Why you should buy a home as early as possible.

[Antifragile]

Interesting article that relates to this discussion...

The End of Homeownership - Macleans.ca

For generations, middle-class Canadians have been sold on the promise of homeownership. The promise was always flawed. Today it’s simply broken.

macleans.ca

Curious what any Canadians think...

excerpt...

View attachment 49514

excerpt...

View attachment 49515

I am clearly biased as a developer. So far I’ve tried to stay out of the thread for this reason.

With that in mind, I’ll do my best to remain neutral.

Real Estate is like any other asset, priced based on demand vs supply. When you see population moving into some area and dwelling units not being built, prices go up.

The second driver of prices in RE is cost of borrowing. Interest rate matters because your total payments (debt service) change dramatically with the smallest of changes in the borrowing rates. In a declining rate universe, prices tend to soar (investors and owner occupiers both buy buy buy).

Third, replacement cost. Most people are completely unaware that in markets where you see highest prices, replacement cost of each next building is substantially more than the one before. Ironically (for today) I am not speaking about inflation! No. This is because we have certain environmental, safety, energy modelling, building code, seismic and so on… improvements. They truly all are improvements. Think that a new building will probably survive a local area 1-200 year earthquake event, but the older buildings may not. Think that in North America it’s a requirement to have two exit stairs on multi-unit buildings, when in most of the world one is sufficient. Why does this matter? In case of a fire, you are safer, more than one way to exit buildings … all quite obvious. Energy modelling later saves on energy and so on. All improvements, as I said, but they all COST more. Even with no inflation (I mean ZERO) in Canada, we are prescribed targets on say energy (here called Step Code) and we are upgrading building code in December. Without inflation, cost of construction will continue going up significantly over the foreseeable future.

Worse yet, we have an acute labour shortage. Yesterday at dinner we were just talking with a banker who said that “Capacity for Toronto is 26,000 units, demand is for 60,000 units per year. Even if every single project in the pipeline was approved today, they can’t be built”.

Oh it gets worse too… with higher interest rates, cost of buildings are higher to construct. Municipal fees are higher too, each year. Meaning: government charges more taxes! Across Canada.

Again, most people think “greedy developer” they aren’t thinking “government taxes are paid by me because developer adds it to cost“.

Is it any wonder prices have been going up over decades?


That’s not to say prices can’t go down. Not only they can, they do! Market corrects and plenty of people today are left holding the bag for buying units in the post covid rock bottom interest rates (in Canada).

Why? Because unlike the USA, where you lock your rate for 30 years, our rates are only locked for 1-5 years, and that assumes buyers locked in their rate (versus getting a variable prime + % rate). This means that by 2026 ALL mortgages that were taken on in 2021 will have been renewed at new rates. Today, these rates are massively higher.

Contrary to the main message of the thread, this is one example of a bad decision… it sounds like it…

Or maybe not. It’s actually a little more nuanced than that. Prices did drop, a lot. In some cases I’ve seen 30% lower… only by today, it seems most prices are back up again. Why? Supply vs demand. We’ve had record setting immigration and population growth. And our supply is a fraction of existing demand.


Draw your own conclusions, as I said, I am biased and want to stay neutral.


I will say this, I think rental rates will continue to climb…


edit: here is one developer showing a cost breakdown as part of marking their sales in Victoria BC

 

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[MJ DeMarco]

Another example...

Just to keep pace with the market, you needed to SAVE $20K in one year.

You’d need to earn more than $300,000 to afford a home in these U.S. real-estate markets

More than 2 million would-be home buyers have been pushed out of the housing market because of rising prices and mortgage rates, according to a new report.

www.marketwatch.com

This scenario is how I found myself paying a lot more for a home than I originally wanted. In the luxury home market, prices were rising faster than I could save money, even when I was saving $50K/mo.

I told myself, "Meh, it will go down" -- but after three years, the $1.5M homes I was looking at were now $3M.

Will things get better and prices go down?

I don't think so -- I think the high prices are here to stay as there are too many macroeconomic factors keeping prices elevated. Best case scenario is moderation.

 

[Subsonic]

Another example...

Just to keep pace with the market, you needed to SAVE $20K in one year.

You’d need to earn more than $300,000 to afford a home in these U.S. real-estate markets

More than 2 million would-be home buyers have been pushed out of the housing market because of rising prices and mortgage rates, according to a new report.

www.marketwatch.com

This scenario is how I found myself paying a lot more for a home than I originally wanted. In the luxury home market, prices were rising faster than I could save money, even when I was saving $50K/mo.

I told myself, "Meh, it will go down" -- but after three years, the $1.5M homes I was looking at were now $3M.

Will things get better and prices moderate?

I don't think so -- I think the high prices are here to stay as there are too many macroeconomic factors keeping prices elevated.

But won't the fact that like 70% of all people can't afford homes anymore lead to a correction at some point ? If I am not wrong with this statement, then we might be sitting on another bubble about to burst when the next few banks get visited by the grimm reaper of the fed...

 

[Kak]

I bought a nice home that needed work in a nice neighborhood at 25. We put in a bunch of work, ourselves, and I still live in it. It’s worth at least 300k more than we bought it for.

I wish we had bought something more expensive now and maybe we would have 500-700k of appreciation. Either way, it wasn’t some starter home. Even the big addition we will put on it will be a good investment for the day we sell.

The existence of the federal reserve makes @biophase totally right on this concept.

 

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[wanttogofaster]

But won't the fact that like 70% of all people can't afford homes anymore lead to a correction at some point ? If I am not wrong with this statement, then we might be sitting on another bubble about to burst when the next few banks get visited by the grimm reaper of the fed...

There is more demand than houses available. That's why prices have not crashed, but they are down in many areas.

Where I live, new, paired townhomes were selling like hotcakes for $600K+ until last July. They are down to $500K to $550K. They are taking longer to sell, but there are still buyers.

I still see a lot of million-dollar homes going under contract, so there are buyers for those too.

Builders are offering rate buydowns. So people can still get "low rates" even if it is only for a couple of years. This I do consider "similar" to the popular ARMs back in the 2000s. I wonder if those buyers will be able to afford their payments once their rate goes up to 7% or whatever rate they're getting and they cannot refinance to a lower rate at that point.

Property taxes are going up pretty much everywhere as well. Back in 2016, people in my neighborhood were complaining about their property taxes going up so much that they were going to have to sell and move. Unfortunately, I see this happening again next spring when their monthly payment goes up $300~$500 and they can no longer afford the house.

So who knows, prices might come down a bit more if people cannot afford their homes in the next two or three years.

 

[JordanK]

There are very big examples of where the theory of property prices are "guaranteed" to go up are just flat out wrong.

If you want a case study to learn from look at Japan. Demographics started trending the other way and house prices/stock market have been stagnant since the 90's.

In the US, UK, Canada, Australia and where I'm from Ireland this shouldn't be a problem as we still have big waves of population growth due to immigration but if you are investing elsewhere you should be very weary of population growth/decline in the area and the country as a whole.

I also noticed a trend of Irish and UK buyers picking up places out in Dubai, UAE. In certain countries you need to look at how weak/strong the rule of law...property rights are. If you annoy the wrong person or get arrested could all your assets be seized? There is a reason so many Russian, Chinese and Middle Eastern buyers want to own assets in the west.

In many parts of the world you also need to be aware of local environmental or political issues. Many of the Ukrainian refugees in Ireland only wished they had sold their property back home before the war.

These aren't issues many people on the forum will have to contend with as historically the US has been insulated from these type of problems but there is a global readership of this forum.

If you are living in Phoenix/Las Vegas are you worried about future water availability or soaring temperatures during the height of summer? If you live in Florida are you worried about sea level rising, increasing frequency of storms? As I type this, my friend a fastlaner from Tulsa has been living in his truck for the past 4 days as a massive storm blew trees into his house and there are power outages (no a.c), water outages and its super humid outside.

I'm in property and I agree wholeheartedly with this thread. Buy buy buy but educate yourself to make the best decision!

Edit: I also wanted to mention that between 2000-2008 my father bought a load of property. When it crashed the bank sold all the loans to vulture funds. They seized the properties and sold them for penny's on the dollar at the time and left him with the residual debt to pay. Its 2023 and the situation has still not been fully resolved... *this happened in Ireland and we have different laws/practices. I don't think a situation like this would continue as long in the US.

 

[Andy Black]

we will put a big addition on and it will all be a good investment one day when we trade up.

And you get to enjoy living in the big addition to your home before you trade up.

 

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[Kak]

And you get to enjoy living in the big addition to your home before you trade up.

Indeed! We currently have a big downstairs and not much going on upstairs. We have a unique opportunity to more than double our square footage by putting on a carport and building over the entire downstairs.

In my position, this is WAY cheaper way to a million+ dollar home than actually buying one because I have a ridiculously low homesteaded property tax rate locked in. We also love the neighborhood. There's a bunch of multimillion dollar stuff in here.

 

[MJ DeMarco]

70% of all people can't afford homes anymore lead to a correction at some point ?

I don't think a correction is going to happen, only moderation... which means prices will remain elevated.

High interest rates stopped prices from rising, but for the most part they are still elevated and I don't see any economics in which they come down 20 or 30%.

"70% can't afford homes" represents pent-up demand, which means those people become buyers as housing costs attempt to move lower, keeping prices high.

 

[JasonR]

I certainly wished I bought Real Estate earlier! I lived abroad for 5 years so wasn't interested in real estate at the time...then COVID happened.

The first home I bought was a vacation home, and I wouldn't have moved on it (or even known about the mountain town I was buying in) without @biophase

I bought the condo, which I thought was pricey at the time, because I wanted to be up here in the summers - I wasn't thinking about the money so much. I paid $660k. About 8-9 months later a townhome I had been eyeing for years came up for sale. I bought that (for way more than my previous townhome, so I was a bit nervous). I put the original condo on the market, and it sold in a weekend for $200k more than I paid for it. So Biophase pretty much is the reason I made the easiest $200k I've ever earned. I 1031ed into the new property.

Since then, I've bought four more properties. I don't see real estate "crashing" any time soon with how much money was printed and how much demand their is for housing. It appears builders haven't built enough homes since the 2008 crash for the current (and growing) demand. Interesting times.

I bought my primary home a couple months ago even though interest rates are high. I know rates will eventually go down, and I'll likely pay off the home pretty aggressively, anyway. I thought if I didn't buy something now, I'd definitely regret it in 2-3 years.

 

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[Kak]

I don't think a correction is going to happen, only moderation... which means prices will remain elevated.

High interest rates stopped prices from rising, but for the most part they are still elevated and I don't see any economics in which they come down 20 or 30%.

"70% can't afford homes" represents pent-up demand, which means those people become buyers as housing costs attempt to move lower, keeping prices high.

There’s also the “I have a low interest rate” effect.

People are staying put to keep their rate. Supply of listed homes is down. Limited supply keeps prices up.

Affordability due to interest rates is still a headwind. We shall see.

 

[MJ DeMarco]

My city will require a channeling of my inner Oprah...

You're a millionaire, you're a millionaire! Yes, everyone is a millionaire!

 

[Robdavis]

Comment removed.

 

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[MJ DeMarco]

In Aspen CO, just short of $10M, you can live in a house that is slightly larger than the studio apartment I used to live in.

 

[Osvaldo7354]

I know that this may be a controversial topic, but I want to give you a few examples of people that I know that are slowlaners but are actually doing very well vs. some aspiring "fastlaners" that aren't anywhere in the same position. This topic came to mind when another friend was shocked when he learned that one of our mutual friends had a decent net worth despite having a low paying job.

Example 1: I had a friend who we will call Amy who made $7/hr back in 2008. Back then a city in the Phoenix area had a first time homebuyers program. The city would pay up to $50,000 down payment for a home, but the catch was that when she sells the home, the first $50,000 is returned to the city. She qualified for the program due to her low salary.

So she bought a home for $100,000. With a $50k down payment from the city, she got a loan of $50,000 at something like 4.5%. She was able to qualify for a house on a salary of under $15,000 a year!

Today her home is worth $375,000. Her house equity is probably $170kish and she is lucky to have a nice fixed $500 mortgage payment on her current home until its paid off. If she had continued renting, she wouldn't be able to afford anything today!

Example 2: I have another friend who we will call Julie. I have known her since 2008. She has never made more than $35k per year. She bought a house for $88k in 2000. Today her house is almost paid off (she's been making an extra $100 payment per month). Today her house is worth $340k. Her equity is $330k. There is no way she could have saved that amount in 20 years on $35k a year.

These are two examples of people who would have huge issues in surviving today if they had not purchased a home years ago. Rents in their areas are $2500 a month for a home in their area. They would have been priced out a long time ago. But because of their purchase, they are paying $500 and $450 a month in mortgage payments.

I contrast this to others I have known who consistently make $75k-$150k per year but never buy a home. They lived the digital nomad life or the lifestyle business life of renting a nice loft in the city. 5-10 years later, their net worth is close to zero and they cannot afford a home any more due to the prices and interest rates.

I can already hear the naysayers saying, but if you reinvest everything back into your business, that's a much higher ROI. I agree. But this is assuming your business is successful. What I would tell any 20 year old aspiring entrepreneur is that if your business is doing well, invest into a home first, then the rest into your business.

I'm 19 and currently I am trying to build my clientele as a Realtor, it's not easy and I have a decent part time job for now but by next year (when I'm 20) I should have enough for a down payment. Originally i was thinking of using it to try to find a rental property should I still do this or maybe something else with my money?

 

[FullTimePreneur]

I've been going back and forth on whether to buy a home in my area. I'm curious to hear anyone with experience in higher-cost-of-living areas.

For example, I live in NYC Area (Jersey City, right along the Hudson waterfront). We currently rent and have been debating making the move to purchasing a home. But every time I run the numbers, it seems that if we were to buy something that's about the same as what we live in currently (~750 sf 1Br + Den), the HOA + Interest + Property Taxes add up to be about what we pay in rent. But then we're locked into a higher payment because you have the principal payment that's forced to go into the home, which would otherwise be free to invest in any asset I choose.

I haven't convinced myself yet that it's worth buying in my area. Because the rent is going down the drain, and the HOA + Interest + Property Taxes, which seems to be about the same, is also going down the drain.

Instead of buying in my area, I thinking about following the article below with purchasing cash-flowing real estate in lower-cost-of-living areas and just continuing to rent in a more luxury area. So instead of buying a property here in NYC, purchase the equivalent magnitude of RE exposure in a higher cap area and attempt to make the spread when renting in a lower cap area.

The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

If you plan to invest in real estate, there's a key real estate investing rule you should follow. It's called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital...

www.financialsamurai.com

What are my blind spots with this?

 

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[Tiago]

I've been going back and forth on whether to buy a home in my area. I'm curious to hear anyone with experience in higher-cost-of-living areas.

For example, I live in NYC Area (Jersey City, right along the Hudson waterfront). We currently rent and have been debating making the move to purchasing a home. But every time I run the numbers, it seems that if we were to buy something that's about the same as what we live in currently (~750 sf 1Br + Den), the HOA + Interest + Property Taxes add up to be about what we pay in rent. But then we're locked into a higher payment because you have the principal payment that's forced to go into the home, which would otherwise be free to invest in any asset I choose.

I haven't convinced myself yet that it's worth buying in my area. Because the rent is going down the drain, and the HOA + Interest + Property Taxes, which seems to be about the same, is also going down the drain.

Instead of buying in my area, I thinking about following the article below with purchasing cash-flowing real estate in lower-cost-of-living areas and just continuing to rent in a more luxury area. So instead of buying a property here in NYC, purchase the equivalent magnitude of RE exposure in a higher cap area and attempt to make the spread when renting in a lower cap area.

The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

If you plan to invest in real estate, there's a key real estate investing rule you should follow. It's called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital...

www.financialsamurai.com

What are my blind spots with this?

I agree with that 100%.

Right now, the apartment I live in, makes absolutely NO sense to buy.

I'm renting it for $2,200/month, while the buying price for the apartment is $1,2m. In this case, it's not good being the landlord, and I'm renting it dirt cheap comparing the price of the apartment.

But, I do believe in buying a home. It won't be this one.

I'll probably buy a smaller, $500K apartment that I'm able to rent at a higher relative cost and use that as a stepping stone.

 

[Guest-5ty5s4]

I agree with that 100%.

Right now, the apartment I live in, makes absolutely NO sense to buy.

I'm renting it for $2,200/month, while the buying price for the apartment is $1,2m. In this case, it's not good being the landlord, and I'm renting it dirt cheap comparing the price of the apartment.

But, I do believe in buying a home. It won't be this one.

I'll probably buy a smaller, $500K apartment that I'm able to rent at a higher relative cost and use that as a stepping stone.

In that case, the landlord probably bought it a long time ago and has fixed rate debt. His/her cost basis is likely low enough to cash flow with what you are currently paying in rent. And today's prices make your rent more affordable compared to buying a similar property today, so your logical decision is to pay him/her to rent their place while he/her profits from the wise decision they made years ago.

But you could buy something today and in some amount of time, rents will likely go up unless there is a huge market crash, an Andrew Jackson style populist in office who ends the Fed, or you screw up with some crazy ARM, etc.

Real estate investing!

 

[Tiago]

In that case, the landlord probably bought it a long time ago and has fixed rate debt. His/her cost basis is likely low enough to cash flow with what you are currently paying in rent. And today's prices make your rent more affordable compared to buying a similar property today, so your logical decision is to pay him/her to rent their place while he/her profits from the wise decision they made years ago.

But you could buy something today and in some amount of time, rents will likely go up unless there is a huge market crash, an Andrew Jackson style populist in office who ends the Fed, or you screw up with some crazy ARM, etc.

Real estate investing!

Yep, that's why I'm looking to buy as well. It probably won't be the property I'm going to be living in, since this apartment I'm in right now has a great rent price.

 

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[MJ DeMarco]

What are my blind spots with this?

The best RE investment you can make has nothing to do with real estate, but to GTFO of NJ, quite possibly the worst state in the union to build wealth.

 

[biophase]

I'm 19 and currently I am trying to build my clientele as a Realtor, it's not easy and I have a decent part time job for now but by next year (when I'm 20) I should have enough for a down payment. Originally i was thinking of using it to try to find a rental property should I still do this or maybe something else with my money?

I don’t know why you would think you should do something else with your money based on all the posts in this thread. Why is this thread making you second-guess purchasing real estate?

 

[biophase]

I've been going back and forth on whether to buy a home in my area. I'm curious to hear anyone with experience in higher-cost-of-living areas.

For example, I live in NYC Area (Jersey City, right along the Hudson waterfront). We currently rent and have been debating making the move to purchasing a home. But every time I run the numbers, it seems that if we were to buy something that's about the same as what we live in currently (~750 sf 1Br + Den), the HOA + Interest + Property Taxes add up to be about what we pay in rent. But then we're locked into a higher payment because you have the principal payment that's forced to go into the home, which would otherwise be free to invest in any asset I choose.

I haven't convinced myself yet that it's worth buying in my area. Because the rent is going down the drain, and the HOA + Interest + Property Taxes, which seems to be about the same, is also going down the drain.

Instead of buying in my area, I thinking about following the article below with purchasing cash-flowing real estate in lower-cost-of-living areas and just continuing to rent in a more luxury area. So instead of buying a property here in NYC, purchase the equivalent magnitude of RE exposure in a higher cap area and attempt to make the spread when renting in a lower cap area.

The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

If you plan to invest in real estate, there's a key real estate investing rule you should follow. It's called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital...

www.financialsamurai.com

What are my blind spots with this?

If you are looking at the pure costs, you can most likely deduct your interest and tax payments. So if all things being equal owning will be a little cheaper due to the deductions.

However, as MJ said in a different post, if you are living in an area where renting is way cheaper than owning, then moving would be the best ROI on your money.

As for your strategy in purchasing somewhere else and renting the place that you live. I don’t see how the strategy would help you out in terms of monthly cash flow issues. Unless the cash flow covers your rent.

Also, purchasing real estate in high cash flow areas usually mean that it is a lower appreciation area, which is why it actually still cash flows now.

 

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[amp0193]

I can already hear the naysayers saying, but if you reinvest everything back into your business, that's a much higher ROI. I agree. But this is assuming your business is successful.

The "higher ROI" mantra is what I've been telling myself for 8 years (still renting), and in my case it may work out, but there's definitely no guarantee.

I 110% agree with your OP, and if I could go back in time, I would've bought that 4-plex (or literally anything else). Prices have done nothing but go up since then.

Having your net worth completely tied to your business is risky and stupid, but on the flip side... highly motivating.

 

[Saint]

I'm kind of surprised to see the love of RE here. I thought the point of FL was to get to a point that whether a decent house goes up by a few hundred thousand is immaterial.

It totally makes sense to me to buy RE once you have the cash from a great business, but I could almost take the overall message here as prioritize RE over starting a FL business. Maybe the idea is that RE is a more sure thing than a business? Or just a no-brainer?

I have seen a lot of issues with RE that aren't always there, but when they are it's a major, major problem in life. RE can easily erode monogamy - if I rent, I don't have to worry about maintenance, major repairs, regulations, tenants, lawsuits, etc. I've known many people who have had to spend enormous amounts of time and drop an additional $20K, $50K or more on things like foundation repair, plumbing, or evicting a tenant. That plus basic weekly upkeep seems like a lot of time sacrificed that could go to a business. You could also get too happy with the belief that RE will go up forever, overleverage yourself, then wind up erasing your whole net worth in one bad market situation. Maybe everyone here is too smart to let that happen, but it has happened to numerous people. Almost 50% of bankruptcies have something to do with being unable to make a mortgage payment.

What people really seem to be saying is "buy in a market that will always go up (and make sure you always have a job that pays well in that time), it's a no-brainer way to make a few $100K extra every year". Austin probably was that way 10 years ago, but it's becoming unfashionable, not to mention the massive tech layoffs. Prices down 15% already even with low inventory. Same with SF. Or the numerous places where prices just never went up. Maybe places like Phoenix or South Florida won't face that for a long time, but there's no guarantee. This doesn't seem much different to me than saying "Buy early in a bubble and sell before it pops". Sure, Bitcoin at $20K may not be a bubble, and RE in London may not be either, but Bitcoin at $70K was, and how do you ever know where you're at?

I'm one of those who couldn't imagine not moving around a bit in my 20s. I'm sure I would've regretted it more if I hadn't had that experience. I'm probably not as wealthy as people I know who bought a house in a mid-tier city 10 years ago, especially those that have popped for now, but most I can think of are also still in awful jobs that they wish they could get out of, never lived or explored places they dreamed of, and have no end but slowlane retirement in sight. Unless they "Went Fastlane" with their RE, which just means they were an entrepreneur earlier than me, I think they still missed out on a lot despite that part of their portfolio looking good.

I plan to buy a house as soon as I can for the many reasons mentioned here, but it seems like there are many strong reasons not to do it too. Mainly just getting my thoughts down here because this was a very interesting read and got me thinking as I'm finally settled and seriously contemplating RE. Welcome any criticism of my points!

 

[biophase]

It totally makes sense to me to buy RE once you have the cash from a great business,

Yes, this was my overall message.

but I could almost take the overall message here as prioritize RE over starting a FL business. Maybe the idea is that RE is a more sure thing than a business? Or just a no-brainer?

No and yes, you can do both. You can start a business and own a house.

I’m saying there are many pros to owning a house. Especially if you’re FL business never gets going.

I have seen a lot of issues with RE that aren't always there, but when they are it's a major, major problem in life. RE can easily erode monogamy - if I rent, I don't have to worry about maintenance, major repairs, regulations, tenants, lawsuits, etc. I've known many people who have had to spend enormous amounts of time and drop an additional $20K, $50K or more on things like foundation repair, plumbing, or evicting a tenant.

Of course there are risks. But in my opinion, the benefits outweigh the risks.

Almost 50% of bankruptcies have something to do with being unable to make a mortgage payment.

I’d love to see the reference to this. Got a link? In many states mortgages are non recourse so this doesn’t make sense to me.

I'm one of those who couldn't imagine not moving around a bit in my 20s. I'm sure I would've regretted it more if I hadn't had that experience. I'm probably not as wealthy as people I know who bought a house in a mid-tier city 10 years ago, especially those that have popped for now, but most I can think of are also still in awful jobs that they wish they could get out of, never lived or explored places they dreamed of,

This was my point. You aren’t as wealthy as them because they purchased a home 10 years ago.

But you equate buying a home with not being able to go on vacation or live somewhere else.

I plan to buy a house as soon as I can for the many reasons mentioned here, but it seems like there are many strong reasons not to do it too.

Again, this was my point. Many younger people cite reasons like yours to not buy. But where will be you when you are in your 30’s or 40’s complaining that you can’t afford anything? Don’t complain if your landlord doubles you rent. Are you ok with that?

Note in my original post I never said why you should buy real estate as soon as possible and live in it. You can always buy real estate and rent it out.

I really think when it comes down to it is that people in their 20’s do not want to invest. So it is very hard to get them to save a chunk of money and then plop it all down on real estate. They would rather use that chunk of money to go on vacation. Then when they are 30 years old they complain that greedy investors drove the market up and the interest rates are so high and they can’t afford to live in anything nice. Well, tell that to my friend that is making $20,000 a year and living in a $350,000 house with a $350 a month payment.

 

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[Spenny]

Big thank you @biophase for this. I initially turned my nose up at this but gave it some time to mull over. I then ran some numbers and found that this venture could be rather profitable if I have one or two lodgers along with me.

After putting some numbers in a rent vs buying calculator, I found that I could be £45,000 better off over 5 years, which is not bad considering I could have a partial mortgage paid off & have a house that I get to live in rent-free. This will be something I'll be considering in the future.

 

[Saint]

@biophase I'm not really disagreeing with your original post. It makes a lot of sense and you made a lot of great points to consider. My overall reading of the sentiment in the thread though is that it's such an obvious no-brainer to buy RE, but I see a lot of very valid pros and cons, and for many people it's heavy con or heavy pro depending on their situation.

Seems like everything out there mentions trouble with mortgage payments as a major cause of bankruptcy. This one put it at 45%. In a recession it may be much higher, 3 years ago it may be much lower. Another interesting stat - "More than three-fourths of U.S. homeowners who purchased in the prior year expressed regret about their decision" according to this article from NAR, which seems to be incentivized IMO to promote homebuying.

I 100% agree people blowing all their money moving around and taking expensive vacations instead of buying a house or building wealth are foolish. I was fortunate/made some decent decisions to be able to both move around a bit, travel, and still save pretty effectively since I had good jobs and was also a pretty hardcore slowlaner besides the RE piece. I guess I've just seen many people in the "their house owns them" scenario. It's been one of the biggest barriers to pursuing dreams like starting a business, leaving NJ, Chicago, middle of nowhere, etc. that I've observed.

 

[AmazingLarry]

Just visited my elderly great aunt who lives on Waikiki beach in Honolulu. We talked a bit about real estate and how huge of an impact it's had on her life. She split the cost of her first property in the 70s and bought (and sold) a bunch since then.

You can imagine what they're worth now in an amazing location within Hawaii. It was probably much easier back then, but she got in when she had the opportunity by splitting it with a partner and it's paid off massively. Made me feel better about the fixxer-upper I've been dumping my time into.

VIew from her apartment for proof.

 

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[RisingStars]

I am currently in the process of deciding for myself, if it would be a smart choice from a financial perspective to buy a home for myself, as I am in the position to do so.
Half way through a book called "Buy or Rent?" but it's from a German author, only available in German language so far sadly.
Some things are also specific to the German market, but he mentioned some english language articles in the list of sources. I will post a few of them at the bottom for anyone who wants to read some counter-arguments.

I contrast this to others I have known who consistently make $75k-$150k per year but never buy a home. They lived the digital nomad life or the lifestyle business life of renting a nice loft in the city. 5-10 years later, their net worth is close to zero and they cannot afford a home any more due to the prices and interest rates.

To be honest I think that's an apples to oranges comparison. These people are living beyond their means. Same as the person who finances a multi-million $ home with a 3-car garage on $75k-$150k a year.

Note in my original post I never said why you should buy real estate as soon as possible and live in it. You can always buy real estate and rent it out.

I really think when it comes down to it is that people in their 20’s do not want to invest. So it is very hard to get them to save a chunk of money and then plop it all down on real estate. They would rather use that chunk of money to go on vacation. Then when they are 30 years old they complain that greedy investors drove the market up and the interest rates are so high and they can’t afford to live in anything nice. Well, tell that to my friend that is making $20,000 a year and living in a $350,000 house with a $350 a month payment.

Ok, if it is not about personal home ownership but rather real estate as an investment, why not use a simple index fund investment strategy (besides the business), starting in your 20's? @fastlane_dad wrote a great thread about that.
Of course you need discipline for that, but you mentioned that the real estate owner also needs that (to safe up the down payment rather than blowing the money).

I get that there are valid arguments for home-ownership but mostly they are of personal nature like having the freedom to remodel the house however you want or to brag at cocktail party's that one is a "RE investor" or "Homeowner" (Never-mind that 80% is owned by the bank).
From a purely financial perspective - especially for the average person with a lackluster of skill, time and investment savvy - real estate is far from the best investment (statistically, over a long time period) from what I've read so far.

One positive aspect of home-ownership is that one is forced to make the mortgage payment. This can be detrimental in some cases, but more often it helps because people don't have to decide on a monthly basis if they 'have money left' to put into their investments. In my opinion, someone who build a business to $75k-$150k should have the smarts/discipline to invest no matter what every month - just like they would with a mortgage.

Especially for those who earn very little (and don't have other investments) a financed house is a huge "cluster risk". There is zero diversification.
That's even more important for entrepreneurs than for example a school teacher.
I am not sure about the US, but in Germany school teachers NEVER lose their job, unless they do something exceptionally bad. They know what they are going to earn for the next 30-40 years, so there are no issues being locked into a mortgage.
But what about someone who started out with his or her Fastlane business just a few years ago? Most likely it's not a multi-national enterprise yet, but either a local business which is heavily depended on the local economy or a small online business which has at least some control-risk involved.

Worst case one has to go back to a job, but a well-paying job is 3 hours away by car and at that time the housing market in ones region is in a crisis.

Lastly, people often forget to add up all the hours they spent on all the stuff that comes with home ownership or being a landlord. How much is 1 hour of ones time worth?
If something breaks in my rented apartment, I call the landlord and they get someone to fix it. I don't spent my Saturdays at the hardware store, buying stuff for the next home-DIY project.
I don't worry about finding a plumber who does not overcharge me.

Some people enjoy that stuff, so it might make more sense for them. BUT - owning rentals is a business which requires skills + time & personal home ownership is arguably not an investment.

Here are some of the (english language) critical sources from the German book I mentioned:

It's Financial Suicide To Own A House - James Altucher

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 hypnotize its religious adherents to BELIEVE. Lay down your money, …

jamesaltucher.com

Why I Would Rather Shoot Myself In the Head Than Own a Home - James Altucher

I only had one friend in MySpace when I joined in 2005. “Tom”. In fact, all 100 million people who had joined MySpace had one friend. “Tom”. He welcomed us all to our new cyber home and made us feel as comfortable as possible there. “Tom” is Tom Anderson, a cofounder of the MySpace, the …

jamesaltucher.com

The Wealthy Renter: How to Choose Housing That Will Make You Rich: Avery, Alex: 9781459736467: Amazon.com: Books

The Wealthy Renter: How to Choose Housing That Will Make You Rich [Avery, Alex] on Amazon.com. *FREE* shipping on qualifying offers. The Wealthy Renter: How to Choose Housing That Will Make You Rich

www.amazon.com

Rent vs Owning Your Home: Opportunity Cost and Running Some Numbers

Intro by JL’s Team If you’re wondering if renting vs owning your house is a better choice for financial independence, you’re not alone. A lot of people struggle with this choice. With current interest rates on a 30-year fixed mortgage hovering between 6–7%, it’s more critical than ever to do the...

jlcollinsnh.com

 

[Rick Wagoner]

For the average person, real estate as a residence is the best thing you can do.

It is a great hedge against inflation. First your home almost always appreciates in a mid- and long-term horizon. Second, you're mortgage is denominated in cheaper dollars which always, ALWAYS inflate.

I'm not an active RE investor, however, some of my "easiest" money wins came from selling my primary homes after 2 years and taking $250K tax-free. A $250k tax free gain is the same as earning $400K and paying taxes on it.

The smartest thing anyone can do is buy a primary residence for 2 years, sell it and take gains tax free, and repeat. (This is based on US tax law) Upgrade along the way.

By the time a 21 year old is my age, the will have millions... of course, those millions will be inflated and not worth as much, but still, far ahead of the average salary slave.

Location, also cannot be understated. My city is full of millionaires, even if they only own 1,200 square foot craftsmen houses ... owning real estate in a desirable location, is 100% responsible.

Great advice!