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6 Reasons Why You Should Never Ever Buy A House


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I think that the article dismisses the value of an initial investment into a home way too easily. I'd also like to hear where the number of .4% annual return in housing value came from. The closest thing that I found was Robert Schiller's analysis of housing prices from 1890 - 2006 which showed a 99% increase in housing prices during that time period after adjusting for inflation. That's more than 0.4%/year. Additionally, I don't believe that figure considers that the investment is the cost of the down ($100,000 in the example) and that the return is based on the value of the asset ($400,000 in the example), essentially quadrupling (or more) the rate of return in the example.

It's easy to say that you're never going to see that money again, but that's making an assumption that you don't leverage your existing investment to purchase a more valuable property or "downsize" at some point and recoup at least a degree of your initial investment. You could make that same argument about any asset purchase.

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

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I think that the article dismisses the value of an initial investment into a home way too easily. I'd also like to hear where the number of .4% annual return in housing value came from. The closest thing that I found was Robert Schiller's analysis of housing prices from 1890 - 2006 which showed a 99% increase in housing prices during that time period after adjusting for inflation. That's more than 0.4%/year.

You are correct.

Changes in average home prices fail to reflect all the remodeling, repairs, and upkeep that are typically completed during the course of occupancy and in preparation for sale. The fact is that structures are a depreciating asset (like a car). The land may or may not appreciate in value. (There are exceptions, however those are typically in parts of the country where increasing replacement costs reflect an increasingly burdensome regulatory environment.)

Also, changes in average home prices do not take into account the steady increase in the size of a typical home or qualitative enhancements typical of more recent construction.

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This seems like the sort of thing that should promote rational, well-thought-out discussion on HAIF. Or not.

Why I Am Never Going to Own a Home Again

The article makes it sound like you're better off buying lottery tickets than a house.

Ultimately, the choice to buy versus rent is a personal one - and personal preference is really all the reason you need.

That said, each of the Altucher's points can (and should) be rebutted.

A) Cash Gone - True you have to pay interest and other fees on a mortgage, and that cash is gone. But it's even worse for renting. Before I bought my home, I rented various apartments for 14 years. Over those 14 years, I paid a total of $100,000 in rent. If those had been mortgage payments, instead of rent checks, I might have build a few thousand dollars in equity. But they were rent checks, and all of that money's gone.

B) Closing costs - This is the one area where the Altucher has a good point. Closing costs can be onerous - which is why many people advise that if you'll be in a house for less than 5 years, you should rent. (The closing costs are more than the equity you would build over 5 years.)

C) Maintenance - OK, it sounds nice to live in an apartment or condo, where theoretically everything's taken care of. But you can't always trust a landlord to fix things right and in a timely fashion. The bathroom vent fan stops working - you call the office - they come by and remove the vent, leaving a gaping hole in your bathroom. Weeks, then months go by, and despite your phone calls, the hole is still there. This happened to me in one of the apartments I rented. It's the old mantra "if you want something done right, do it yourself."

D) Taxes - You CAN, in fact, deduct mortgage interest from your federal income taxes. It's not a myth. I do it every year. Furthermore, landlords pay local property taxes, and they pass those taxes on to tenants as part of their rent.

E) You're Trapped - You can't just up and decide to leave one day, because you have to sell the house. Renting isn't the panacea Altucher would have you believe - if you break your lease to leave early, it can be costly. But the real question is: is it really that bad to be locked into a house? If the neighborhood is stable and safe, and you have friends there, why are you so eager to leave? Do you really want to uproot your children and put them in a new school every few years?

(And I wonder if Altucher actually studied history before he gave his rant about how big corporations fomented the "myth of homeownership" as a way to keep workers from moving. The 19th century industrial town was built around renting. Factory owners built houses, and rented those houses out to workers as a way to take back their wages.)

F) Ugly - As in, ugly investment. Maybe houses are really ugly investments. But a house is much more than just an investment. It's a home. It is a reflection your personality and lifestyle choices. It's yours to personalize. Whether that means painting it your favorite color, or covering it in beer cans - you can't do that to a rental.

As I said before, the decision to buy versus rent is a matter of personal choice. I think Altucher got caught up in the financial aspects of it (he is a financial expert after all) - but there's a lot more to the decision.

Edited by WAZ
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What the whole argument boils down to is that, in most cases, homes should not be purchased as investments. They should be purchased as shelter. And, really, whose fault is it that home ownership became the big investment thing in the last decade? Well, in large part, it was the Wall Street investment firms, as in hedge funds, like this guy. I suppose that now that he is no longer investing in home mortgages, he is touting the lousy investment housing has become. But, for hundreds of years, housing was never an investment at all. It was shelter. And, for the overwhelming majority, it is still that. Even those that realize a profit from their homes generally only use that profit as a means to move into better homes.

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C) Maintenance - OK, it sounds nice to live in an apartment or condo, where theoretically everything's taken care of. But you can't always trust a landlord to fix things right and in a timely fashion. The bathroom vent fan stops working - you call the office - they come by and remove the vent, leaving a gaping hole in your bathroom. Weeks, then months go by, and despite your phone calls, the hole is still there. This happened to me in one of the apartments I rented. It's the old mantra "if you want something done right, do it yourself."

Yes, and in my experience, most apartment landlords are only interested in the minimum of repairs and maintenance. Being a bit of a control freak myself, I actually enjoy repairing and improving my dwelling to my own tastes rather than relying on someone else to make very minimal effort. And with a house, I can perform my own low-cost customizations without getting charged by a landlord upon move-out.

E) You're Trapped - You can't just up and decide to leave one day, because you have to sell the house. Renting isn't the panacea Altucher would have you believe - if you break your lease to leave early, it can be costly. But the real question is: is it really that bad to be locked into a house? If the neighborhood is stable and safe, and you have friends there, why are you so eager to leave? Do you really want to uproot your children and put them in a new school every few years?

(And I wonder if Altucher actually studied history before he gave his rant about how big corporations fomented the "myth of homeownership" as a way to keep workers from moving. The 19th century industrial town was built around renting. Factory owners built houses, and rented those houses out to workers as a way to take back their wages.)

Being trapped in a house is mostly an issue in a down market or if you overpaid for your property and jobs in your area are scarce. But I can attest that it does limit the desire to move - I have had job opportunities in other cities, but have no desire to sell because of the amount of work I've put into my place and due to market conditions.

What the whole argument boils down to is that, in most cases, homes should not be purchased as investments. They should be purchased as shelter. And, really, whose fault is it that home ownership became the big investment thing in the last decade? Well, in large part, it was the Wall Street investment firms, as in hedge funds, like this guy. I suppose that now that he is no longer investing in home mortgages, he is touting the lousy investment housing has become. But, for hundreds of years, housing was never an investment at all. It was shelter. And, for the overwhelming majority, it is still that. Even those that realize a profit from their homes generally only use that profit as a means to move into better homes.

Bingo. Speculation and investment in certain housing markets helped create the artificial demand that crashed with the mortgage crisis. I only really feel bad for the home buyers who actually intended to move into developments that are mostly abandoned and in decline following the crisis.

Edited by barracuda
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The title of the article should be "why you should never ever buy a house as an investment"

But that's not a very good point, either. There are people who buy junk vehicles, repair them, and then resell them for a profit. That business model works for housing, too. Likewise, there are companies that own and lease vehicles...and companies that own and lease housing. Nothing wrong with that.

There are no automatic yes/no rules to abide by. That's how ignorant investors create commodity price bubbles in the first place. If I might propose a title for the article, it would be, "All investors should be competent, diligent, and cautious." Nobody would read that article; it would be too accurate, precise, and useful. People don't want that.

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What the whole argument boils down to is that, in most cases, homes should not be purchased as investments. They should be purchased as shelter.

I think that houses can be a very good investment. The problem is that home values have up/down swings like any other speculative asset and most people can't control the point that they have to sell. If you're in a position where you can hold onto your house through a downturn and wait for market conditions to swing back, then you have a big advantage over the average homeowner. If you can't do that, then I would agree that renting is probably a good plan.

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  • 3 weeks later...

moo, i like to tinker with stuff so buying a house gave me a huge thing to tinker with. I personally think this whole argument silly, worrying about being bound to your house and unable to move quickly if needed. Don't buy a house you can't afford. If you can't afford to pay rent for a place to live and your mortgage, chances are you are stretching yourself a bit too thin.

For my personal rent vs buy:

Rent for a good condition 2/2 bungalow with 2 car garage would be very close to the same as my mortgage/insurance/taxes and that is with a 15yr loan.

I didn't buy my home as an investment (of course i still tried to buy something that should gain value) but more of a piggy bank to hold part of my rent I would have been spending.

Edited by SilverJK
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