and sold not long before it went into the crapper, and made several hundred thousand dollars. I’d love to say we knew exactly what we were doing when we bought and sold that “winner,” but, as I said, we were just extremely fortunate.

    I liked much of what goes into renting. I especially liked the freedom — particularly after I was laid off from my job. If I still had a big mortgage payment and a house tying me down during the recession, I might have (as Altucher’s headline says) shot myself.

    I would have been perfectly happy renting for many more years. My wife, however, wanted to own a house for several reasons having nothing to do with finances. So, in position to pay cash for the $230,000 house in North Carolina (where we now live), we took the plunge. We know full well we might very well lose money between now and the time we sell. My goal is to lose less than we would have by renting over however many years we own this house. Not exactly shooting for the moon.

    I’m well aware that we could have used that cash to invest elsewhere. But we already are invested fairly heavily in stocks, bonds, etc., and have a pretty large emergency fund, too. So I felt comfortable using that money for the house — which I am viewing simply as an alternative to renting, not as some kind of cash-generating device.

    Obviously, I am biased, too. But I think this kind of homeownership is the only kind folks should do. The banking/real-estate scam touting mortgages and equity-building has ruined many a life.

    • http://twitter.com/jasonogle Jason Ogle

      FYI Rick is not a Realtor, but Marketing exec at RealtyTrac.

  • http://rodolfogrimaldi.com Daniel Mihai Popescu

    You’re absolutely right, :) To say here my reasons, it’ll take another article maybe as large as yours. I think without being subjective that Mr. Sharga is subjective, :)
    Fortunately I’m not anymore on myspace, and I don’t regret at all, twitter is enough for a social network for me at the moment. I respected Tom Anderson as well…

  • CMS

    To add to my previous post:

    I closed up the property management company after deciding it was too much work and not enough reward. I’ve been without income for almost a year to setup a couple other companies that will require less work from me. 

    If I had a mortgage I would not have been in the position to do without salary for long enough to get these new businesses off the ground.  And being single without kids helped, too.  If I were a blogger I would write an Altucheresque post titled ’10 reasons not to get married until you’re rich’. 

    • http://sovereignspeculator.com SovSpec

       ” If I were a blogger I would write an Altucheresque post titled ’10 reasons not to get married until you’re rich’  ”

      That would be a good post!  Care to list a few of those reasons here? 

      • CMS

        1) Easier to take risks when single.
              a) not moral to have a dependent take unwanted risks with you
              b) no nagging to spend money on consumer goods.  Capital goods is where it’s at when you are building.
              c) stability is the enemy of fast growth.
              d) I’ve hit rock bottom a couple times. I’m smarter for it. I innovated. I probably would not have hit rock bottom if I married, just hovering just above the bottom not taking risks to hit bottom or skyrocket.

        2) I won’t know the kind of partner I want until I figure out where I’m going. Until I’ve ‘arrived’. The 1995 me would not have been able to attract a women that I would be interested in today, since I was still developing myself. By most accounts, girls that I was attracted to when at 18 didn’t turn out that well. Successful women like successful men. I like successful women. 

        3) Not likely to get a pre-nup before you are rich.

        4) Focus on the task at hand. Business. Not the emotional needs of your partner, not sex, not parties, not worrying about in-laws, not children. I can work 16-18 hours a day, if necessary.

        5)  A guy, when domesticated, has a way of losing his hungry edge. A guy who has too much sex also loses his edge.

        6) For what ever reason, some women may resent your success. And unconsciously sabotage you.

        7) I’ve done some good networking in strip clubs at 2:00 am….

        • http://sovereignspeculator.com SovSpec

          Thanks! Great post. BTW, I married at 26 (I’m 32), though I had planned to wait until I was at least 35 and had made it. The reason I abandoned that plan is that I lucked out with a brilliant and ambitious girl. She’s still female, so there is some of the consumer goods & services vs. capital goods issue, but it’s been a good compromise. I still endorse 100% what you’ve written here.

  • Andrewramponi

    It does seem peculiar that I could own a house/piece of land after making payments for 20 years, and it would belong to me and mine for eternity. There is something dubious and shaky with that sort of claim on the future.

  • UraniumC

    last year I wrote a letter to my 18-year-old daughter I called “The No Effort Path to Wealth.”  Here is point #2:

    1.      Avoid debt.  Never borrow money.  Never carry a credit card balance.  Almost everyone else you meet will be borrowing money to buy this or that.  It will look normal.  You might be mocked.  People still refuse to believe I have never had a car payment.
     
    The only exception might be for a house.  But think long and hard before taking out that mortgage.  If you are a disciplined saver, renting is damn near always the better fiscal choice.  (If you are not, it can act as a forced savings plan.) 
     
    A house is not an investment.  It is only place to live.  Buy one only if you can easily afford it and want that particular lifestyle.
     
    Most people will argue this strenuously.  They are wrong.

    • Anonymous

       I’ll mildly disagree. When you are a renter you are simply pouring your money into someone else’s pockets. At the end of the day you have nothing to show for it, and your cash has gone to help someone else’s investment portfolio and finance their lifestyle. If you get into a mortgage *you can afford* then you are better off in many ways — at the worst you may end up paying close to what you did for rent and some extra overhead, and even that can be offset by tax deductions, etc. At the best, the value of your home may appreciate over time and you get something extra back at the end of the day. 

      • UraniumC

        Hi EE…

        as a point of full disclosure, I am currently a home owner.  bought it when we moved to NH 10 years ago and my kid was in 2nd grade.  It’s for sale now.  what a pain.  anyway…..

        certainly when you pay rent it is money out of pocket.  but you recieve value from your landlord: a place you want to live.

        when you own you also have money out of pocket:  Interest, taxes, maintainace, repairs, realitor commisions.  and you get a place to live.

        difference is it is typically far more $$ out to own the same calibre place than to rent one.  Investing the difference each month along with the capital not tied up in the downpayment will give you a safer, more diversified and likely more profitable return over time.

        for those who lack the disapline to invest this way, a house can serve as a forced savings plan.  at least it used to until banks and borrowers discovered refinacing and HELOCS.  :-)

      • UraniumC

        Hi EE…

        as a point of full disclosure, I am currently a home owner.  bought it when we moved to NH 10 years ago and my kid was in 2nd grade.  It’s for sale now.  what a pain.  anyway…..

        certainly when you pay rent it is money out of pocket.  but you recieve value from your landlord: a place you want to live.

        when you own you also have money out of pocket:  Interest, taxes, maintainace, repairs, realitor commisions.  and you get a place to live.

        difference is it is typically far more $$ out to own the same calibre place than to rent one.  Investing the difference each month along with the capital not tied up in the downpayment will give you a safer, more diversified and likely more profitable return over time.

        for those who lack the disapline to invest this way, a house can serve as a forced savings plan.  at least it used to until banks and borrowers discovered refinacing and HELOCS.  :-)

        • UraniumC

          BTW, you never really “own” the house you buy.  As long as you have that mortage the lender can and will kick you to the curb the moment you stop paying.

          as will the governement the moment you stop paying the property taxes.  and those taxes last forever and rise every bit as fast as inflation.

          you only own the right to take care of all the costs associated with the property and the right to a profit when you sell.  if there is one. 

        • UraniumC

          BTW, you never really “own” the house you buy.  As long as you have that mortage the lender can and will kick you to the curb the moment you stop paying.

          as will the governement the moment you stop paying the property taxes.  and those taxes last forever and rise every bit as fast as inflation.

          you only own the right to take care of all the costs associated with the property and the right to a profit when you sell.  if there is one. 

      • http://jamesaltucher.com James Altucher

         Easy, please ready my article to see my comment on that. 

  • Anonymous

     That’s not a classic picket fence. It is a plastic picket fence. The classic needs to be painted every few years as well as replaced periodically because they are made so cheaply nowadays. I wish I had bought a loft in Manhattan instead of a house.

  • Anonymous

     That’s not a classic picket fence. It is a plastic picket fence. The classic needs to be painted every few years as well as replaced periodically because they are made so cheaply nowadays. I wish I had bought a loft in Manhattan instead of a house.

    • http://jamesaltucher.com James Altucher

       When I was 8 my parents were looking at a nice space on the upper east side in manhattan. I forget the actual costs but lets say around 200k or so. Would’ve been worth millions by now. Instead I was sad about leaving my friends so they stayed in our house in suburban NJ and had to sell at the bottom decades later. 

      • Kbear2

        Doesn’t that contradict your argument about buying a space not being an investment?

  • inkerton

    Having read Mr. Altucher’s posts for years, the problem is that Mr. Altucher is like a walking barometer of what the most popular faddish idea is.  I really WAS down on houses, therefore, until I read this post.  Now I want to rush out into a nice big fat mortgage, since Altucher has probably called the trough.

    • http://jamesaltucher.com James Altucher

      Well, Im glad I got a discussion going about the “dont get in debt sending your kids to college” theme. I first wrote about that four years ago.now for the first time I’m seeing actual discussion about the disgusting rising cost of tuition. The same goes for this topic. You can go out and get yourself a fat mortgage, though. I probably wouldn’t rush into it. AND, i’m not saying housing is debt. Why don’t you buy some housing stocks instead. And leverage it up. At least you’ll be able to liquidate them when you need to rather than when you are forced to. 

  • Kevin M

    Let me say first that I agree with you that home ownership is not the “Dream” it is made out to be and should be thought through rather than just accepted as the next step after graduating college and getting a job. I think it is important that these ideas are spread and only wish I would have looked harder at the process when I was 23 and bought my first home (before I technically graduated college and with basically nothing down).

    That said, your point about renting and being under contract for 10 years seems to be at odds with your “less debt” and “more flexibility” points. You’ve certainly taken on a shorter term than the standard 30-year handcuffs, but it’s still debt which somewhat limits your flexibility.

  • http://www.736hundred.tumblr.com 736hundred

    I love the stability for the kids argument, especially when about one out of every two marriages fail.
    Home is where your family is.  It doesn’t matter who you pay, or whether you “own” debt or not.
    I agree with what UraniumC said, a house “is a place to live.”

    • FOX84

      This is exactly why I purchased a home-house-property (what ever). Which will be payed off in October. Doubled down on payments. Wanted out of the debt ASAP. Originally set up as a fifteen year, paid in seven. I titled the  house and property in my wife’s name (in other words it belongs to her 100%).  

      I travel quite a bit so not always home but when I am, its great!  I have the peace of mind knowing that our children have and had (one of three  is out of the house)  a solid home life and three squares a day, all over seen by my wife.  Yes, Taxes, utilities, maintenance, and REMODELS are the cost of ownership. Just never considered it part of my “portfolio”. Once our youngest is out, she can do what ever she wants with it.  

      Why? Because I said I would. 

    • FOX84

      This is exactly why I purchased a home-house-property (what ever). Which will be payed off in October. Doubled down on payments. Wanted out of the debt ASAP. Originally set up as a fifteen year, paid in seven. I titled the  house and property in my wife’s name (in other words it belongs to her 100%).  

      I travel quite a bit so not always home but when I am, its great!  I have the peace of mind knowing that our children have and had (one of three  is out of the house)  a solid home life and three squares a day, all over seen by my wife.  Yes, Taxes, utilities, maintenance, and REMODELS are the cost of ownership. Just never considered it part of my “portfolio”. Once our youngest is out, she can do what ever she wants with it.  

      Why? Because I said I would. 

  • Cashsosa

     Frankly I’m disappointed that I read more than one paragraph of your banal article.  You’re arguments can only be justified within the confines of an adolescent mind unable to grasp the simple economic concept of finance and ultimately “retirement”.  

    You do realize that your $1,000 rental payment today will be roughly $10,000 in 40 years correct?  The issue isn’t in home ownership but rather the motivation behind home ownership.  Purchased judicously home ownership / investment makes all of the sense in the world.   ESPECIALLY right now.  People purchasing investment properties who were losing $500 per month 4 years ago deserved what was coming to them.  They foolishly were arrogant to think that speculating would overcome the massive amount of negative cash flow…  Poor business decision from the inception.  Same with people who bit off more than they could chew simply because the rest of the sheep were doing so and seemingly become affluent as a result.  

    We as Americans have simply abandoned common sense and foolishly replaced it with ego and credit.  Our grandparents purchased homes on 10 year notes and most lived in the same home which was paid for numerous years before even retiring.  

    For the average american, if you have the choice of $1,000 in rent or $1,200 in mortgage you’re an idiot not to opt for the latter.  With tax write offs you end up at par.  But the ultimate benefits are long term.  By purchasing at the individuals means, you should be able to pay off your home in 15-30 years at most.  Now after 15 years or so the $1,200 mortgage will seem minuscule compared to the inflation in rent.  Since this cost is fixed, it becomes less of a percentage of monthly overhead by nature.  Now take 30years down the road.  That mortgage is paid and as the owner is steadily coming closer to retirement becoming “liquid” is vital to sustainability.  While this guy lives in a paid off home, the same property 30 years down the road is renting for say $3,000 conservatively…  

    Currently, in the worst market in the country “Las Vegas” homes are selling for $50K and renting for $800 per month.  Do the math, your capital investment is returned in what? 5.2 years.  Please explain to me how this is idiotic?  

    I wish James Altucher best of luck in his latter years… Odds are, if he actually believes in his misguided B.S. that he’ll be second guessing his misguided financial views while sleeping on his soiled mattress in his 1 bedroom apartment during his final years.  But hey, at least this lazy bastard never had to burden himself with any “repairs” over the years…  

    • http://aeronode.tumblr.com james

      Standards of living in western europe by most measures are the same as they are in the US, but home ownership rates are much lower over there. Why is this, do you think?

      • Anonymous

        They pay more taxes in Europe and may not be able to afford homes. 

      • http://sovereignspeculator.com SovSpec

        I’m an American living in Europe. Except for Switzerland, Lichtenstein and Luxemburg, living standards (as measured by what you can afford with median income) are lower than in the US (much lower in Italy, Spain, Portugal and much of France). Incomes are lower, tax rates are higher and prices are higher for cars, fuel, consumer goods and food.

        In Switzerland, incomes are higher than in the US and taxes are much lower, but more than 1/2 of Swiss rent because of tax disadvantages to owning. BTW, they sign 5+ year rental contracts and probably move less often than Americans who buy their homes. 

        In the US, the mortgage interest tax deduction is a major distortion in the market. On the surface it is a favor to home buyers, but it is really just a special favor to banks because it encourages taking out debt instead of renting. It doesn’t acually help home buyers, because just as cheap federal student loans drive up college costs, it contributes to higher home prices.

    • http://jamesaltucher.com James Altucher

      Actually, based on what you wrote here it looks like you did not, in fact, read more than one paragraph of my article.  

    • Anonymous

      If your $1000 in rent today becomes $10000 in 40 years, then
      your $1000 in property taxes becomes $10000 in 40 years
      your $1000 in maintenance becomes $10000 in 40 years
      your $1000 in realtor commission becomes $10000 in 40 years

    • Anonymous

      If your $1000 in rent today becomes $10000 in 40 years, then
      your $1000 in property taxes becomes $10000 in 40 years
      your $1000 in maintenance becomes $10000 in 40 years
      your $1000 in realtor commission becomes $10000 in 40 years

    • Billy B

      Amen brother! Money is 4th grade math at the end of the day, too bad people cannot just look at the numbers. I own a home and 3 rental properties, all with positive cash flow from my renters whose cash I enjoy. Even with my home losing 20% of the value, I make up a bit in mortgage deductions, and the power of inflation will propel my home value upwards in the next 20 years, unless you believe that housing and land will just get cheaper and cheaper (which would be the only scarce resource that you need or want to ever do that). 

    • Billy B

      Amen brother! Money is 4th grade math at the end of the day, too bad people cannot just look at the numbers. I own a home and 3 rental properties, all with positive cash flow from my renters whose cash I enjoy. Even with my home losing 20% of the value, I make up a bit in mortgage deductions, and the power of inflation will propel my home value upwards in the next 20 years, unless you believe that housing and land will just get cheaper and cheaper (which would be the only scarce resource that you need or want to ever do that). 

      • mom

        In terms of silver and gold your real estate values are absolutely imploding.  You would have been much better off selling the real estate and buying liquid precious metals.

  • Michael Sullivan

     James is right, that home ownership may not be the best financial decision, but in my experience it turns out that home ownership is often a person’s best financial decision historically.  Consider: although you may have more cash with renting, what do you do with the cash?  If you spend it (i.e. consumption) versus save it (e.g. investment) then you may not be better off in the long run.  Reason: paying off the principal over say 25 years is a forced savings plan.

    • LKB

      I guess if you consider that money can buy you more than just stuff… for example, taking a year off from work to write that novel/travel the world/build that sculpture, or to do something that might not be profitable but that you love…then it might bring a person more happiness to be able to do this than to make that last mortgage payment at 70. And it isn’t a forced savings plan if your home isn’t worth more than what you paid for it plus interest plus inflation plus an extra percentage for all your hard work on it after 25 years.

      • Michael Sullivan

        Agree with your last point (re not a great deal if no further ahead after X years).  While for much of the US real estate has declined in value, this has not happened in Canada (most areas have continued to appreciate, and it’s as if the ‘recession’ of 2008-2009 never happened. 

  • Michael Sullivan

     James is right, that home ownership may not be the best financial decision, but in my experience it turns out that home ownership is often a person’s best financial decision historically.  Consider: although you may have more cash with renting, what do you do with the cash?  If you spend it (i.e. consumption) versus save it (e.g. investment) then you may not be better off in the long run.  Reason: paying off the principal over say 25 years is a forced savings plan.

  • http://www.studioglyphic.com/blog/ glyphic

     The title would have been funnier if it had been “Why I Would Rather Shoot Myself In My Pointy Head Than Own a Home.” :P

  • DAVIS

     The outrageous real estate commissions are another reason not to own. 5 – 6% is outrageous.

    • http://jamesaltucher.com James Altucher

       Agreed. Its one more thing that sets people back since the average home turnover is only five years in the US. 

  • DAVIS

     From a certain point of view, due to their commission structure, realtors effectively “own” 5 – 6% of the value of all residential property in the country. I sold a house at a profit in 2008. I made about $65k, but had to pay $12K or so to the realtor for basically two days work and putting a low price on my house. You take the financial risk and make payments for years, then realtors take their cut right off the top. The reason houses are sitting on the market for years and years now is that realtors will not put a market price on them.

    • http://jamesaltucher.com James Altucher

      Most people shouldnt own a car. But the guys who wrote Freakonomics covered that in chapter one or two of their latest book.  

  • Anonymous

    I think it’s hilarious that of all the topics/posts one could choose from to find something to be offended about, home ownership is the one that seems to have really escalated some emotions.  I don’t think it’s because you are wrong, but rather because you just challenged some fundamental beliefs for certain people – actually you are attacking the advice they got from dad, and grandpa and everyone else that preached the “american religion” to them. 

    • http://simonsouth.ca/ Simon South

      Just wait until James writes a post about why people should get rid of their car. The violence that will unleash…

      • Tim

        Simon and James,

        I don’t agree with James on the house thing and have posted on that before.  I think buying a house is a smart investment, if that’s what you want to do after weighing the alternatives.

        However, a car is the ultimate waste of money.  Why anyone would buy a new car is beyond me.  If you do buy a car, used that is, drive it until the wheels fall off.  It’s still a bad investment!

        Tim

    • http://jamesaltucher.com James Altucher

       You are very right. I could go in the middle of a time square and shout anything I want about Jesus or Mohammed and nobody would care but if I say something about housing, its the American Religion I’ve offended. Watch out! 

      • PatD

        I agree, very touchee subject indeed!!!! In the end, its probably all just a matter of preference, because there are valid arguements for both sides…as I have stated here before, I am in the ownership camp and I would not make a good rental candidate because I have too many 4-legged family members..one aspect I would like to point out that hasnt been addressed is the fact that many oceanfront properties are passed down from generation -to- generation ..so I guess that would add an intrinsic value as well….
        I hope I can be able to do that for my children …so they can continue their sibling rivalry long after I am gone….

      • Tyler

        Mr. Altucher, I actually have a few questions for you if you don’t mind. See, I am currently renting and SAVING $11,000 a year roughly (not quite $12,000). I have saved up $18,000 so far and houses in my area costs $40,000-$200,000. Now, I actually want to remain childless (maybe not single, but childless for sure). I am 21 years old. I actually want to buy a 4-bedroom+ house when I have enough money to pay for it in full payment. Then I plan to rent it out to local college students or local people in general (I’d occupy 1 bedroom). This way I could ?maybe? break even in terms of expenses and owning the “American Dream”.

        My ultimate dream is to retire between the ages of 62-65 and become a full-time RV traveler and see the entire United States.

        Thus, my dreams are to 1. buy a 4-bedroom house in full payment with cash 2. rent out the other bedrooms to other locals 3. keep working full-time where i currently work and be a landlord at the same time until age 62-65 or so. 4. SELL my 4-bedroom home and buy a RV and roam the entire United States until I die.

        ***I am 21 years old right now***

        Do you see any flaws/benefits to this? Do you have any advice? Thank you and all comments appreciated. ~Tyler

        • HB

          And then you’re 60 and you die. Don’t wait for the future!

    • http://www.736hundred.tumblr.com 736hundred

      I think it’s touchy because Mr Sharga, and all his cronies, (and the real estate industry) don’t like the idea that someone might be listening and taking into consideration James Altchur’s viewpoints on home ownership.  It messes with their money making machine…they can’t have that.
       
      Other posters/people who disagree for personal or personal financial reasons, seem to disagree with respect and common conversational courtesy. I like reading all the viewpoints but I have to say I am stunned by the personal attacks on a non personal issue – I am guessing JA really got under some  skin with this one.

    • Pierce

      I also find it hilarious, maybe odd, that the person would take offense to this particular topic.  I mean, I’ve debated religious ideas in the past and have challenged folks’ traditional BS.  But this had to do with the topic of men of the bible having many wives and how God never changed His mind on it and actually endorsed the concept.  Wow.  You should see the evangelfish go crazy when you tell them that polygyny is actually biblical.  They freak out.  
      But this topic of housing seems fairly easy to digest.  Someone would have to be completely locked in to a blind mindset not to pick up on the insight that Altucher presents here.  By the way, thanks for churning out some unique thoughts, James.  

    • Chebroker

      I might recommend that we all start with a solid definition of an “investment”.  Recommend everyone re-read “Rich Dad, Poor Dad”.  If you could not rent your home with a net positive cash flow that competes on ROI with your other similar risk based opportunities, then it is not an investment, it is an expense.  If you can, then it is.   What % of people do you think look at their residence that way?  Probable answer is less than <1%.

  • EST

     You guys should read a James Bond Lifestyle book written by  Paul Kyriazi. He says it in his book that you can have a home without owning one. He’s pointing out that whenever you rent a house (or an apartment), just make it your home. As long as you live in it, it’s kind of yours. The same applies to hotel rooms, rental cars, or pretty much anything. 

    I live in Europe myself and I’m doing pretty alright (I’m in finance). I could easily buy myself a 10-million-dollar house, but I havent… I don’t need one. Instead of I’m renting a great mansion. In fact, I’ve lived in 3 different houses over the past 5 years. Some are at the beach, some aren’t… I can move whenever I want. How about you, homeowners? 

    • http://jamesaltucher.com James Altucher

      Thats great. I’m going to look it up.  

  • guest

     good luck when you are 70 years old and still paying rent.

    • http://jamesaltucher.com James Altucher

       Good thing I’ll have all my cash making money for me for an extra 30 years. 

      • http://jamesaltucher.com James Altucher

         And, btw, there’s no real guarantees I live til 70. I’m going to enjoy my cash (in part) at 43.

  • Anonymous

    Its all about the waffles.
    If you can wake up in the morning and have delicious waffles, with your loved ones, then all is well.
    It is significant that these waffles are home-made. 
    The waffles are the center of the Altucher universe.
    They signify a happy marriage.
    They are fed to him
    He is eager.
    He loves to hear the mixer beating the batter.
    And the waffle iron is smoking slightly
    Pavlov is watching
    The waffles are steaming
    Can I have one more?

    I’m lonely.
    I have no one to eat waffles with
    It doesn’t matter if I rent or own
    I have no waffles.

    • BostonCoffeeGirl

       I’m allergic to waffles. Guess I’m screwed. ;)

      • Anonymous

        I’m allergic too!!!

    • Diocletian

      Coool Poem !

      Did you get your inspiration from Emily Dickenson and Robert Frost ?

      • http://www.toddandelin.com Todd_Andelin

        Not sure.
        Who do you read?

  • Anonymous

    Mr. Altucher,

    I do believe you are on fire. But pay no notice to this comment.

  • Mark B

    Hey man, looks like John Mauldin stole your rap about housing–check it out if you haven’t already:

    http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2011/05/16/still-home-sick.aspx

    • Sooz

        Mark B, missed your post here(oops!). It’s not very uplifting for established homeowner’s.  
       

  • Sooz

    good article by John Mauldin(via Ritholtz)

     http://www.ritholtz.com/blog/2011/05/still-home-sick/

    • Sooz

       better discription would have been ‘Informative’.

      • Sooz

         edit: description

        (apparently I can’t type after reading the article..wowza, another projected 20% hit on equity.)

  • Anonymous

    As a house owner, I am in agreement with James. I bought our house 17 years ago and have now just noticed that our monthly payments are being applied to the principle. Of course we need to replace our furnace, windows, refrigerator, dish washer, etc which brings us back to the original loan. Compared to us Sysiphus had reasonable  objectives. And with our kids grown and gone we no longer have need for a 5 bed room millstone. Had we rented we would have made good use of the abode, adjusted when and where the market allowed, and been gone to our ultimate dream – a log cabin in the woods of Kentucky.  Got to go I hear the toilet leaking

    • UraniumC

      living the dream! 

    • Jquick99

      why didn’t you pay a little extra each month to go directly towards the principle? 

  • Anonymous

    Landlords often own assets worth millions with large amounts debt. Obama does not distinguish when he vilifies millionaires, by definition anyone with a million dollars of assets, and targets them for more taxes (sacrifice). Like the criminal willie sutton, obama wants to tax the rich because that is where the money is

  • http://pulse.yahoo.com/_P3EIJNZ5WQLHTMOOKGGQ2ZS3GQ Khun J&T

     James ~

       Absolutely never buy a house….. rent.  And along the same line……. by all means you should never marry either.  It is a poor investment and much more expensive than “renting” ( dating or prostitutes ).   But what a minute…….. having a soul mate who is there to make you chicken soup when you are sick, be there when you are having a bad day, care when nobody else does…… make you waffles, etc.
       So maybe, just maybe owning a house, even if there are drawbacks, is a good thing.  Maybe it is NOT all about money.  A real home for you and your family,  a place that is yours to do whatever you want to with & raise your family.  To have a home to give your kids later on or to retire to with no more payments.
       JMHO

    • CptCook70

      ….yes. marriage is NOT a word…..it is a Sentence…..as wisdom may show ..never ever own anything..but control everything.   A Trust is a Must for all property …….

  • Soboma2k

    Well, I struggle to pay my mortgage every month. Successful college grad in the IT world. However, work two part time jobs as well. All this so someday, when I retire comfortably, I OWN my home and do not have to pay someone else rent. What if you retire, have been renting the same house for 35 years, and the owner decides to sell the house? Where does that leave you in your late 60’s early 70’s? Looking for a place to rent? No, I am completely fine with owning my own home and taking care of the responsibilities myself. It’s call being a responsible adult. 

    • LKB

      How often do homes pass down from parents to children in this country? I wonder. I find it interesting that my father worked his ass off to pay the mortgage on a house which, after he died and all the kids were out of the house, my mother couldn’t wait to sell. At the time I wished I’d had the money to buy it, but I realized that this was out of pure sentimentality, and I would have wanted to dump it eventually, too, because it had already served its purpose. If the apartment I’m now in (which I love) is sold and I have to move, even if it’s 30 years from now when I am (gasp!) almost 70, I will just find another one to rent. I probably won’t even need that much space at that point. I have often thought about buying my own apartment, but I am the type of person that prefers the freedom of opportunity rather than the safety of predictability. I often wish I could have both, like the very rich, but I’m not foolish enough to think one is better than the other.

      I am not defined by the space I live in. It isn’t ME, it’s just a tool for me to use, like money.

      I don’t like to live in the future. “Retirement” is a product made up to sell to people, an idea.

      And I love using my free time on friends and family and hobbies I love, not fixing the plumbing. I would buy a house in a second if I had loads of money, because I do like the idea of having my own space, but I will not live for a mortgage payoff party 30 years from now. Because guess what? You really don’t own it until then. And by then, what really is the point? to pass it down to your kids? who either don’t want it and will sell it or who will just wait til you die and then sell it?

  • ghost

    Seeing as you can deduct mortgage interest from your taxes, the “flushing money down the toilet” aspect gets thrown out the window.  As to property taxes, maybe you like sending your kid to private school, but the rest of us contribute to public school education for all with our property taxes.  Seems you just like being negative, self-absorbed, young, and naive.

  • Tim Linquist

     One small correction to your closing sentence: ‘This morning, in my self-interest, everyone is happy in my house.’

    Should be: ‘This morning, in my self-interest, everyone is happy in my feudal lord’s house.’

    Life is not all about money and investments.  There is value in owning a home just like there is value in owning an old muscle car.  They may not return on anything other than personal satisfaction.  To some that has no price.

    • http://www.facebook.com/james.altucher James Altucher

       If you think about it, you contradicted yourself.

  • Anonymous

    I think you are right about not owning a home.  However, it does end up making sense for a lot of people as a form of forced savings.  You said: “The serf is flushing money down with rent. But has more cash in the
    bank, a more diversified portfolio, and is generating liquid cash
    (hopefully) from other investments.” There are some key caveats in there.  Many people renting will not have a more diversified portfolio and not generate cash from other investments.  They’ll spend the money that would have gone towards a mortgage.  At the end of 30 years, the renter will still have no savings, whereas the homeowner will at least have their home as an asset.

  • Anonymous

    I think you are right about not owning a home.  However, it does end up making sense for a lot of people as a form of forced savings.  You said: “The serf is flushing money down with rent. But has more cash in the
    bank, a more diversified portfolio, and is generating liquid cash
    (hopefully) from other investments.” There are some key caveats in there.  Many people renting will not have a more diversified portfolio and not generate cash from other investments.  They’ll spend the money that would have gone towards a mortgage.  At the end of 30 years, the renter will still have no savings, whereas the homeowner will at least have their home as an asset.

  • Anonymous

    I think you are right about not owning a home.  However, it does end up making sense for a lot of people as a form of forced savings.  You said: “The serf is flushing money down with rent. But has more cash in the
    bank, a more diversified portfolio, and is generating liquid cash
    (hopefully) from other investments.” There are some key caveats in there.  Many people renting will not have a more diversified portfolio and not generate cash from other investments.  They’ll spend the money that would have gone towards a mortgage.  At the end of 30 years, the renter will still have no savings, whereas the homeowner will at least have their home as an asset.

  • http://ashleyscwalls.wordpress.com Ashleyscwalls

     I like the way you used the term “American Religion” instead of “American Dream”.  I actually do think your point about companies pushing homeownership is a GREAT theory! It made a lot of sense to me. With all of the other corrupt and obvious sinister plans actively being implemented in the USA, why would your theory be so far fetched?

  • http://ashleyscwalls.wordpress.com Ashleyscwalls

     I like the way you used the term “American Religion” instead of “American Dream”.  I actually do think your point about companies pushing homeownership is a GREAT theory! It made a lot of sense to me. With all of the other corrupt and obvious sinister plans actively being implemented in the USA, why would your theory be so far fetched?

  • Wolverine

    Talk about conflicts of interest and pushing your own agenda…  This guy needs to look in the mirror. He’s the senior VP of a realty info/reporting site that ultimately makes more money when more people visit the site that are looking to buy a home.

    Funny how he says nothing but great things about owning a home, being the senior VP of this company…

  • http://profiles.yahoo.com/u/6R7QEZGLWETDVCGL2NHUTWCJQQ George

    Just as a military war is a struggle between two regimes neither of which serves your interests, the current faith war between buying and renting seems to be a struggle between two options neither of which serves your interests. Whether you buy or rent real estate today, you’ll pay a price inflated tenfold to cover the costs of a rapacious government.

    Most people’s two biggest expenses in life are taxes and real estate. Neither is determined by demand and supply. Are taxes so expensive because there is so much demand? Heck, no. In terms of real estate, the banks off-books holdings of properties also show us that “charging what the market will bear” doesn’t apply anymore, as the market is clearly not bearing what they are trying to charge. It’s all about manipulation. Current property prices are a means for the government to plunder you by inflating real estate costs ten times and charging a property tax on that. How? They restrict every public utility job, every electric pole installation, road work or such (infra)structure repair to a few connected companies with the $1-10 million commercial insurance (which flows straight back into the govt’s pocket… and old scam), and pronto, the property’s cost is up tenfold. Sure, two guys with a shovel could do the same job probably as well for a tenth of the price, and there is an inspector for every project who ought to catch it if they didn’t. But no, we cannot have real estate priced at real cost, at roughly $10% of the going rates, or the government would have to give up 90% of its plunder. 

    So the solution is not about rent vs buy; either way you’d get plundered. It’s to find your dream dwelling with the full comfort and morning waffles outside the government’s plunder matrix. There are as many ways, as there are people; you just have to think and innovate to find the approach that suits you. If the half a million dollars you can save isn’t a reason big enough to lay off the TV a bit and start thinking how this can be done, I don’t know what is. Good luck.

  • dividendmantra

    James,

    Great blog and my first time commenting here. 

  • dividendmantra

    James,

    I like the blog a lot, and my first time commenting. I decided against home ownership a few years ago, and decided renting was better on my path to financial independence.

    If you haven’t already seen this article, this is the article that basically convinced me to rent. Your writings have been the nail in the coffin for me.

    http://realestate.yahoo.com/promo/renting-makes-more-financial-sense-than-homeownership.html

    Thanks for your efforts, and I’m glad to see another person out of Plato’s cave. 

  • kadison

     James, there is one big reason to own a house and that is a feeling of being at home!

  • amy

    I love this topic. It’s insane how deeply entrenched people’s ideas around renting and owning are. I like hearing about guys like Tom who won’t garden if he doesn’t own the garden. Something, I guess, about spending money on plants that you don’t own, as if some plants aren’t annuals, and some plants don’t die, and some plants can’t be had for free from friend’s cuttings. And trees. They are expensive, yes. But they are a gift to future generations. The thinking is: If I own I can really enjoy this place. If I don’t, I can’t. I can’t paint. I can’t buy new blinds (from China)(and for only $199). I can’t paint the walls (then paint them back if the landlord hates it.. big IF). The banks have done a good job with this one. The mental blocks go deep. 

  • Bicklehoff

    I like owning the home I live in because no landlord can kick me out. If we lose our income and we have to move in with our parents, we can rent out the home for the price of the mortgage. Same with our condo. We bought it with 3% down and are now renting it out for a little cash flow (not including someone else paying down the principal and the tax write-off). I like someone else buying my house for me. And I like paying a mortgage for my own home that is the same as I’d be paying for rent-I figure the tax break evens out the maintenace cost, and at least part of my payment is going to principal.

    Sure there are better investments out there, but if you are owning for the same price as it costs to rent, and you have kids like me, it’s nice to have a home that is you own.

    And by the way, I’ve heard that in 75% of all US metro areas it is now cheaper to own than to rent. Go figure.

  • Hctan01

    People buy and own homes not just for “financial” reasons.
    Ownership of a home also have other meanings.
    1.  A better place to live.  You can make it the way you want it while you can not do anything to a rental.
    2.  Pride of ownership.  You feel good and proud when you own and make your home a nice place.
    3.  Better environment.  Have you compared a rental and a homeowner property and noticed the difference?  A mostly homeownership neighborhood is usually a better place and safer place to live.

  • Illiak

    I grew up fairly poor and I always have nightmares about financial ruin.

    The only reason why I can see myself buying a place to live (and I mean… buying it as in fully paid rather than owing a lot of money to the bank) is because it should be cheaper to live in your own place when/if things go wrong – knock on wood. If you have a fully paid house and you loose your job, for instance, it should be easier to make sure that you also don’t loose the roof over your head. Yes, you still have to pay property taxes and maintain the place. But it should be cheaper than renting. This is the same reason why people also want to own a home when they retire. It is a strategy to reduce the monthly cost of living. However, this only works if the property is FULLY paid. If you have to exercise a mortgage and pay the bank, you are actually in more trouble because the money that could help you (i.e., your down-payment) is now tied in a rather illiquid asset as James pointed out above.

  • Greystache

    To each his own.  I built my own 2,000 sf, 4 bedroom house (acting as general contractor) which allowed me to avoid having to put any money down.  The amount I borrowed was less than 80% of the appraised value, so the instant equity served as my down payment.  This was about 12 years ago now.  I have refinanced twice and now my mortgage, insurance, and taxes is less than what I could rent a two bedroom apartment for.  Plus, the ability to borrow money against my home for short term needs has been a big help twice over the years.

    I try to be responsible, take advantage of low rates, make extra payments and the mortgage interest deduction doesn’t hurt either.

    Home ownership is not for everyone, but for me it’s worked out well, as I intend to pay off my mortgage long before my 30 years is up.

  • Greystache

    To each his own.  I built my own 2,000 sf, 4 bedroom house (acting as general contractor) which allowed me to avoid having to put any money down.  The amount I borrowed was less than 80% of the appraised value, so the instant equity served as my down payment.  This was about 12 years ago now.  I have refinanced twice and now my mortgage, insurance, and taxes is less than what I could rent a two bedroom apartment for.  Plus, the ability to borrow money against my home for short term needs has been a big help twice over the years.

    I try to be responsible, take advantage of low rates, make extra payments and the mortgage interest deduction doesn’t hurt either.

    Home ownership is not for everyone, but for me it’s worked out well, as I intend to pay off my mortgage long before my 30 years is up.

    • http://jlcollinsnh.wordpress.com Jlcollinsnh

      absolutely, to each his own.  

      Just looking at it from a purely financial perspective you might want to consider “opportunity cost”

      If your home is worth, say, 200k you could sell and put that money to work elsewhere.
      to compare apples to apples a REIT like VGSLX is a good proxy.  This would give you the same chance for capital appreciation, more diversity and it pays out about 3.5% in dividends:  $7000 per year in our 200k example.

      you should add this $7000 to your costs of owning the house.  This won’t tell you anything about where you prefer to live, but it will give you a more accurate financial comparison. 

      Best

      JC

    • http://jlcollinsnh.wordpress.com jlcollinsnh

      absolutely, to each his own.  Just looking at it from a purely financial perspective you might want to consider “opportunity cost”If your home is worth, say, 200k you could sell and put that money to work elsewhere.to compare apples to apples a REIT like VGSLX is a good proxy.  This would give you the same chance for capital appreciation, more diversity and it pays out about 3.5% in dividends:  $7000 per year in our 200k example.you should add this $7000 to your costs of owning the house.  This won’t tell you anything about where you prefer to live, but it will give you a more accurate financial comparison. BestJC

  • Greystache

    To each his own.  I built my own 2,000 sf, 4 bedroom house (acting as general contractor) which allowed me to avoid having to put any money down.  The amount I borrowed was less than 80% of the appraised value, so the instant equity served as my down payment.  This was about 12 years ago now.  I have refinanced twice and now my mortgage, insurance, and taxes is less than what I could rent a two bedroom apartment for.  Plus, the ability to borrow money against my home for short term needs has been a big help twice over the years.

    I try to be responsible, take advantage of low rates, make extra payments and the mortgage interest deduction doesn’t hurt either.

    Home ownership is not for everyone, but for me it’s worked out well, as I intend to pay off my mortgage long before my 30 years is up.

  • Anon

    Your off your rocker!

  • 0cathy

    A bit late to the party…but I can’t resist commenting. Have scanned the comments and seen some people get pretty hot under the collar! Let us not judge each other. People should do whatever they want.
    FWIW, my two cents says that a lot of the difference between renting and owning is intangible. It’s ok to analyse it by the dollars and cents (is, purely as an investment decision) but at the EOTD people will often make the decision based on non-dollar terms such as comfort, security, happiness, freedom, flexibility etc. This is perfectly normal and perfectly ok.
    I live in Australia. Things might be a bit different here (?). I bought my suburban house in a good location in 2006 for $600,000, with a deposit of $250,000 (proceeds from first property which I bought with $20,000 deposit). At the height of the boom it was worth $1.4m. Now it has dropped to about $1.2m and steadied.
    I pay $600/wk on my mortgage which is less than comparable rent, and yes, I spend a lot on the garden and maintenance. My equity is close to a million dollars.
    Where am I now:
    I don’t feel trapped (others might).
    I could have made more on the stock market (don’t care)
    I hate moving. (rentals are rarely long-term)
    Fixing up my house gives me a sense of achievement.
    I am happy. :)
    So I think I agree with James (although he didn’t say it quite like this) – “think about your decisions carefully then do what makes you happy.”

  • mom

    Home “owners” need also consider that said home can be used against you in a variety of ways depending on which state you live in.  Creditors, the IRS, and generally malevolent people can lien “your” home and possibly perform a forced sale.  Your home owns you.  Is this really what you want?

  • http://twitter.com/TradeNerd Kurt

    James,
    I agree with your overall thesis although I would suggest you consider the following points.

    First, whether they rent or own, people are often tied down by the location of their family. As such they wouldn’t experience the full mobility benefit offered by renting.

    Second, most people are not disciplined enough to save/invest the money that they save by renting. In a sense, that mortgage payment acts as a forced saving vehicle, albeit one with a bad return on investment. 

    Disclosure: Long Renting. 

    Kurt
    TradeNerd.Com

    • Lezlee Pendle

      People are only as tied down as they want to make themselves……   Most people, regardless of family, are free to move as often as they can be bothered too.  I have moved numerous times with children in tow; and I have a ‘full’ house of furniture to accommodate too.  I can’t really see in this day and age that anyone can make a huge profit on buying, unless they can put down a massive payment to start so making monthly payments smaller and shorter in frequency.  Property is pathetically overly priced  –  I really don’t get how the hell anyone can charge such extortionate amounts for a pile of bricks and mortar….!!!??

  • http://twitter.com/TradeNerd Kurt

    James,
    I agree with your overall thesis although I would suggest you consider the following points.

    First, whether they rent or own, people are often tied down by the location of their family. As such they wouldn’t experience the full mobility benefit offered by renting.

    Second, most people are not disciplined enough to save/invest the money that they save by renting. In a sense, that mortgage payment acts as a forced saving vehicle, albeit one with a bad return on investment. 

    Disclosure: Long Renting. 

    Kurt
    TradeNerd.Com

  • Bhanna4d

    Thank you, this article has confirmed my desire to sell my house and buy a 5th wheel trailer with cash and live in it.  People think it is crazy but there is a better word for it… Freedom.    

  • http://pulse.yahoo.com/_2FTLCWEIC3COQDIUOLAFPFI6RM William

    While I agree that everything that Mr. Altucher wrote is in this article is true, I’m a homeowner and would continue to own a home if I moved somewhere else.
    I would never sell a house. I would rent my current home out if I moved away. Why throw away an opportunity to pay for a house with someone else’s money? After moving, I would rent a while until I could afford a good down payment on another house (or could afford to pay cash), and then do the same thing again if I moved again.
    If I were single with no kids, I would rent out space in my house to a friend (there’s always someone within your circle of friends and acquaintances who is either in some kind of transition – between houses, apartments, or gone back to school for a while, etc.) I had a friend who did that and it saved him a bundle, which he then used to pay for opening a fireworks stand that he runs once a year in late June / early July.   
    I’m the type who prefers not to move. My family and friends are nearby, so I want to stay put in the house I bought several years ago. I understand that a house that you live in is not an investment, but a liability. So are a lot of life’s luxeries (cars, vacations, entertainment). My reason for owning is simple: I’m sentimental, a common quality of financially mediocre people. It’s a great downfall, and I realize the financial implications of sentiment. But I remember when my grandfather died. He was in the hospital, withering away, and he made only one request: “Let me go home.”
    I bought my house before I got married, so I fell in love there, returned there after my honeymoon, brought my son home to that house, and have created some great memories there. Sometimes I even drive past the house where I grew up and remember good times there, times that were easier and happier sometimes. If the neighborhood were still good, I would want my parents to still live there and hand it down to me. I hope to be able to do that for my son someday. Like I said, I’m sentimental, almost disgustingly so, but I love my home and my neighbors. I feel attached to something and stable. It works for me.

    • Joe Gill

      Home is what you make it my friend. Spending your whole live in the same building is not necessarily being home. Its what happens inside the 4 walls that’s home, with so much to see and experience in today’s world it still puzzles my how many people decide to own the same home and live there their entire life, i mean hey follow your theory, rent it, then move around, and when you are about to get old return “home”. I have lived in various countries and trust me, if people could afford to have unlimited mobility they would move every year. U live once, see the world, and meet the different people in it.

      • Lezlee Pendle

        I’m with you all the way Joe; I have only ever been in the process of buying a house once (many years ago) and it was a disaster!  We had the house re-possessed (as they call it here in the UK) for non-payment due to unfortunate circumstances.  Prior to that and since, I have always rented and never had a problem with it  (apart from one lousy landlord but then we didn’t hang around long for it to be a lasting problem).  The freedom to up-sticks and move on as I please is totally right for me and yes, I have moved on, a number of times.  The thought of being stuck in one place for years and years and years ….. fills me with dread!  Moving around opens your eyes, broadens your mind, lets you experience different cultures and in my eyes, makes a person much more interesting.  It puzzles me also how people ‘want’ to stay so stuck.  And yes, right again, “U live once, see the world and meet the different people in it.”  Well said!

  • David Wright

    I would like to hear more about this teleportation device?

  • Aldo R.

    Great article. I have a question though. My mother is halfway thru paying a condo and we have this idea that we want to move out and rent it out to people. The price of rent in our neighborhood (where the condo is) has gone up considerably. If we rented out to people we would get almost double what we already pay, including HOA fees and utilities. I always like to think that things aren’t as easy as they seem so with that in mind, is it a good idea to consider renting out our condo or should we stay put and just grind out the last 15 years of the mortgage? Anybody know the ins and out of renting out your property? Thanks in advance.

  • jt

    We’re all renters. Home ownership cannot exist where there are property taxes. I do like having my own driveway and no bothersome noisy trashy neighbors blacking the driveway or parking in my space, slamming the front door, having screaming matches. You make valid points.

    • Lezlee Pendle

      Hey jt, not all renters are “… bothersome noisy trashy …”  or   “… block driveways or park in other people’s spaces, slam the front door, have screaming matches…”  etc.  Most of us are decent people the same as those who decide to throw their money at the government or whoever else it is that steals all the money through taxes etc so you can ‘supposedly’ own a house!!  My neighbour has just bought (or is in the process of paying extortionate amounts to call what he thinks is ‘owning’) and He is the one who makes all the noise,, not me or my family who rent!!

  • http://pulse.yahoo.com/_M7LWVZ32YPNPDDC2WDQP574YVQ Mr.All the answers

    However,it does bother you if you’ve been supporting Israel with your rent payments.

  • Jahfre Fire Eater

    I have a modest house, or a very nice shack, depending on your view and your priorities. I plan to stay here till they carry me out in a pine box. I work from home and do all my property maintenance myself. I’m 51 years old. If anything ever caused me to leave this place I wouldn’t buy another home either; at least not because of being blinded by any American Religion’s faith in a home being an investment.

    Most of my friends slave away in areas they can’t wait to get away from for a week or two every year for a ‘paid vacation’ during which they spend piles of cash or rack up debt in the hopes that doing so will recharge their batteries so they can go back to wherever they escaped from to slave away for another year. I live where I want to be. That is the ONLY reason I bought this house and the only reason I’d buy another…because I want to be there.

    Freedom only exists in the mind of an individual. It can’t be shared and it can’t even be seen by others unless one acts on it…freedom is the existence of choice. The American Religion as preached from the clergy in Washington and their benefactors on Wall St. uses moral hazard to lure individuals into paying, in lifetime installments, for the opportunity to trade their choices today for some future return that few ever realize.  Most homes are NOT investments.  Houses and real estate, sure, some qualify, but a home, where love and life happened to you…most of them are not investments in the financial sense although there is no way for others to place a value on the ‘home’ those experiences have created.

    If one has lived in a house long enough for it to be a home it has depreciated. Inflation has continued to increase the opportunity costs of home ownership for the entire ownership period.   Maintenance costs, taxes, interest, dues, fees, etc. have all contributed to the opportunity cost over time. I believe that in a few years no one will still be confused about the difference between an investment and a home as housing prices and incomes and savings continue to drop while inflation continues to accelerate upwards.

    Everyone has their own priorities and their own values. I’d not try to impose mine on you. All I ask is the same in return. When it comes to any commitment you make in life, remember that what it costs you is best measured in the choices you trade for that commitment. The trade may be worth it to you but you should make it after you’ve consciously weighted that cost against the likelihood of future return you are trading your freedom for.

    -Jahfre Fire Eater

  • http://www.facebook.com/people/Pa-Robert/1848440987 Pa Robert

    Altucher writes from a retail sucker, er, buyer’s perspective.  Owning a house has been my single biggest investment, and, even after the meltdown, one of my best.  I bought my lot in the early 90s, from a bank foreclosure (yes, there are very predictable cycles in real estate, and if you don’t pay attention, you WILL regret it).  I paid cash, from 10 years of saving 25% of my salary.  The bank loved it and took 20% off for the ability to close in a few days – nearly half the price the lot was purchased for ~2 years earlier – the bank made out nicely – got a nonperforming loan off their books, took a modest loss and wrote it off their taxes.  A win-win.

    I then built my own home, acting as the general.  Borrowed half a mil (which was a big nut for a recently married 28 year old) and built my custom home of my dreams in a neighborhood of million dollar homes (when a million was worth something).  Instant ~60% return for 2 years of my time.  Fast forward 16 years.  Still live in my home.  Mortgage, after several refis (once to take out some equity to build a business – that failed, sadly) is $2800 mo – less than half to rent an equivalent home.  I also get to take a fat deduction for that mortgage interest, so effective cost is perhaps only 40% than it would be to rent. If that’s Altucher’s idea of a smart thing to do, I have a hard time agreeing.  

    Despite my profit, I didn’t go into home building.  By the time I had built my home, the market had already rebounded and the ability to buy low and sell high had passed (ie the opportunity for a 30% net profit before tax – my minimum investing threshold for any investment – was gone).

    Fast forward a decade.  Internet bubble was about to arrive.  I saw housing prices had started to move, but lot prices hadn’t.  So I bought a few lots on the cheap (literally beating offers by a few hours I later learned), built several ~8000 sf homes, and flipped em a few years later for $2MM profit – from an initial $600K investment (the banks financed all the construction costs). Needless to say, I liked the result.  And tried to repeat.  But couldn’t find anything that offered such attractive returns.  This was around ~2004.  I looked at literally hundreds of properties – raw land, developed land, tear downs.  But prices had moved and the opportunity passed.  So I “retired” at the ripe age of ~40, patiently waiting for markets to return to sanity – never dreamed prices would get so crazy and the madness continue for several more years.  The craziness did stop, with a vengeance.  

    That said, I am not tempted to roll up my sleeves and start buying.  I don’t like the demographics.  Baby boomers are getting nervous.  They (finally) see Social Security is a farce – they see their parents (and all too often, grandparents and great grandparents who are living much longer than anticipated) siphoning off more in SS payments than they ever contributed, essentially ensuring the Great Ponzi Scheme will collapse, just like the laughably rated AAA rated Asset Back Securities did. You don’t want to be investing in real estate without a fat equity cushion when that happens.

    Moral of the story: If you are a retail buyer, too lazy or stupid to realize that you can only typically buy a home about once a decade (that’s about the average boom to bust cycle in real estate), then you WILL get hurt.  But if you have a bit of common sense, some discipline and some historical perspective, real estate can be a very lucrative investment. That said, I don’t think buying real estate makes much sense, despite near record low interest rates and relatively attractive prices.  Way too much supply, prices are still relatively high and demographics are against you.  Instead, rent. If you have spare cash, invest in the producers of commodities – stuff Chindians need – iron ore and copper miners, and oil producers.  I love the junior sector where the little guys, with discoveries under their belts are bringing them into production – the sweet spot for investing with the biggest returns, with (imho) the least relative risk.  The demographics for those investments are stunningly (almost frighteningly) positive.

    • Guest

      “That said, I don’t think buying real estate makes much sense, despite
      near record low interest rates and relatively attractive prices.”

      ?????

  • Rob

    James, this is a great article. It was informative in a very accessible way annnd pretty funny. I can just picture you sitting down to write this, referencing Mr. Sharga’s text: “Call me pointy-headed, will you”?!?

    Anyways, it led me to read a few more of your articles and bookmark your page. I’ll be checking back down the road. Thank you for the info and your approach in delivering it!

  • The prog dude!

    James, great stuff, i am new to your blog and am liking it quite nicely. This one is especially dear to me as I am in total agreement, home ownership is nothing but a scam. There is no other argument, and for those that talk of actually owning a home, well in this country, you dont!!!! Get this thru your heads idiots! EVEN IF YOU PAY THE MORTGAGE OFF YOU DON’T OWN THE HOME! Try not paying your property tax, you will see what you own, so until they do away with that it is and will be nothing but a scam. Run the numbers, and don’t forget to factor in currency depreciation too, you lose every time.

  • Kbear2

    I know I’m way late to the party but…

    I bought my house in 1973 with 25% down and paid it off ahead of time. My house is now worth 10 times what I paid for it even with the recent downgrades. With only taxes and maintenance to worry about I feel very secure.

    That said, the one problem with home ownership is hanging on to too much stuff that you would probably get rid of it you had to move every once in a while to find a new rental.  Then again, moving to a new house now and then would solve that as well.

    But here is one thought about rental that you may never have considered. My brother was in a period of deep depression and had allowed his apartment to get really messy. A maintenance man let him in his apartment one day when he couldn’t find his keys and noticed the upset. The manager of the complex sent my brother a notice that he would be inspected, charged cleanup fees and possibly evicted.
    My brother’s state of mind could not deal with the embarrassment and possible loss of residence. He committed suicide.

    We discovered this series of events too late to help of course. If he owned his own home he could have been as messy as he wished. And we often wonder if he hadn’t been under those threats because he was renting, would he still be with us?

  • Kbear2

    I know I’m way late to the party but…

    I bought my house in 1973 with 25% down and paid it off ahead of time. My house is now worth 10 times what I paid for it even with the recent downgrades. With only taxes and maintenance to worry about I feel very secure.

    That said, the one problem with home ownership is hanging on to too much stuff that you would probably get rid of it you had to move every once in a while to find a new rental.  Then again, moving to a new house now and then would solve that as well.

    But here is one thought about rental that you may never have considered. My brother was in a period of deep depression and had allowed his apartment to get really messy. A maintenance man let him in his apartment one day when he couldn’t find his keys and noticed the upset. The manager of the complex sent my brother a notice that he would be inspected, charged cleanup fees and possibly evicted.
    My brother’s state of mind could not deal with the embarrassment and possible loss of residence. He committed suicide.

    We discovered this series of events too late to help of course. If he owned his own home he could have been as messy as he wished. And we often wonder if he hadn’t been under those threats because he was renting, would he still be with us?

  • Bob S.

    Your 6 point railing against home ownership is really rather confused.

    More cash: You’re really saying, “don’t buy something you can’t afford”, which really could be consolidated with “More flexibility”, except there you really mean, “don’t tie yourself geographically”.  And if you need to move on a moment’s notice, yeah, you probably shouldn’t be buying a house.  Then again, needing to move quickly isn’t something I consider a positive in a person.  Less debt: Again, you’re really saying, “don’t buy something you can’t afford”, or at best, “mortgages are bad”, which does not directly disparage home ownership.  Indeed, I own my home, and don’t have a mortgage.  Even with a mortgage, you completely dismiss the real calculation: is the value gained supported by the payment, including interest?  Less inflation risk: This is just not true at a blanket statement.  Any property tax change will be passed on to the renter, sooner or later.  No maintenance: again, the cost of maintenance is passed on to the renter, including in the lease.  Sometimes it’s collected directly from the security deposit. Less overall costs: you mention again property taxes and maintenance here.  Not sure why, since you’ve already covered them.

    Now, why don’t you consider the positives of home ownership and the negatives of renting?

  • Chebroker

    Soory, accidently posted this under a prior comment.I might recommend that we all start with a solid definition of an “investment”.  Recommend everyone re-read “Rich Dad, Poor Dad”.  If you could not rent your home with a net positive cash flow that competes on ROI with your other similar risk based opportunities, then it is not an investment, it is an expense.  If you can, then it is.   What % of people do you think look at their residence that way?  Probable answer is less than <1%.

  • Guest

    Thank you for this blog entry!  When I was in college my dream was to own a home.  I thought about it constantly, researched as much as I could, and asked a million questions to anyone who owned.  After a few years, I realized it would be a terrible choice for most people, but I have yet to start and finish a conversation with anyone on this topic.  People get offended, even with me, and I always make for an easy and lighthearted conversation.

    When you tell people, especially new(ish) homeowners that you don’t plan on owning and have solid reasons for this decision, the topic quickly changes.  It is too painful for new homeonwers because on some level they will have to realize they have made a terrible mistake.  They will be forced to realize they buy into the hype, bugy into the American dream/fantasy, buy into lies, are now locked into that lie, and are now limited (like you spoke on limitations on flexibility.Also when you realize you are living out one lie, you are in a position to discover hundreds more.  Most people do not ever want to be in that position.

  • John Slaten

    There are good and real points in your arguments about choosing renting over owning, however I was appalled when you were offended by the reviewer of your article saying that you wrote it out of “Self-interest,” as I’m not a regular reader of your blog, I didn’t know you were involved in the hedge market and the reviewer was referring to you misleading readers in order to help your industry.  The key word being misleading, not self-interest.  Next time clarify that a little better, as the only reason anyone reads your blog, is most likely out of self-interest, that is their reading to learn how to make responsible decisions out of self-interest, which is a virtue.

  • Whoosieria

    James:  You’re correct on the downside of home ownership but you ignore the upside.  I think this is, in part, because you live in one of the liberal states where home prices were completely out of whack with reality.  Out here in the middle, we never paid the prices you would have had to pay in New York. We don’t pay the kind of property taxes you pay either. My mortgage payments were never higher than rent would have been.  Now they are zero.  Because my government is fiscally conservative, property taxes remain low.  My neighborhood is stable.  We know each other.  We don’t have sex offenders moving in every week, etc.  Intangibles are difficult to measure but they still bring value.

    Is it illiquid?  Absolutely.  Do I care?  No, because I have no interest in moving.  When you add up the total I will pay to live in this house and allocate it back on a monthly basis, I got a better deal than you did.  My monthly housing burn is less than $200 (taxes and insurance).  Best of all, when inflation kicks in, as you know it will, thousands who follow your advice will be priced out of their apartments.  Very few people ever get 10 year leases, especially now.  That you did indicates just how bad the rental market was when you cut your deal.  I’ll bet you couldn’t get it now.

    You’ve also failed to consider what happens if your landlord sells the building you rent in sometime in the next ten years.  Yes, you have the law on your side.  Good luck with that.  I hope you don’t find out how helpful the law is to renters.  Maybe NY is different than Bugtussel. Out here, the only people who rent are the ones who can’t afford a trailer.

    That said, there’s nothing wrong with renting. You appear to have thought things out, but James, you only told one side of the story. In your typical NY liberal sort of way, you presume that your situation is everyone’s situation.  It’s not.  

  • Chris Stalker

         More cash. You never have to put down a down payment that uses up most of the cash in your bank account.   TRUE.
    –          Less debt. It’s true a mortgage locks in your payment. But you’re greatly in debt so you are paying interest straight to the bank…etc  **Wrong. You are just as in debt as me, I will eventually get out, you will continue to pay for a place to live.
    –          Less inflation risk. Property taxes often goes up faster than inflation whereas usually rent does not go up faster than inflation. **Wrong, and ridiculous. You are still paying those property taxes. Seriously, you don’t  think you’re paying your property taxes? Property taxes > inflation > rent? No, some years they jump but these tend to be (in general) tied. 
    –          No maintenance. Homeowners have to take care of all maintenance. Some years that might be nothing (unlikely) and some years that may go up much faster than inflation.  **Again… you do realize that you are paying for all of the maintenance… all of it. If the stove breaks, you will pay for it this year or next year or you will be paying for someone else’ broken stove. 
    –          Less overall costs. When property taxes and maintenance go up faster than inflation it means you are probably not covering the costs (plus the mortgage) via renting. **NO. You are buying somebody else’ property for them. They have a mortgage and you are directly paying for it. When their costs go up, so do yours. 
    –          More flexibility. In a global economy, opportunities can be anywhere. I like having my flexibility.  **Yes, definitely, if you think you may move within 5 years, renting has been shown pretty clearly to be the best choice. 

  • Hammertime

    given the choice of replacing the dishwasher every 2 years versus moving every 2 I’ll take replacing the dishwasher.

  • Ryan Bray

    Buying residential housing as “an investment” is stupid. Buying a house to live in, instead of paying someone else’s mortgage, is another thing entirely. Personally, I love the city I’m in, love having a big dog, love having a garage to work on my vehicles, and currently spend nearly a mortgage payment a month to rent a home. Why wouldn’t I buy, especially in this market?

    • Ryan Bray

      Btw, you’d rather literally commit suicide than buy a home? That is slightly inflammatory. Slightly.

  • David G

    James: I am a real estate investor and have made tons of money buying and sell homes. If I get an especially good deal I will live in the house for 2 years to avoid paying any capital gains. I have studied and practiced in this field and have an observation that I would like to share with you. Looking strictly at the dollars and cost of your own labor to manage the home with the picket fence, its worth as an investment and thus having the ball and chain around your leg is dependent on the rate at which the home is appreciating or depreciating at any given time. In other words if home prices are going up faster than similar investments of low risk (CD’s and government bonds lets say) then you are better off owning and if not then you are better off renting. If you just don’t care to take the chance or have better things to do with your time then you are better off renting. But there are periods of time when owning property can be well worth the time and risk. Trust me I have made enough to retire doing so. But today and in the foreseeable future I would be happy being a renter as I don’t care to try and be the one dying with the most money.

  • Mr. Smith

    Sir, I believe you are not looking far enough into the future. Renting and mortgaging cost about the same. The difference is that at the end of the mortgage you own an asset worth $500,000 and at the end of 30 years of renting you own….nothing. Most people cannot afford to not own a home.

  • http://www.writingfromafar.com/ Tony

    Interesting discussion. Personally I own here in the UK. It actually works out a lot cheaper than renting. I bought modestly on a 23 year mortgage – I paid it off in 6 years. I’m not wealthy, earn a modest salary, and am divorced with child maintenance payments – I just made paying off the mortgage a priority. I now get to live “rent free” for the rest of my life – I’m 50 now – so, statistically that’s around 29 years rent free (a £300,000 value). My mortgage was around £500 a month. To rent the same thing would cost around £850 a month, maybe more. There is some maintenance costs, but nothing major. Council tax is around £1,200 a year. Having said all of that I do agree with many of James’s arguments. The biggest advantage of renting being freedom. I know plenty of people who are trapped by their houses. They just can’t bring themselves to sell – to them it’s like selling one of their kids – it traps them. Personally I would be happy to sell up and walk away with a large lump sum. I am considering moving to The Philippines anyway. The other option is to rent out. Owning has been good for me, but I can certainly see the benefits of not owning too, although you do pay a price for that freedom. With regards buying houses for profit – my brother has been doing it for around 25 years now and he’s made millions, so it can be done, if you want to.

  • Kristie

    I completely agree but I think I found the perfect solution that isn’t for everyone but it works great for me. I built a 97sq ft home 2 years ago put of reclaimed materials for $3000. Last summer I was able to purchase some land to move it onto for $5000. So for zero debt I’m now a humble homeowner. It’s all off grid so my only ongoing payment is the $5 property taxes.

  • http://www.facebook.com/david.donahue2 David Donahue

    I believe this guy may not be entirely wrong. I worked hard bought a house and in fact bought two. God forbid you end up with a dsability your completely screwed. I mean it happened to me and now I live in a ghetto. Dont ever think it couldnt happen to you. I have been a US marine for six years, a Navy reservist for 3 and then I also worked as a commercial electrician for 15 years. I thought I did everything right. Put a kid in the mix and your in for a wakeup call. So, yea you may think your coffee latte will continue to stream down your throat while driving to your mundane job as a whatever in your SUV but maybe just maybe someday…the tide will turn when you least expect it. The American dream has turned into American greed and everybody has a hand out and that hand has got on hold on alot of nuts out there…

  • Rheagl

    I can only speak from the perspective I have lived with. When it comes to raising children, it is better to be planted in one place while they are growing up. The stability helps them. As a Scout Leader for over 30 years, I saw MANY kids from what I call “migrant families” (military and prison workers, in my area). The one thing that most (with just a very few exceptions) had in common was a hindrance to make close friends. They were more “followers” and had to be urged into learning leadership. They KNEW this was all temporary.

    I noticed that Mr. Altucher has a 10 year “rental agreement”. I hope that was for his child’s sake and not JUST to get fixed rates. However, either way, … so much for Sri Lanka. lol

    For me, raising my kids and developing them into “community” was the most important factor to my OWNING a home. A second benefit I found was that MOST of the money spent on purchasing (because it was mostly interest as Mr. Altucher noted) was tax deductible. Thus, the first ten years of a mortgage, you are basically living FREE. (For anyone tax challenged > If your mortgage is $600/month and you can write off $540/month because it all goes to interest, it only costs you $60/month for housing. I don’t think you can rent the same property for $60/month.) THERE IS NO TAX DEDUCTIONS FOR RENTING.

    For someone with no kids and does move frequently, renting IS your option. For anyone growing a child or a local business, then buying seems a better deal — at least from my perspective. LOL

    • Kyle

      As far as tax deductible, bear in mind that you need to have a huge interest bill to make this worth while otherwise you’ll get the same deduction by using the Standard deduction.

  • anonymouse

    The difference is that for a serf, the land was actually a productive asset, one that could be used to produce revenue by means of farming. The feudal rents were meant to be a small part of that income, though obviously the feudal lords could and did abuse their power to raise the rents arbitrarily.

  • XX

    Well, for the last five years or so, since I moved to my current home, my mortgage payments have been under £100 per month. Even in this very low-priced part of the UK, to rent an equivalent property would cost me at least £350 per month. So, over five years, I have saved £15,000 on the price of rent. I have not actually spent anything in maintenance, although I am currently about to lash out about £4000 on solid wood flooring and some new windows, i.e. just over a year’s worth of the savings I have made. I could pay off my mortgage tomorrow if I chose to do so. Even if I do not, in five years, the house will be totally mine with no mortgage to pay. If I was dumb enough to rent, I would still be paying out £350 per month, increasing with inflation, for the rest of my life. In addition, I am free of hassles. I choose to live with four cats, and have not had to ask anyone for permission to do so. If I want to paint my rooms in lurid colours, again I can do so with no comebacks. I have no landlords or agents insisting on checking the property. I am free.

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  • Kyle

    I love this article and often debate the virtues of home ownership with others. For me, there are a few key points on both sides of the argument…..If you do decide to buy a home, make sure you pay it off much much sooner than the full term, just small payments directly to the principal early in the loan term can make a big difference to the total interest paid back…….Buy the worst house in the best neighborhood and put your own sweat equity into improving it……Don’t over improve either, the law of substitution says that someone will buy the lower priced house with equal utility rather than pay more for your upgrades…….Don’t buy a home as a primary residence unless you plan on staying there for at least 5 years, ideally 10…….finally, there’s no price that can be put on security. My grandparents are 94 and 91 (!!!) and they rent……it makes perfect sense to offload that maintenance responsibility to someone else…..until the landlord drags their feet over repairs and that’s not something you want to be dealing with in your twilight years. Or puts the rent up. Or even worse, sells the home and needs you out of the property at the end of your lease. Which happened to them and moving again at that age it’s not a pleasant experience.

    Not everything comes down to money and that’s tough to say from a guy who takes frugality very seriously ! I’ll never buy a new car or any depreciating asset (my biggest annoyance……kids books ! $8-$10 brand new, you’d be lucky to get 25c if you walked straight out of the store and tried to sell it at a garage sale !) without careful thought but for me there’s something about the control I have over my families well being when I own a property. Barring condemnation through Eminent Domain (and that I pay off my home) , my family can stay there without fear of losing it. And that has value in terms of peace of mind for me.

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  • umblondie

    I’m with you on the never own another house thing tho. My friend and I have daily discussions on how to escape this neighborhood and we dream of the day we become free of homeownership!