Why owning a house is financial suicide

Discussion in 'Investment Strategy' started by Simon Hampel, 13th Nov, 2015.

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  1. Simon Hampel

    Simon Hampel Founder Staff Member

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    Article published on news.com.au today:

    Real Estate Tips: Is buying property financial suicide? | James Altucher

    OWNING your own house is as much the Australian dream as the American dream, and it’s one that feels increasingly out of reach for many.

    But when one user on Quora pondered whether it was ultimately better to rent or own your own home, blogger and investor James Altucher penned this highly controversial response:

    I am sick of me writing about this. Do you ever get sick of yourself? I am sick of me.

    But every day I see more propaganda about the American Dream of owning the home.

    I see codewords a $15 trillion dollar industry uses to hypnotise its religious adherents to BELIEVE.

    Lay down your money, your hard work, your lives and loves and debt, and BELIEVE!

    But I will qualify: if someone wants to own a home, own one. There should never be a judgment. I’m the last to judge. I’ve owned two homes. And lost two homes.

    If were to write an autobiography called: “My life — 10 miserable moments” owning a home would be two of them.

    I will never write that book, though, because I have too many moments of pleasure. I focus on those.

    But I will tell you the reasons I will never own a home again.

    Maybe some of you have read this before from me. I will try to add. Or, even better, be more concise.

    ... (more)​

    I was about to pick apart the article, but some of the stuff that was written didn't make a lot of sense until I read the start more carefully and realised that this was an American discussing buying property in the United States.

    Some of the numbers used to prove his point are a bit questionable - such as using 60% LVRs when purchasing and an assumption of 6% yields.

    Not sure why news.com.au is publishing it in their Australian finance section anyway.
     
    Last edited: 13th Nov, 2015
    Simon Hampel, 13th Nov, 2015
    #1
  2. Stu

    Stu Well-Known Member

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    Must be a slow news day :)
     
    Stu, 13th Nov, 2015
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  3. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    Stopped reading when it said about the 0.2% increase.

    I can't stand these whinging authors of these articles.

    What's happened to the biggest complainer of all Jessica Irvine?
     
    Johnny Cashflow, 13th Nov, 2015
    #3
  4. skyfall

    skyfall Well-Known Member

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    James is an intelligent and funny guy, and I subscribe to his blog and podcast.

    His wiki is here:
    James Altucher - Wikipedia, the free encyclopediaJames Altucher - Wikipedia, the free encyclopedia

    James Altucher is an American hedge fund manager, entrepreneur, bestselling author, and podcaster. He has founded and cofounded over 20 companies, including Reset Inc. and StockPickr and claims to have failed at 17 of them.

    AMA is here:
    I am James Altucher, founder of 20 companies (17 of which failed), author of 11 books, and writer. I’ve made millions, lost it all, made it back, and written about everything I’ve learned along the way. AMA • /r/IAmA
     
    Last edited by a moderator: 13th Nov, 2015
    skyfall, 13th Nov, 2015
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  5. albanga

    albanga Well-Known Member

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    Why owning a house is financial suicide

    Anyone read this article? Whilst some points I liked, particularly around investing in yourself I really found it to be an article about someone's mistakes and then trying to justify those.
     
    albanga, 13th Nov, 2015
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  6. Phantom

    Phantom Well-Known Member Premium Member

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    Agree @albanga. Seems like he bought 2 houses, lost them and is now advocating that houses are a bad investment. Apparently Warren Buffet 'isn't good enough to invest in real estate'.
    He may be a great speaker and investor in other classes, businessman etc, but a bit questionable the purpose of this article.
     
    Phantom, 13th Nov, 2015
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  7. larrylarry

    larrylarry Well-Known Member

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    Opportunity costs, I agree. However not everyone has the desire to start a business and if they do, high rate of failures. He failed in business many times but why he kept going, well because he believes in it, so are property investors. Each to its own.
     
    larrylarry, 13th Nov, 2015
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  8. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Needs more mindset
     
    DaveM, 13th Nov, 2015
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  9. Northy85

    Northy85 Well-Known Member

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    Couldn't you recently get like a 3% loan with a 20% rental yeild in some states in America?......... Even if you bombed out with 2 houses surely you could see the potential in those numbers
     
    Northy85, 13th Nov, 2015
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  10. devank

    devank Well-Known Member

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    We need more articles like this. We need lots of renters ;)
     
    devank, 13th Nov, 2015
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  11. Xenia

    Xenia Well-Known Member

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    I agree with him - I have a list of vacant properties that need to be filled.
     
    Xenia, 13th Nov, 2015
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  12. Scott No Mates

    Scott No Mates Well-Known Member

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    There are far more failed business owners out there than failed homeowners. Trying to get a startup rolling on the smell of an oily rag with no overdraft or capital injection from the banks without heavy cross collateralisation backed by residential property.

    If it were the other way around then funding for ppor housing would dry up overnight.

    Are failed property and entrepreneurs the right people to listen to when it comes to property?
     
    Scott No Mates, 13th Nov, 2015
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  13. Xenia

    Xenia Well-Known Member

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    There are way more failed property owners and property investors than you think.

    I've seen a lot of people fail in property investing and they were not any less intelligent than anyone else.

    People who are too highly geared when markets turn can generally get caught out and have to sell everything.

    People generally invest in property because it's easy you don't have to develop a specific skill set to get in.

    It does take money and borrowing and debt to get into property investing and exposure to too much debt above your means to Service that debt is where the risk comes in

    Business on the other hand does not always take debt to get it going but it does take a specific skill set and a mindset to get it to a level of success.
     
    Xenia, 13th Nov, 2015
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  14. Bayview

    Bayview Well-Known Member

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    For the vast majority of humans who are at average or below incomes, owning a house is the safest and best investment for them.

    If someone buys a modest home at aged 25, and then live in it for their entire working life, and along the way pay off the loan in a quick fashion (to reduce the interest amount), they can easily end up on this forum as the brunt of that other thread about greedy Aged Pensioners sitting on a fortune in their PPoR.

    :p:p:p
     
    Bayview, 13th Nov, 2015
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  15. Scott No Mates

    Scott No Mates Well-Known Member

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    Banks aren't sufficiently risk adverse to back business (small or large) yet are sufficiently confident with property or will reduce their exposure through LMI.

    As I was once advised by a CFO of a large 2nd tier building company (& heard many times since): "if you owe the bank $1m, you've got a problem but if you owe the bank $20m, the bank's got a problem".
     
    Scott No Mates, 13th Nov, 2015
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  16. MrsNixba

    MrsNixba Well-Known Member

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    I think we have the rent vs buy debate at work at least once a week. I can see both sides of the coin but at the end of the day, it depends upon your risk tolerance and long term desires.

    For me, there's a sense of pride in doing up and maintaining my own home. It's not all about the money - perhaps the investment in 'self improvement' can be found in the joy of creating a garden, renovating a bathroom, learning how to fix something yourself or decorating your kids' rooms, rather than reading a book upstairs.

    The decision to own my own home is not a financial one - of course it would be cheaper to rent where I want to live rather than to buy - but aren't there more factors to consider?

    I dislike articles that influence the public by oversimplifying complex scenarios.

    Reminds me of a similar article published in SMH a while ago (wish I could find it so I could post it), where an opinion piece was centred around the idea that renting a house for 30 years was cheaper than paying a 30 year mortgage. Probably, but what are the returns on renting? Where are the 'emergency funds' that you can access from a line of credit? How many renters are good savers and have the self-control to manage their own 'emergency funds'? Most of my renter friends spend their 'spare' money - yes, it's a generalisation - but where is their safety net?

    Nobody has a crystal ball, but I am quite happy with my choice to buy and live in my own home. That said, if I was a single, more flexible, less culturally anchored to Sydney person, maybe I could live a little more freely... Wouldn't that be nice...
     
    MrsNixba, 13th Nov, 2015
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  17. albanga

    albanga Well-Known Member

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    @MrsNixba
    So well put! This article totally neglected one of the key things and that is the what I call "The Castle Effect". It's not a house, it's a home. I am renting a house at the moment whilst I build MY HOME. This will be the home my wife and I make to our tastes, the home we will raise our family and have endless memories in. Sure at some point we may sell it but that will be on my terms and when I'm ready, not because my landlord wants to knock it down and build 3 townhouses on it.
    And this article talks about reading a book whilst the plumber fixes it, yeah that's all well and good but what about when you want to do something or have something added to enjoy that you need to seek permission for? I rented years ago and was given heaters that did nothing and drained maximum power, I needed to ask for a split system and was obviously told no, pay for it yourself.
     
    albanga, 13th Nov, 2015
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  18. Ozzie in Texas

    Ozzie in Texas Well-Known Member

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    The writer also fails to mention two points.

    One, there are tax incentives attached to paying off a mortgage on your family home (similar to negative gearing in Australia).

    And two, renting in the US is a far more expensive proposition than paying off a mortgage. We are currently servicing a hard money loan because that was the best we could do at the time soon after arriving in the US. Even though our current interest rate is 14%, monthly repayments are still more affordable than renting. We weighed up our options and decided that we could at least build credit as well as take advantages of tax deductions.
     
    Ozzie in Texas, 13th Nov, 2015
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  19. Johann_

    Johann_ Well-Known Member

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    I read this article and it drove me nuts. I am 31 and have had my PPOR paid off since I was 30....
    It took allot of hard work and sacrifices but now I am free.

    Negative attitude by the author = a negative life.
     
    Johann_, 13th Nov, 2015
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  20. Perthguy

    Perthguy Well-Known Member

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    There are a lot of intangibles with owning your own home. For people who have access to the aged pension in Australia, a PPoR is not counted in the assets test. For people who rent, what they can do to the house is quite restricted. There are also regular inspections which are irritating for some people. An unencumbered PPoR can be great if you are into property investing. There is also the issue of security of accomodation. There was a story on tv last night about pensioners being the most likely group to be evicted from rental properties. How would like to be an pensioner and kicked out of the home you are renting? That does not appeal to me at all.

    Of course I can see issues with first home buyers in Sydney buying $900k houses for their first home. But it doesn't have to be like that. Your first house doesn't have to be ridiculously expensive. I know people who have started with a very basic reno and worked their way up to owning a modest home in a good location. Over time, the value of the asset will grow. And as I mentioned, an unencumbered PPoR can be great if you are a property investor.
     
    Perthguy, 13th Nov, 2015
    #20
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