Grant Cardone "Buying a House is for Suckers"

[Marquin Brewer]

What if you collect $700/month of rent, but have to do an eviction and it takes you 2 months to fill the place back up. And 7 months later you have to spend $5,300 to replace the roof. Is that house putting money in your pocket then?

No, it wouldn't but as an real estate investor you build these scenarios into your equation that's an expense all businesses have those that's the cost of doing business read any balance sheet. This scenario would only affect you if this was your only house of course real estate investing is hitting singles instead of hitting home runs but if you have a few houses in your portfolio you would be ok.

 

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[MJ DeMarco]

homeownership bullcrap that's given out by banks and mortgage companies.

I don't have a mortgage because I'm a sucker and paid cash for both my houses ...

Nonetheless, I agree here -- most retail buyers have no clue how a 30-year mortgage is amortized and how it is top loaded with interest and very little principal payment. It borders on scammery.

 

[OldFaithful]

What if you collect $700/month of rent, but have to do an eviction and it takes you 2 months to fill the place back up. And 7 months later you have to spend $5,300 to replace the roof. Is that house putting money in your pocket then?

Yes.

A rental owner wouldn't keep the rental unit if in the long run it didn't put money in his/her pocket.

 

[biophase]

Here's the skinny if your renting your paying someone else making them wealthy

What if your landlord is -$200 cash flow for each month and is underwater on their property?

 

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[JustAskBenWhy]

You say this twice, so I'm going to assume it's a serious issue for you. While I'm not arguing that there are plenty of situations where owning is better than renting, this is most certainly not one of the arguments I'd use to support that assertion. Just because other people are getting wealthy off of you doesn't mean what you're doing is inherently wrong.

For example, when you buy insurance on your rental properties, you're making someone else wealthy. Does that necessarily mean you shouldn't buy insurance?



I'm sure you have thousands of liabilities that you've purchased -- cars, clothes, TV sets, pizza, etc. Just because these are "liabilities" from a financial standpoint doesn't mean the cost doesn't justify the value. If you'd never purchased a liability, you'd be pretty naked and hungry by now...

For some people in some situations, having their primary residence be a liability is worth the price. In fact, I'd argue that any primary residence (rented or owned) is a liability, as you're not putting it to it's highest and best financial use. Financially, you can do the math on when it's best to rent or own, but for many of us, there are more important considerations than just profitability when it comes to where we live.

Jason - leave him aloneRegardless of how he comes off, he means well...as well as someone who just finished Rich Dad Poor Dad can. There is a difference between knowledge and wisdom - you arguing these points is somewhat silly. No one with any perspective can disagree with you, and yet this goes completely over the head of someone without perspective. He'll get there in time...

 

[Marquin Brewer]

Jason - leave him aloneRegardless of how he comes off, he means well...as well as someone who just finished Rich Dad Poor Dad can. There is a difference between knowledge and wisdom - you arguing these points is somewhat silly. No one with any perspective can disagree with you, and yet this goes completely over the head of someone without perspective. He'll get there in time...

I didn't just read rich dad poor dad I read that several years ago, what a person does and the financial decisions they make are their own, the point I was making was if you don't pay cash for your house, condo, etc and you finance it through conventional means, i.e. a mortgage if you don't have the knowledge or skill set and pay a standardized amortization schedule you make the banks wealthy period. If you don't know that then you should study banking principles.

 

[JustAskBenWhy]

Good luck to you

 

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[biophase]

I didn't just read rich dad poor dad I read that several years ago, what a person does and the financial decisions they make are their own, the point I was making was if you don't pay cash for your house, condo, etc and you finance it through conventional means, i.e. a mortgage if you don't have the knowledge or skill set and pay a standardized amortization schedule you make the banks wealthy period. If you don't know that then you should study banking principles.

I really have no clue what point you are trying to make. Are you saying that we should all pay cash? If the banks were becoming wealthy then why did they need a bail out when the market crashed?

I also thought that you had just read RDPD based on your posts. Thought it was interesting that someone else thought the exact same thing.

 

[JustAskBenWhy]

That's actually very rudimentary thinking...let's take it to the next level...

If I said that I would lend you money at 3.5% interest, would you take me up on it? If you're an investor who can earn more than 3.5% returns, you'd probably be pretty happy to borrow money at 3.5% interest, wouldn't you???

Well, that's what a bank is willing to offer you if you're willing to collateralize the loan with your primary residence. That's what a mortgage is. It's a loan from a bank at 3.5% (today's rates) that you can use for whatever you like! If you're an investor and you can earn more than 3.5%, then taking that mortgage from the bank is an opportunity for you to use arbitrage (borrow at one rate, use that money to return a higher rate, and you keep the difference).

While there are certainly other risks associated with leverage, making the bank rich isn't one I'm concerned about. If I had an investment that would generate 10% IRR and I didn't have the cash to do the deal, I'd jump at the chance to borrow money from a bank at 3.5% -- that 6.5% spread is my profit! And all the bank asks for in return is your primary residence as collateral.

It's called leverage, and for many investors, it's their friend (when used wisely).

To use your words, "If you don't know that then you should study banking principles"...

I started writing a similar response, but thought I'm too old for this

 

[ravenspear]

I don't agree that's slowlane jargon that's been spoon fed to us, tax incentive, homeownership bullcrap that's given out by banks and mortgage companies. Here's the skinny if your renting your paying someone else making them wealthy or a mortgage which comes from the French word mort-gage =pledge to the death. Paying a standard amortization schedule is what banks want you pay 3x what the house is worth....If you don't collect the rent your making someone else wealthy....An asset is anything that puts money in your pocket. A liability is anything that takes money out of your pocket.

Right now I do not have the capital to buy an apartment complex or multifamily property and collect rent. I either have to rent or purchase (since having a roof over my head is a requirement lol). Purchasing was the lower cost once I ran the numbers.

I don't have a mortgage because I'm a sucker and paid cash for both my houses ...

Nonetheless, I agree here -- most retail buyers have no clue how a 30-year mortgage is amortized and how it is top loaded with interest and very little principal payment. It borders on scammery.

Quite correct, which is why you have to run the numbers completely and look at exactly what you are paying if you get a mortgage. I ended up going with a 7 year ARM since I doubt I will be in this place more than 5 years. Almost half of my mortgage payment is principal from year 1.

 

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[Marquin Brewer]

That's actually very rudimentary thinking...let's take it to the next level...

If I said that I would lend you money at 3.5% interest, would you take me up on it? If you're an investor who can earn more than 3.5% returns, you'd probably be pretty happy to borrow money at 3.5% interest, wouldn't you???

Well, that's what a bank is willing to offer you if you're willing to collateralize the loan with your primary residence. That's what a mortgage is. It's a loan from a bank at 3.5% (today's rates) that you can use for whatever you like! If you're an investor and you can earn more than 3.5%, then taking that mortgage from the bank is an opportunity for you to use arbitrage (borrow at one rate, use that money to return a higher rate, and you keep the difference).

While there are certainly other risks associated with leverage, making the bank rich isn't one I'm concerned about. If I had an investment that would generate 10% IRR and I didn't have the cash to do the deal, I'd jump at the chance to borrow money from a bank at 3.5% -- that 6.5% spread is my profit! And all the bank asks for in return is your primary residence as collateral.

It's called leverage, and for many investors, it's their friend (when used wisely).

To use your words, "If you don't know that then you should study banking principles"...

Of course I agree when the numbers are solid.

 

[JustAskBenWhy]

Why is it that every Tom, Dick, and Harry thinks real estate is about the numbers...The problem with an algorithm is that it is only as good as the inputs. You've got to know what's behind the numbers to make sense of the numbers, and it is apparent as all hell that most would know what numbers they are looking at if those numbers hit them in the freaking face...Makes me laugh. @Marquin Brewer - I offered you an out, which you chose not to take. Before you allow us the enjoyment of seeing you be any more foolish than what we've already seen, go home and read some books...or something...

 

[Marquin Brewer]

Why is it that every Tom, Dick, and Harry thinks real estate is about the numbers...The problem with an algorithm is that it is only as good as the inputs. You've got to know what's behind the numbers to make sense of the numbers, and it is apparent as all hell that most would know what numbers they are looking at if those numbers hit them in the freaking face...Makes me laugh. @Marquin Brewer - I offered you an out, which you chose not to take. Before you allow us the enjoyment of seeing you be any more foolish than what we've already seen, go home and read some books...or something...

What's your problem dude? We're all here to grow and learn. I'm free to comment as well as you are. You sound very up tight so just chill out.....

 

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[MJ DeMarco]

The problem with an algorithm is that it is only as good as the inputs.

This discussion goes beyond numbers and algorithms.

Personalities, likes/dislikes, and family values cannot be quantified.

If you told me I could buy a five year supply of tampons for ten bucks, your algorithm and inputs by which you judge say "that's a good buy!"

The problem is, I DO NOT WANT a five year supply of tampons, nor am I interested in pawning them off on Amazon.

 

[MJ DeMarco]

For late arrivers,

another thread on similar topic...

Off-Topic - Buying a house is a scam!

 

[Kak]

I used to think buying was for idiots until rents went through the roof in my area and I bought a house twice the size, on the golf course, in a gated community for $100 less per month.

It needed work, but it got the work shortly after my wife and I moved in. Have we made the house more valuable? Yes definitely. Have we turned a profit on the work we did? I guarantee it. We were careful to buy everything right including the house. Did we buy a house to make money? Hell no, we bought it to live in.

We've lived here for 6 months and could move at the drop of a hat and throw an extra 50 grand in the bank.

Bottom line. You need a place to live. There is a stupid way and a smart way to do everything. I don't care how rich you are, it's always smart to buy things right.

 

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[rpeck90]

View: https://www.youtube.com/watch?v=pKQPjtvkAAA

 

[Lucid Tech]

I bought my first condo shortly after college using the first time homebuyer tax credit on April 30, 2010. Literally the last day you could receive the $8,000 tax credit. The bank also made a mistake with my offer (short sale so multiple parties were involved) and they counter offered $3000 LESS than my original offer. With the 8k given back to me at tax time, it was great. I just made $11k. Who would ever rent? Buying is the best!

One year later the identical unit right next to mine sold for 20% less than I paid. My furnace dies on the coldest day of the year. Repairs left and right. I no longer like the place and I'm stuck for a minimum of 3 years unless I want to repay the tax credit. Wow, buying is terrible. Who would ever buy? Renting is the best.

Two years later my location has suddenly become the latest hotspot. Not only has my place completely recovered in value, I'm listing for 60% more than I originally paid. 72 hours later I've got an all-cash offer for more than asking price. Who would ever rent? Buying is the best!

Oh, wait. This type of "all-or-nothing" attitude has gotten me into trouble before.

All told, after appreciation and tax benefits less repairs/maintenance, I pocketed around 80k after the sale. Tax free since it was primary residence.

Who would ever rent after that? Me, and I plan to continue renting for the foreseeable future.

If anyone claims there is a 100% right or wrong answer for all people in all situations for this rent/buy decision, that is laughable.

Situations change. Projections can be missed.

Terrible things can happen. Great things can happen.

Only you can make the right choice based on your current situation.

 

[Lucid Tech]

I don't agree that's slowlane jargon that's been spoon fed to us.

What's your problem dude? We're all here to grow and learn. I'm free to comment as well as you are. You sound very up tight so just chill out.....

You're right, we're all free to comment here. @ravenspear is free to list, in detail, his well thought out approach to his personal rent/buy decision and how the cashflow is likely to look. You're free to cover your ears and scream "slowlane jargon" and then prove your lack of understanding of very basic P&L vs balance sheet terminology in a separate post.

And everyone is free to judge all of those comments on individual merit.

 

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[Mineralogic]

I bought my first condo shortly after college using the first time homebuyer tax credit on April 30, 2010. Literally the last day you could receive the $8,000 tax credit. The bank also made a mistake with my offer (short sale so multiple parties were involved) and they counter offered $3000 LESS than my original offer. With the 8k given back to me at tax time, it was great. I just made $11k. Who would ever rent? Buying is the best!

One year later the identical unit right next to mine sold for 20% less than I paid. My furnace dies on the coldest day of the year. Repairs left and right. I no longer like the place and I'm stuck for a minimum of 3 years unless I want to repay the tax credit. Wow, buying is terrible. Who would ever buy? Renting is the best.

Two years later my location has suddenly become the latest hotspot. Not only has my place completely recovered in value, I'm listing for 60% more than I originally paid. 72 hours later I've got an all-cash offer for more than asking price. Who would ever rent? Buying is the best!

Oh, wait. This type of "all-or-nothing" attitude has gotten me into trouble before.

All told, after appreciation and tax benefits less repairs/maintenance, I pocketed around 80k after the sale. Tax free since it was primary residence.

Who would ever rent after that? Me, and I plan to continue renting for the foreseeable future.

If anyone claims there is a 100% right or wrong answer for all people in all situations for this rent/buy decision, that is laughable.

Situations change. Projections can be missed.

Terrible things can happen. Great things can happen.

Only you can make the right choice based on your current situation.

exactly you just nailed it

and if you made money or didn't , sure has an effect on your beliefs

 

[MTF]

I went to a meeting accompanied by a real estate agent to see a few apartments in a multi-family house. The owner greeted us at the door and led us to the second floor.

I thought that all of the apartments were empty, so it caught me by surprise when he knocked on one of the doors and a 70-80+ retiree opened the door. The owner told the man that we're potential buyers and asked if we could see the apartment. The elderly tenant slightly nodded - after all, what else could he do? - his face a mix of confusion, shock, resignation, and something that I would later identify as crushed male ego.

The retiree's wife sat in the living room paralyzed, horror written on her face, as if she were mere seconds away from an execution.

The agent wanted me to inspect the apartment, but I left as soon as I could. I just couldn't walk through their home as if I were a heartless liquidator.

I don't think I'll ever forget their expressions. They were powerless. If the owner decided to sell the apartment and kick them out, they would have to go and look for another place, elderly retirees or not.

That's why I'd never rent my principal residence. Control and peace of mind is more important to me than some additional cash I could theoretically save by renting.

 

[Vigilante]

My house in Minnesota is $150,000 upside down as we bought it literally on the peak of the market before the housing crash in 2008.

I have been in litigation on it for 2 years and spent so far over $20,000 on the litigation trying to get a clear title. As is, I can't sell it.

Wish I would have rented.

 

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[MoneyDoc]

A lot of people in my age group (20-25) have this absurd idea that if you buy a condo/house, the price will go up $100k-200k in 2-3 years and you'll be rich. This is literally the reasoning behind their purchase.

My friend the other day, young guy, bought a condo with his GF. I asked him why he didn't rent and use that down payment towards starting a business. He told me, verbatim, "this condo will go up by at least $100k in 2 years. We'll sell it, buy another property, and repeat. What business can we start with $10,000? There's nothing. Everything is saturated and you need a lot of money to start a business. Besides, businesses are risky, this is a safe investment." - I kid you not guys... I was shaking my head the whole time.. haven't talked to him since.

Safe investment? Once he gets the bill for the maintenance fees, monthly tax fees, water/hydro, once he can't start paying the mortgage, then we'll see how safe of an investment it was.

 

[MidwestLandlord]

Safe investment? Once he gets the bill for the maintenance fees, monthly tax fees, water/hydro, once he can't start paying the mortgage, then we'll see how safe of an investment it was.

Just wait until he gets an HOA assessment bill for a water main, siding, roof, parking lot, foundation issue, windows, government required sprinkler system updates/install, or new amenity lol

 

[G-Man]

My friend the other day, young guy, bought a condo with his GF. I asked him why he didn't rent and use that down payment towards starting a business. He told me, verbatim, "this condo will go up by at least $100k in 2 years. We'll sell it, buy another property, and repeat. What business can we start with $10,000? There's nothing. Everything is saturated and you need a lot of money to start a business. Besides, businesses are risky, this is a safe investment." - I kid you not guys... I was shaking my head the whole time.. haven't talked to him since.

This is one of the reasons I'm not buying our first house right now. Everyone thinks this, and it leads me to believe the market is overbought. I have 3 FB friends roughly my age (31) that have been posting their new constructions houses they just bought in the last couple weeks. Obviously you never really know how much money people have, but here are the 30 year olds buying brand new homes:

• Husband, car salesman, wife in school
• Husband in school, wife assistant professor
• Husband exterminator, wife teacher.

When these people are all able to access the credit necessary to buy 250k+ homes (which is a nice home in the South), that shit has to tank at some point in the near future.

 

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[MJ DeMarco]

My friend the other day, young guy, bought a condo with his GF. I asked him why he didn't rent and use that down payment towards starting a business. He told me, verbatim, "this condo will go up by at least $100k in 2 years. We'll sell it, buy another property, and repeat. What business can we start with $10,000? There's nothing. Everything is saturated and you need a lot of money to start a business. Besides, businesses are risky, this is a safe investment." - I kid you not guys... I was shaking my head the whole time.. haven't talked to him since.

Featured!

 

[MoneyDoc]

This is one of the reasons I'm not buying our first house right now. Everyone thinks this, and it leads me to believe the market is overbought. I have 3 FB friends roughly my age (31) that have been posting their new constructions houses they just bought in the last couple weeks. Obviously you never really know how much money people have, but here are the 30 year olds buying brand new homes:

• Husband, car salesman, wife in school
• Husband in school, wife assistant professor
• Husband exterminator, wife teacher.

When these people are all able to access the credit necessary to buy 250k+ homes (which is a nice home in the South), that shit has to tank at some point in the near future.

This is exactly the case in Canada too.. You have young families of 2 (two newborns, husband + wife), where the husband is only working, and they're buying $600k+ new construction homes in the middle of nowhere thinking the price will go up by $200k in 2-3 years and they'll make a nice profit... Canada's real estate bubble is in for a very bad burst very soon..

 

[G-Man]

This is exactly the case in Canada too.. You have young families of 2 (two newborns, husband + wife), where the husband is only working, and they're buying $600k+ new construction homes in the middle of nowhere thinking the price will go up by $200k in 2-3 years and they'll make a nice profit... Canada's real estate bubble is in for a very bad burst very soon..

It's a shame there's no examples in history of what happens when you combine blind speculation with easy credit.

 

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[G-Man]

What's especially interesting here, in light of having read UnScripted , is the social scripting and reinforcement these folks get for terrible decisions. The above mentioned family with one grad student and one assistant prof that just bought a house and added a mortgage to 10 years worth of school loans?... about 20 comments in the effect of "Congratulations!" followed by varying combos of emojis.

Here we have a young, intelligent couple with a toddler, and tons of promise for the future, and the crowd is cheering them on as they literally mortgage their future.

Thanks @MJ DeMarco for making me more self-aware of my own scripting. It is indeed strong. Even now, when someone my age gets a big house, a new car, or a new job, I feel a momentary tinge of "Oh my God, I'm falling behind everyone I went to school with." I still have to consciously calm myself down and say:

• That house: It takes up 50% of his monthly income to pay the mortgage.
• That car: It's depreciating by the moment, and he'll still be paying for it 4 years from now, long after the shine wears off.
• That job: He hates it. He just stages excitement on social media because everyone has to put up a public image now. And worse he can't quit, because after all, he has that house and that car.

 

[Lucid Tech]

It's a shame there's no examples in history of what happens when you combine blind speculation with easy credit.

I've heard it said that history tends to repeat itself about every 10 years. Unfortunately people's memories only tend to go back about 8 years.