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Formula #1: The One Percent Rule

Ned Carey the kind of investment im looking for is a buy and hold, im trying to get good COC im thinking long term as 30 years from now. I was thinking of buying foreclosures and rehabbing them than renting them out. Paterson is not a good area i know their are many many investors here who buy the property and section 8 them. Steven Picker i was told jersey city is a good market for a buy and hold? I live and invest in Newark and Irvington Nj. I must admit these are rough towns.

I am not buying in any area where I don't feel comfortable enough to walk the street at night. I have lived in most of my properties while getting them ready to be rented. I am already getting infinite returns on all of my properties. Yes the new mayor is making it harder for slum lords to invest in the city. As long as I can get these returns I am getting I will be buying in these towns. Hello - I am starting from a similar point as Mario, looking to purchase my first investment property. My budget is k. Any and all advice is very welcome!

Hi Mario Gonzalez ,. Once you figure some of these questions out you will have better direction and build your power team out for success. Jordan G. Im not sure if its not reasonable to pump out 1k net in cash flow in a multi family in Paterson or union or best bet to invest out of state. Omar Ismael don't be offended by Darren Sager comment. I was born and raised in newark, I would love to invest here. Most people here on BP are clueless to the new law they enacted when the new Mayor came into power after Corey Booker left.

I would say it's one of the most restrictive i've read, ever. I don't see how anyone can consider purchasing in Newark and not take this into consideration. Since most here on BP are clueless to it, those recommending others that Newark is a good place to invest long term I don't feel are doing those members a good service. The last time I spoke to Derek I asked him if they had made any progress with getting the law updated to be "fair" to both sides.

His comment was that it was still as it was recently enacted and they still were trying. That was more than 2 months ago. Darren Sager after read much and doing research many people are saying newark,union, eliz, areas are good for long term which is what i want.

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However since you explain this new law place in newark, i would rather work in areas that i can see better return. Im looking for a multi family home where i can manage a net positive cash flow of 1k plus, i hope this is the avarge, where else meaning other towns can i look into for a good deal? I was thinking of doing the stragety im hearing alot about which is buy-rehab-rent out- refinance so i can get the down payment back.

Account Closed Are you looking to purchase using all cash? The buy-rehab-rent-refinance strategy only works when you're purchasing with cash. If this is your first purchase, I feel you should take advantage of the low interest rates a smidge under 3. Additionally, there's always the FHA if you're planning to owner occupy it.

It follows most conventional loans in that it needs to be in move-in condition, so not sure how much of the rehab value you'll get out of it for the future refinance. Account Closed you stated Paterson is challenging and filled with crime. I don't think it will be any better in Newark. Newark is ranked as a more dangerous city than Paterson.. You definitely have to know the good pockets. Union , Linden and Rahway are good in Union County for multifamilies. Join the millions of people achieving financial freedom through the power of real estate investing.

If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook. Full Name Use your real name. Password Use at least 12 characters. Using a phrase of random words like: paper Dog team blue is secure and easy to remember. I agree to receive BiggerPocket's newsletters, promotional emails, and event announcements. You can withdraw your consent at any time. Even if it is currently healthy. I like your Alice and Bob illustration. In fact, as mentioned elsewhere on this blog, for a time I was both a renter and a landlord. In many ways the best of both worlds.

In fact, from a purely financial perspective, there is a case to be made for two people buying houses they then rent to each-other. It is only the potential inter-personal conflicts that would make this unappealing. For many others, the lack personal satisfaction in owning their own place would get in the way. But now we are no longer talking investment issues. You make a very good point about not necessarily being able to rent a house that you own or, at least, not for a good price.

And of course, as you say, there are a lot of intangible reasons to own or to rent. Can you elaborate on this one? But I might be missing your point. Owners of rental property get tax breaks not available to homeowners. So if you and I each own a house, if we rent to each other rather than just live in our own we can access these breaks. Of course this is not flawless. The big break in in deprecation which bites you when you sell with lowered cost basis.

And homeowners get that nice capital gains exclusion if they live in the house at least 2? Part of the non-financial appeal for me was, since the rentals were in Chicago and I was in Cleveland long story , I had arranged for their maintenance to be handled. As I renter my landlord to care of mine for me. Were your tax deductions greater than the amount that you were earning in rental income? If so, were you living in a place that was just as nice as the place you were renting out? Certainly, if you live in a cheap place and rent out an expensive one, that can be a great way to make some money.

In fairness, mostly the government wants people to own houses so most policies are aimed to encourage it. But government being government, and understanding where good intentions often lead, you never know. Okay, so I actually did crunch the numbers myself 5 years ago when my husband and I decided to start a family, move across country, and buy a house.

All my life, I had heard that buying was an investment… and there were all those cool shows on TV about fixing and flipping and renovating! So, we bought a house in which promptly lost about half its value. To make matters worse, it has needed LOTS of expensive repairs and maintenance such as drain field, roof, plumbing, appliances, water heater, and more. We have done our best to make good with it, renting out the basement and starting up a small business that operates from it.

But we want to be foot loose and fancy free. We have a mortgage, at a low interest rate. It appears that we could rent the house for more than the mortgage. What do we do? Sell — even those prices have not recovered and investors are flocking to our city to buy from all over the world? Any suggestions would be helpful as we weigh our options! Let the numbers tell you what to do. Thanks for sharing your story. But that said, remember being a landlord is a job and not always a pleasant one at that.

Investing in RE can be very profitable, done right. Sounds like you have the resources to take your losses, lick your wounds and move on wiser if poorer for the experience. Your all right! Sounds like the main point here is buy or rent anything you want as long as its well below what you can afford. How sad. No one should live so close to the edge because we never know when things will good bad.

I once lost my job for 7 months and was living off of unemployment it was very scary but I cut back on travel etc. The problem for many folks is that the numbers look good on paper — it takes some delving before the true costs of buying are revealed. Looks good on paper at first glance.

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  5. We moved do to a job change in and rented the house and continue to rent the house. Not great at all! We paid off the house in 15 years, but of course, over those 15 years we paid back substantially more than the purchase price never figured out exactly how much. We would love to sell, but will have to move back to avoid capital gains taxes. Talk about an unwieldy investment! Yours is a great example of a scenario that is easy to portray as a big win without looking a bit under the surface. Funny update… Since this post came out, my situation changes degrees.

    Our landlord cannot sell us the condo that we love due to tax implications, and we need to find more permanent living solution as our son is about to start school next year. We are also hoping to have another child next year. Bank promptly approved gigantic mortgage with tiny interest rate — big enough to buy a palace. For fun, we went house shopping and for just a moment we considered buying one of these monster homes. We were joking about having a gift-wrapping room, his and her yoga room, disco room etc…. It is tough — this whole system is geared towards getting people to buy too much house, keep people up to their necks in debt but not over , so that they can work their whole lives for banks that make billions of dollars in profits.

    After slapping ourselves out of the craziness, we decided to get real and keep looking for a good deal. Rental preferably, but purchase is also an option. If I had any skill and time, we would probably buy and renovate, but my time is better spent making money more I work, more money I make. Condos also add the siren song of carefree living. I chuckled at the list of what would make a terrible investment.

    They are spot on with home ownership as an investment. Your example of the single guy without a family? Perfect candidate for renting. He might need to be mobile to get a new job that relocating would require and he can get a dirt cheap place and save the difference towards investing. However I think there is one overriding issue that makes it tolerable for the majority of people. You have to live somewhere. At the end of the month, money will come out of your account and go towards the building you live in. It can benefit you or it can benefit the landlord you rent from.

    The point is being aware of what those costs are and not slipping into the comforting fantasy that somehow owning a house is a always good financial idea. The real question is, of the alternatives available and desirable to any given person at any given time, what are the actual costs and how do they compare.

    Why your house is a terrible investment

    Do this and at least you will know what your choice, rent or own, will actually cost. From there you can decide. In my case, renting is not only far cheaper, but more desirable. Who knows? Maybe next time I move the less expensive choice will be owning. A house is like any investment, and yes, it is an investment. Do most people experience many of the negatives you mentioned in the post or even the majority of them?

    Yeah, probably. Although, I guess that would be the size of a book. Why would you EVER buy? So I dunno. This blog was very one-sided. A single family home as an investment? I dunno. Looks like most of it was dealt with already. We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policy-makers and researchers.

    We find that rises in the home-ownership rate in a U. The elasticity exceeds unity: a doubling of the rate of home-ownership in a U. What mechanism might explain this? We show that rises in home-ownership lead to three problems: i lower levels of labor mobility, ii greater commuting times, and iii fewer new businesses.

    Our argument is not that owners themselves are disproportionately unemployed. The time lags are long. That gradualness may explain why these important patterns are so little-known. Hi Great post. Come in France, everything you can imagine about taxes in already there! Can-I post a translation of my own with the help of google on a french forum? Of course i will mention the adress of the original article.

    Many thanks for considering my request. Thanks for what you do. Also glad to meet someone who can be both a satisfied homeowner and still appreciate the concepts in the post. The best way is to simply take your annual rent and multiple it by It is the same formula as for figuring your FI number:. Once you do you should be able to figure the rent needed. As for 3, most landlords will limit your ability to move walls or paint the place in the exotic colors of your choice. It is the same as if you owned the place. Even the most tasteful updates can simply go out of fashion by the time you chose to sell.

    Unless, of course, resale value is not a concern. As for 4, most landlords are looking to keep good tenants not evict them. But if you plan on behaving badly, owning might be the better choice. It is much tougher for your neighboring owners to get rid of you than a responsible landlord. I started reading your blog via the MMM blog…I think there are many of us!

    Anyway, I heard about this article and thought of your blog posting on this topic. The comments section below the article gets quite heated. I shared it over at MMM and the discussion has been more civil. The idea of home ownership as a bad investment really gets folks fired up! I enjoy your posts…keep them coming! This post of mine has become one of the most read here, and it has garnered me both the most love and the most hate.

    Most of that hate has been on other blogs that have linked to my piece. Like at MMM the readers here are blessedly more civil, even when they disagree. I am a bit surprised that none of those comments referenced this post. Excellent aricle. Since the crisis begun in Greece real estate is over-over-taxed. It is over taxed even if the owner is unemployed! Small and big corporatons and entrepreneurs are leaving Greece or closing and having no income to tax, Greek government one of the highest indebted governments in the world and the most corrupt in EU over-taxes real estate.

    I have read that income tax evasion is a big problem in Greece, so I can see why real estate becomes an attractive target. Have they figured out how to charge renters RE taxes? You get taxed on imaginary income, deducted from your RE and the cc of your car, even if you are unemployed, as described! Tax evasion? I am a doctorate student but my univercity does NOT provide me A4 sheets! I have to buy them! Why should I pay taxes? Hopefully, crime is low and situation is still not too bad, because most families have a member that gets a pension or a salary. As for tourism, was a record year, in touristic resorts you could barely hear Greek.

    If they had a mortgage that was paid off by now, their small but stable income would be more than enough to give them a comfortable life. I dont think those who bought many years ago or those who bought during the crash would agree. Building equity as oppose to paying rent plus all the tax advantages can only help with a healthy retirement if one does not refi and cash out during the term of the loan.

    In many areas, at least in California, prices have now surpassed the peak: Marketsnapshot and a recent report by the National Association of Realtors points to further appreciation in home values: RealtorsReport. You are very likely correct, but in doing so they are conflating lucky market timing with a good investment. Thank you so much for your article! Why would I want to buy again after taking a loss on my home when I lived there for 10 years? I guess I needed to be reminded the expense of home ownership. Thanks again.

    Hi there, I live in Spring Hill, an hour north of Tampa. I would buy down near Tampa. The prices are comparable to Westlake, Ohio. There are CDD fees for community infrastructure that are rolled into the property taxes. So, with those fees plus monthly HOA fee on top of a mortgage payment I would pretty much be house poor and not be able to have extra for traveling!

    Again, thank you for your eye opening article. It was very informative. My husband and I have 4 young in the very-expensive Northern California region. We have seriously considered relocating to a less expensive area, but our kids are very young and our family from both sides are all here, so in interest of not starting an all-out family war, we need to stay here.

    We rent now as we had to short-sale our seriously underwater home 4 years ago when the housing bubble popped. Basically, my question is, if you live in an area where rent is sky-high and so is cost of homes, is it still unwise to buy? In fact, while I rent now I have owned houses for 28 years. What I do oppose is the assumption that owning is somehow a gilded not to be missed investment opportunity and that renting is somehow a waste of money.

    While owning a home can offer some attractive lifestyle benefits, it also carries considerable risk and is frequently, although not always, the more expensive choice. By running the numbers you can see how the costs compare. Finally, I am surprised your landlord objects to you doing things —screen door, wind chimes, lemon tree— at your cost that improve the property.

    Maybe if you made a list and presented it as a benefit to him? The title of this article is inherently flawed. Since everyone has to have a roof over their head debatable , you can only compare buying a house to renting a house. I find this buy vs. I love an attached garage and a fenced yard for the dog,so renting a home over an apartment or condo without these features would definitely be up for consideration.

    Not being familiar with renting homes, would the landlord normally expect the renter to maintain the yard and landscaping? What other maintenance items of a rental home would a landlord expect of a renter? Am I switching from one location to another with many of the same maintenance obligations and costs? If you have covered this topic elsewhere and I just missed it, please just point me in the right direction. Thanks in advance for your insights. Regards, dls Landlording, especially rental houses, is a mostly small business venture run by individuals.

    So, I suspect, the answer to your question is a varied as the people offering houses for rent. But other landlords might prefer offering full service, which presumably would allow for higher rents and more control. This is what I want and in my experience, it is easier to find professionally managed apartment buildings. It took over a year but we were finally able to sell our very large house with a very large mortgage, the sense of relief and freedom is amazing. We are now renters. My remaining question is: why do rent vs buy calculators almost always show buying being better than renting?

    I think it depends on the data you enter. Maybe using price and rent data for the area s you use, buying at least appears to be the better option. For example, if rents have stayed more or less the same, but purchase prices have dropped significantly over the same period, the calculators would show buying better than renting. Late to the discussion, but enjoyed it. Well, a lot of it. However, if they answer they would rent if the price was zero, then the issue is at least partly financial for them, because the price point or rent-to-purchase price ratio is at least part of the decision.

    As above, the price point or rent-to-purchase price ratio is at least part of the decision: I might consider buying my residence if the current market prices were about a third of what they are. Purchase prices are really high compared to rental prices where I live, relatively speaking, in my opinion.

    Selling a house as-is

    But it is pretty easy to sort out the financial part. If you need or want to be highly mobile due to your career or lifestyle, then renting is definitely the way to go. My parents lived in their home for nearly 30 years, and did very little to update it in that time.

    Big Stories

    They kept it mechanically sound, but the decor never changed. In fact, when they bought the house, the decor was 5 years old. Now they are trying to sell, they are having to spend a lot of money to update the house and make it attractive to buyers. In my opinion, that is part of the price you have to consider in home ownership. Homes that are well maintained with updated decor and finishes will tend to appreciate over the long run.

    However, a house is the best investment that you can also live inside of. Consider buying a home today with a 30 year mortgage. Compare the cost of the mortgage, taxes, and insurance to the cost of renting a similar amount of sq footage in the same area. The mortgage basically secures your housing cost for 30 years! Imagine how much the cost to rent in a given area can change in 5 years, let alone 30 years. Granted renting gives you the freedom to more easily pick up and move, but generally this freedom comes at a price, but financial and intangible.

    One place where people get this analysis wrong is when comparing renting, say, a 2 bedroom apartment vs buying a 2 bedroom home. Of course the apartment is going to be cheaper since it is a multi-unit dwelling. If you are fine living in an apartment the rest of your life nothing wrong with it then the analysis will generally tell you that it is cheaper to rent. However, if you compare the apples to apples cost of buying a home vs renting a home on a price per sq foot basis, I think buying will generally win out over the long run as it fixes your cost of housing.

    Saying a house is a bad investment may be true for reasons besides simple economics. However, you have to live somewhere. First of all, I am 33, single and have begun researching this very topic. I appreciate this article for its point of view. My problem is I am tired of sharing walls, ceilings, or floors.

    Not to mention not having a say in whom your sharing those load bearing nuisances with.

    Considerations For When To Sell An Investment Property

    I was so excited to begin this process and now, as with my retirement, I am terrified. As one comment suggested, perhaps instead of viewing the home as a source of income down the road I should consider a house as a means to fund my retirement. For me, buying was best buy far pun intended. Whether it makes sense comes down to your numbers. I bought a starter house that was half the price that I could afford, when I was 22 years old. I paid it off when I was 30 years old, thanks in part to renting part of it out. I was the first in my family to buy a home, much less pay one off.

    I was an owner! Sweat equity built up my home value, taught me skills until I had rebuilt the home to what I had always dreamed about. I sold that home and rolled the equity into my new dream home. I am still mortgage free. Where was my mortgage money going through the years? Today, I am FI, and it started with buying a home.

    Not bad for a blue collar worker. One use case to consider is the exchange. My realtor has made tons and tons of money on real estate because he just buys properties, rents them out, collects income, and then when they become old he s them into a newer property. With renting the options are a lot more limited. Operations not meeting these requirements are speculative. Given the stress he put on dividend payments for the defensive investor, I think this is a reasonable explication of the phrase.

    Now, a rigid adherence to this definition drains your conversation of a lot of codswallop. Not an investment. But it is not just in stifling stupid remarks that his definition works in your favor. It stifles stupid deeds too; it forces you to separate investments from wants, it makes self-delusion harder to put over on yourself. Barring those, your house is a want and you need to look elsewhere for your investments. I do…. However, you failed to account for the fact that a house really does pay you a dividend each and every month- that dividend is the amount of rent you saved.

    The dividend rate may be way too low, but there is a dividend. The commute from my apartment to my new job is exhausting, but apartments near work are even more expensive as you get closer to the major city. Do you think the investment is equally foolish if the property is in Manhattan? Surely there are some locations in the world that defy some of the general principles outlined here…. This post is intended to be an antidote to all the propaganda out there that buying a house is always a wonderful financial move. Certainly there are times and places where buying is the better cheaper option than renting.

    In Addendum 7 I link to my post that shows how to run the numbers in any given situation so you know where you stand. I know nothing about investments but I am a renter in Manhattan and crunched the numbers per your instructions and in the rent vs own calculator. Where are you all at? As for subk houses, you can find them all over the Midwest and South and here in small town New England.

    Having lived a long time and watched the price of homes escalate and rental rates do the same thing I like the idea that I own my own home without a mortgage and have never considered it an investment. Boy, I wish I could email this to myself in My home has lost value after adjusting for inflation since then. Now I just want to move on with my life and go back to being a happy, relatively carefree renter.

    Some people need to learn the hard way. It has been a long time since I owned investment RE. Even if I could remember anything about it, that information would likely be out-of-date. Well…Why is the landlord paying all the maintenance and what money he uses? Does he do it for free? I have owned few houses and I have invested in stocks and feel I have done equally well on both sides. I have paid my first house of in 4 years, invested money in stocks, pulled some money out when my stocks doubled, bought another house to rent out. My stocks have almost doubled again and my rental property has almost doubled in value and now I want to move to another part of the world.

    All it takes is about 2 months of preparation and then lets go. No problem here. However, you seem to have fallen into the fallacy that rents are set by landlords. They are not.

    They are set by the market. And that by extension are bargains for the tenants. Certainly, a wise investor considers carefully each prospective property with an eye towards its fiscal characteristics. But such properties are hard to find, in demand and take considerable skill to recognize. This is a complex topic. I think it is good to be rational and clearly there is an irrational cultural bias in the USA towards home ownership. In Germany, the bias is in the other direction.

    Most Germans prefer to rent. But I think you need to analyse this problem on a case-by-case basis. But the truth is that different people have different amounts of money to burn, different goals and different locations, implying different tax situations. In this case, home ownership becomes 1 a type of investment diversification, 2 insurance against rising rental costs and 3 insurance against being forced to relocate during retirement years stressful, uncomfortable, risk of lifestyle downgrade.

    Admittedly, if you have less than K in savings, you should be focused on how to be more efficient with your investing so that you can earn and save more. My point: Home ownership can be rational for those with sufficient capital. I feel bad for them. I truly do. I owned a house from the years and left it behind in a divorce. The market completely left me in the dust. Some would say it is a bubble and time will tell.

    Your point about home values in an environment of falling interest rates is important. What happens to home values in an environment if rising interest rates? I appreciate your article challenging the largely unchallenged views about home ownership. That said, I find the two camps buy and rent almost overzealous in their commitment to their respective cause. I happen to believe there are appropriate circumstances for a home purchase, including financial advantages.

    It is nice having someone in your line of work not immediately start burning me in effigy after reading this. Truth is, I am not against homeownership. Your homes were expensive indulgences? That sounds like a poor financial choice. Like an expensive hobby. What would you recommend to the young family determined to buy a home that would make it a better financial decision? For instance, you moved to a smaller apartment from a bigger home. Would a more modest home purchase be a smarter choice? What about down payment? Length of ownership? Any thoughts on financing and refinancing?

    Expensive indulgences are probably always a poor financial choice, but nothing wrong with that if they bring joy into your life and you can easily afford them. This is one of the benefits of reaching FI. I stumbled across your blog 2 days ago and have been reading it ever since. I am 26 and just learning about FI. This brings me to my question for you — what are your thoughts on rental properties?

    I really appreciate all of the information you have shared on your blog. Hopefully one day, I can pay it forward! We only lived there for 4 years so that covered closing costs, a realtor, and left us a little to put into savings. We had a 2 bedroom, 1. It can be manipulated to the detriment of the home purchaser: You can lower the monthly payment by increasing the payback period, which increases the interest paid, and reduces the ROI.

    In general, I believe looking at costs purely on a monthly basis is short-sighted and disguises the true cost of home purchase and ownership. Sure, plenty of people see increases in values of their residences, and depending on the price-to-rent ratio for that area, might even spend less money purchasing a residence. Over those decades, though, the amount of money they have spent on mortgage interest, transaction costs, maintenance, and so on, in many cases wipes out a lot of or all of the capital gain.

    In the US what would people do if the mortgage interest deduction was eliminated? Sounds similar to people who think renting is a waste of money right? This does not include my labour on various tasks…. I suspect there is a difference in the UK market over-priced housing, both rental and owner-occupier. However, as I am retired, I am now starting to think it might be time to consider renting, for many of the reasons mentioned above.

    Heard all these arguments before. There are people who get rich with real estate and the stock market. Whatever suits you best — some people are geniuses at picking stocks although rare and others are great at picking properties and learning that business.

    Some of the arguments as to why real estate is bad have to do with its illiquidity — but that is exactly WHY I like to diversify into some real estate. Slowing down money is a good idea because it can also prevent you from selling too soon or not thinking through the decision to sell, whereas it is very easy in stocks to just dump everything in 5 minutes.

    This is another reason why I like real estate. I tried to sell my rental home in at the bottom of the market for goodness sake. Thank goodness nobody wanted to buy then. My first home was a house I built. Now I live in the house and am a landlord with a maximum of 3 tenants at a time there is a detached garage apartment. I have never paid my mortgage, my renters have. My house value has doubled in 8 years since it was built, but because of my state, I can not take out an equity loan.

    If I sold the house I would walk away with k. I have, however, paid a lot for repairs and general upkeep. I agree wholeheartedly with this article. If it were not for my unique situation, I would not own a home. For me it has become strictly an investment that also gives me a nice place to live. It can be a lot of work, but so can a regular home. Those who are will likely be equally surprised to hear me say, I agree wholeheartedly with your housing choice and strategy. Thanks for this post! Supply is restricted but the man seems to be forever rising. Too bad we are not going to be on that FinCon panel together this year.

    Would have been fun doing it with you and the others. Congratulations on the great run with your SF place. You clearly have the financial skills and the location knowledge to better judge than I what your next move with it should be. I try and go every other year.

    Given I went to San Diego last year, this is year is rest time. I just feel I will have regret in 20 years. When our lease runs out at the end of August we are going to establish low-cost residency in SD and let the travel flow. The fact that I bought a beach house does neither and the points in the post apply equally to it. We saw the writing on the wall. Beautiful home, caring long-term neighbors with some class and concern for each other. We can then either sell this home or stay in it free and clear. A lousy investment? In terms of pure numbers, perhaps. This property is not repeatable.

    In our area of the country real estate is in extreme demand. You can almost name your price, and it will not be changing anytime soon. Renting a home sucks. If one needs to do so for a short to medium short time frame due to job moves or unsurely of career or whatever, then fine…rent. But for those who mostly are staying put, it is a fantastic decision, if a terrible investment. I enjoy your blog! I enjoy reading your blog. It was passed on to me by my aunt who is a huge mentor of mine in this space. Please direct me there if that is the case. One question I have about the rent vs.

    This is true at least where I live. I know that the same can be said for real estate taxes, home owners insurance, etc. My husband and I had been living in a nice rental home with a great yard for over 12 years. We had paid almost every bit of the entire value of the home in rent.

    But at year 12, when the landlord decided to sell, we had to go. We had zero choice in the matter and all that money we paid into that house effectively got flushed down the toilet. Sure, we got a nice house to stay in for those years but again, we paid almost the entire value of the house in rent in that time. But when it came time for them to sell, we were the losers. Big losers. So how do we properly compare buying with renting?

    This is a super article. However bring it up at a cocktail party and you will be left standing alone at the fireplace. I also fell into the house owning trap. In my case though I was only able to purchase when the market crashed. However when I took the capital appreciation and deducted fees, taxes, heating, electricity, maintenance etc and lost opportunity on my capital the gain was 1.

    Whenever I want to travel I hand over several dated cheques, lock the door and away I go. I have worked at lucrative contract jobs all over the world being able to do so because of the mobility renting enabled. I visit the big houses of friends and family, many living hand to mouth to enjoy their facade. They scoff at my humble apartment but in more thoughtful times complain about the stress they are under. The whole home ownership philosophy is clever trap and best avoided for all the reasons in the article. Mark, If you think living in an apartment is an upgrade to owning your own home in a nice neighborhood, and watching your equity fly out the door each month, then God bless you!

    Jeremy, Congratulations man! In truth, I have great compassion for the poor and those with difficult life situations. Wealthy is much better, because it gives one choices and options. Being wealthy allows one to chose who to bless with the fruit of your labors. I have many friends less fortunate and I love them just the same.

    I appreciate your comment Jeremy! Scott, you forgot the part where your landlord can make you move out at any time. My husband and I were renting a house not an apartment for the last 12 years; we sunk the entire value of the house into it in rent. Last year, the landlord decided to sell and we had to get out. I would not willingly put myself into that situation again. Not ever. That sounds like a truly horrible apartment and, from your earlier comment above, it sounds like when you bought your first house it was a substantial step up.

    I was careful in choosing both and, knock wood, have so far managed to avoid most of the problems you experienced. I have had bad neighbors in both. Problem solved. With the house next door, and with no landlord to run interference, we suffered for years. With this beach house we just bought our neighbors on both sides have gone from very cautious to extremely welcoming. Turns out both were terrified that a problem neighbor would buy the place.

    Guess we are OK. Finally, since starting this blog in and the Chautauquas in , I have had the chance to meet a lot of people who are FI or well on their way. Not the thousands you and Jeremey have, but a few hundred anyway. Maybe I need to get out more. This includes those who were astute or lucky enough to buy a house that enjoyed rapid and substantial application, as in a gentrifying neighborhood.

    I had one of those once and it is a wonderful ride. Except for that one, every house has been a drag on my FI journey even though each other than that damn condo! But I ran the numbers and bought and owned them eyes wide open. Since you are an asset millionaire, this likely reflects your own situation. After all, even mortgage free, you and I both need productive investments to pay all those other expenses Mark points out. Unlike that carefree Jeremy. You make some good points, and perhaps we can agree that if one prefers renting over owning or the bank owning it until the debt is paid in full!

    I rented for about 10 years of my adult life. That was enough, thank you! In our area, rentals are about what a 30 year mortgage would cost, because of demand. Your story of your wife lament after just looking at the raw price number is illustrative of how people are duped into thinking houses are a great investment. Only after looking at the full range of expenses, as you did, does the true picture become clear.

    And, of course, this is for a house that happens to enjoy strong appreciation. Many more stagnate or lose value. This sort of thing happens to people ALL the time. Well guess what? My 70 year old mother had something similar happen to her about three years ago. She is retired and is on a fixed income. She was renting one half of a duplex. The landlord was very elderly and sold the duplex.

    At 70 years old. Yeah, renting is crap. Well Angela, I never had the sense you were asking a question or seeking a different perspective. Mostly you seemed to want to vent and by publishing your comments I have given you that opportunity. You are welcome. You got what you paid for. If you were dissatisfied you should have looked at other options. Perhaps even owning. Did they break the lease in asking you to move? If not, they fulfilled their obligation to you. Why would you expect your landlord cater to your needs and desires beyond that? The old landlord was providing a screaming bargain.

    I would send them a thank you card, maybe even a gift. This is certainly not the only factor to consider, but it is important to understand the fiscal decision you are making. It is easy to do. Could be, with your long term and the difficulty of moving, owning might have been the better choice. Or you might be here sharing your ownership horror stories like many in the comments above. I sincerely wish you the best and hope that you find a place that suits your needs and for however long you need it.

    Maybe even with room for Mom. My mom lives in my prior county; the one I grew up in and lived in for 40 years until we were told to move. The economy there is in the toilet; it went downhill after the logging industry failed and has been going down ever since. Grays Harbor, Washington State. Look it up. No, renting is NOT better. Buying is best for some. Renting is best for others. The point is that everyone should run their own numbers and analysis before blindly following the religious advice that buying is always best.

    The Average Gross Margin in a House Flip

    Probably because he puts up articles like this as well as YouTube videos and tons of other things titled:. And on and on and on. As someone from Seattle that feels owning is a terrible investment, I bought anyways because of the pressures described. At that point, they will own their home free and clear and have nothing but maintenance costs and taxes left to pay AS OPPOSED to the full rent every month for the rest of their lives.

    Young couple aged 25 buys a home. They spend the next 30 years paying the mortgage. After 30 years, the mortgage is paid for and the next 30 years of their lives up to age 85 they owe nothing but taxes and upkeep. I have both rented and owned. Rented allowed us mobility when we were younger to move for education and work.

    Not to dismiss renting out of hand, nor buying. As for the owners of property who choose to rent allowing us to rent , the ecomnomics for them make sense for them to rent out for example they purchased a log time ago or they are downsizing and are using their former residence as an income property.

    Again, landlords situations allow for us to rent — we have been lucky with our landlords, but we also did our due diligence on them as they do in us. Having choice has been a net benefit for us and saved us thousands of dollars in realtor fees and caring costs when we were moving every 12 months. Now as owners, we appreciate the stability.

    Both have their place in my opinion. I believe the point of the original article was to show that renting was a real option for many people. I highly suggest that everyone read Mr. Collins full blog and even his book — both are extremely useful tools. Angela, you seem a tad deranged. Maybe all that home-boning and constantly fixing shit around the house is causing all the stress? Please put away your tin foil hat. Apparently, homeownership also causes paranoia. Who knew? It is appalling to me that MY experience and MY opinion is treated so poorly.

    I HAVE to agree with yours? That is horrific. Yet, another point for renting. You are doing a great job proving why a perfectly level-headed landlord would evict someone like you. I thought you were so knowledgeable about renting? J Collins actually DID have a portion of my email address posted. If every single person in the United States believed they should never buy a home or invest in any sort of real estate, there would be nothing to rent. So insulting me and calling me a psycho is a bit short sighted as you are only able to be renters because someone else invested in the property.

    I bought my house when I was young and it is paid for now. Then I traveled around. Now it is a nice source of income for me. Buying it was one of the best financial decisions I made at that age. The fact that you or anyone rented 1 space from 1 owner for so long speaks to both the quality of your landlord and you being a quality tenant. Now what you are clearly missing is the optional portion of ownership.

    However, as Jim has said, its a lifestyle decision — not the best use of my money. Hell, he owns a place in Michigan I think on a lake and has said it was a terrible financial but emotionally fulfilling purchase that he was happy to take on. For numerous people in numerous situations, renting is a superior lifestyle and economic choice. You chose to rent forever versus owning.

    This could have been avoided had you bought your own house to start with or moved after a few years. Home ownership can be great or terrible, depends on your preferences. Here, it sounds like you made a decision and now regret it.