Why owning a house is financial suicide

Must be a slow news day

 

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?

 

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

 

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.

 

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.

 

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.

 

Needs more mindset

 

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

 

We need more articles like this. We need lots of renters

 

I agree with him - I have a list of vacant properties that need to be filled.

 

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?

 

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.

 

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.

 

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".

 

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
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.

 

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.

 

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.

 

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.