3107: Why I Am Never Going to Own a Home Again by James Altucher on Renting versus Buying Real Estate

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[00:00:26] This is Optimal Finance Daily. Why I Am Never Going to Own a Home Again by James Altucher of JamesAltucher.com Many people have said to me in the past month, I'm going to buy a home or what do you think of the idea of me buying a home? I like this second batch of people. They're my friends and it seems like they're sincerely asking for my advice and I'm going to give it to them whether they meant it or not.

[00:00:54] I have some stories about owning a home. One of them is where I describe my complete path into utter depravity and insanity. The other one is still too personal. It's filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up, but I don't want to upset anyone in my family, so I'll leave it out. Oh, I have a fourth story that I just forgot about until this very second.

[00:01:22] But enough about me. Let's get right to it. There are many reasons to not buy a home. Financial. Number one, cash gone. You have to write a big fat check for a down payment. But it's an investment, you might say to me. Historically, this isn't true. Housing returned 0.4% per year from 1890 to 2004. And that's just housing prices.

[00:01:51] It forgets all the other stuff I'm going to mention now. Suffice to say, when you write that check, you're never going to see that money again. Because even when you sell the house later, you're just going to take that money and put it into another down payment. So if you buy a $400,000 home, just say goodbye to the $100,000 that you worked hard for. You can put a little sign on the front lawn. $100,000. Rest in peace.

[00:02:19] Number two, closing costs. I forget what they were the last two times I bought a house. But it was about another 2-3% out the window. Lawyers, title insurance, moving costs, antidepressant medicine. It adds up. 2-3%. Number three, maintenance. No matter what, you're going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice.

[00:02:46] Get down on your hands and knees and fix it. And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn't work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me. Number four, taxes. There's this myth that you can deduct mortgage payment interest from your taxes.

[00:03:17] Whatever. That's a microscopic dot on your tax returns. What's worse is the taxes you pay so your kids can get a great education. Whatever. Number five, you're trapped. Let's spell out very clearly why the myth of home ownership became religion in the United States. It's because corporations didn't want their employees to have many job choices. So they encourage them to own homes. So they can't move away and get new jobs.

[00:03:47] Salaries are a function of supply and demand. If you can't move, then your supply of jobs is low. You can't argue the reverse since new adults are always competing with you. And number six, ugly. Saying my house is an investment forgets the fact that a house has all the qualities of the ugliest type of investment. Illiquidity. You can't cash out whenever you want. High leverage.

[00:04:14] You have to borrow a lot of money in most cases. And no diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be. Personal reasons to not own a house. Number one, trapped. Part two. Some people like to have roots. But I like things to change every once in a while.

[00:04:42] Starting March 2009, I was renting an apartment directly across the street from the New York Stock Exchange. It was fun. I'd look out the window to see Wall Street. How exciting. Before that, I lived in the Chelsea Hotel with Chubb Rock. Last year, we decided to relax and move a little north. Now I look out the window and see the Hudson River. And it's quiet. And I can walk along the river in the morning with no noise. It took us two weeks to pick a place and move. No hassles.

[00:05:10] I like to live a hassle-free life. Number two, walls. You can't change the walls when you rent. A lot of people seem to want to tear down walls or paint them. Sometimes when you rent, you can't do these things. Well, make sure you have a landlord that lets you tear down walls. There must be some ancient evolutionary tick that makes us want to tear down walls or put nails in them or paint them. I don't get it.

[00:05:39] I like the walls to stay right where they are. Number three, rent. People will argue that the price of the mortgage, maintenance taxes, etc. is all baked into the price of rent. Sometimes this is true, but usually not. Number four, psychology. Look at your personal reasons for wanting to own. Do you feel like you can't accomplish something in life until you own a house?

[00:06:05] Do you feel like it's part of getting married and settling down that is creating a nest for your future children? For you, is it a part of becoming an adult? Is this what your parents taught you? Examine the real reasons you want to own and make sure they're coming from a good spot in your heart. Number five, your time. Do you really want to spend all that time working on your house? Is this where your time is best spent towards creating a happy and fulfilled life for yourself?

[00:06:35] Number six, choices. I feel when I rent, I always have the choice to leave. To live wherever in the world I want, whenever I want. Adventure becomes a possibility, even if I never take advantage of it. Number seven, stress. For me, not for everyone, owning a home equals stress. I saw what my parents went through at their worst moments owning a home.

[00:07:00] I saw what I and others went through in the internet bust when I first owned a home. I saw what people went through in 2008. People were killing themselves. I don't like that sort of stress. And number eight, cash is king. I like cash in the bank. I like having access to it. I don't like it all tied up in one illiquid asset. I want to fill a bathtub with all the dollar bills I would have used as a down payment on a house.

[00:07:29] I want to bathe in that bathtub. I'm going to do that later today, in fact. By the way, this is going to sound like a contradiction, but I think housing is a great investment right now. I think housing prices have gone down far enough as of when this article was written in 2019, and I can list the reasons why housing as an abstract investment concept is going to go higher from here. But I don't like to write about investing on this blog.

[00:07:55] Suffice to say, there are many stocks you can buy with leverage if you want to take advantage of the rise in housing. But I'm never going to buy a home again. And sit there in the middle of the night thinking, why the hell did I do this to myself again? You just listened to the post titled, Why I'm Never Going to Own a Home Again, by James Altucher of jamesaltucher.com. And now, a word from our sponsors at Betterment.

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[00:10:17] and start selling today at Shopify.com slash OFD. Go to Shopify.com slash OFD. Shopify.com slash OFD. As I was reading this, I could hear thousands of you thinking, he's wrong about appreciation. My home has doubled in value since I bought it. So let's dig into this a little more. While I'm personally not a real estate investor,

[00:10:45] I had the pleasure of recently seeing Rich Carey from Rich on Money speak at Camp Fi about this very topic. Rich owns 30 rental units, and I was really surprised at what he had to say about appreciation. He was making the point that real estate investors need to focus on cash flow and only buy properties that fit the 1% rule, which basically states that the property's monthly rent must be equal to or no less than 1% of the purchase price.

[00:11:15] Many people who invest in high cost of living areas where properties that follow the 1% rule are nearly impossible to find will often say they're banking on appreciation of the property over the long run. The trouble is that over the long run, appreciation in real estate typically just keeps up with inflation. But you may have periods where you see big jumps. So for example, Rich bought a house in 2003 for $280,000,

[00:11:43] and two years later, the house was worth $400,000. Sound familiar? That's a 42% increase in value, which is awesome. And this is what you hear all the time when people talk about their homes appreciating. However, when he sold that house in 2016, it sold for $400,000, meaning that it didn't appreciate any further over 13 years. And the appreciation was 2.6 per year

[00:12:12] for the time that he owned it. To put that in perspective, over that same period, money invested in the S&P 500 index would have returned 118%. This is another reason why many people in the personal finance space will point out that your primary residence is not an investment. A property is an investment when it's an income-producing asset. And it becomes an income-producing asset when you focus on cash flow on rental properties,

[00:12:42] not appreciation. And that will do it for another edition of Optimal Finance Daily. Have a great day. Thank you for listening. And I'll be back tomorrow where your optimal life awaits. Optimal Finance Daily. You can expect the past. If you look at that point, of the world. if you look at your content. level as you'll