June 6, 2010 125 Comments

Rethink Every Assumption

Richard Florida posted about The Great Car Reset, talking about how America’s passion for cars might be waning a bit. In another story, with video, Florida talked about how we should rethink home ownership (the video is below – click through if you can’t see it). He’s not wrong in either case, or rather, it’s something to consider.

I grew up thinking home ownership was the goal. I have a loft in northern Massachusetts that’s about 955 square feet, with a wife and two kids and two cats in it. It’s a wee bit small. So, I’ve been thinking about homes and clicking the occasional real estate link that Kat sends me. But do I want to own?

We use to think homes were important places to store equity. Wow, that sure didn’t work out for a lot of people in the last few years. Even if a home stores equity, you can’t actually get at that money until you sell, so it’s money that’s not being used. In essence, it’s not earning you anything if it’s just sitting there in the home, still. So, a home as a simple residence isn’t exactly a great investment these days (at least by some people’s thinking).

What about cars? Cars depreciate the moment you buy them. They rarely go up in value. They require maintenance, parking fees, etc. And we usually own cars when we live in the suburbs, but that brings us back to the real estate question, and whether or not we even want to be in the suburbs any more. If we reurbanize, if we rethink our cities, if we rework how we work, would we need to throw $20,000 or more into something that just moves us from A to B?

I’m just throwing this all out there to talk about, to think about. The video is interesting, too. What do you think?

From The Burden of Home Ownership.

ChrisBrogan.com runs on the Genesis Framework

Genesis Theme Framework

The Genesis Framework empowers you to quickly and easily build incredible websites with WordPress. Whether you're a novice or advanced developer, Genesis provides you with the secure and search-engine-optimized foundation that takes WordPress to places you never thought it could go.

With automatic theme updates and world-class support included, Genesis is the smart choice for your WordPress website or blog.

Become a StudioPress Affiliate

Newer Comments →
  • http://twitter.com/post_free_ad Free Classifieds

    I never consider home as an asset. I need a home to live in a nice place with plenty of space, back yard for gardening, store more junks in the basement, etc. However, for many people home is the only substantial asset and rely on it to take money by refinancing multiple times. There is not doubt the home prices will go up again but I think it will never reach the peak frenzy of early 21st century.

    I have no problem living in a urban area and using mass transportation. In fact I will love it. But it so darn expensive to find a decent size apartment for a reasonable price in an urban area. And buying a condo is out of reach for many people.

  • gin_ev_ra

    I live in Australia. How badly do landlords behave where you live? How many petty inspections? How frequently are you forced to move your family (given 12 months is the maximum rental period, without special, special pleading)? How many times does the rent go up randomly, big increases?

    Are you forbidden to grow plants (deemed an alteration), despite the fact the yard is weeds? If you're a visual person, are you forbidden to “affix” anything to the walls i.e no blu-tacking up any posters, no repainting the shoddy beige walls?

    I've no illusions, wanting to buy a house is not an investment, it's about quality of life. Cars, however, that's a different story: I've never bought one, never learnt to drive, don't plan to…

  • http://www.petershallard.com Peter Shallard

    I think this is a really useful post Chris. The issue is one of perception. Western society has been conditioned (by someone/something) that home ownership is this huge good thing.

    There are MANY groups and industries that have a invested interest in continuing the propagation of that belief across our society and future generations.

    That's the scary thing. For the system (and thus, our perception) to change… the whole economy built around it has to change…. and that means people can (and probably will) get hurt.

    No easy answers – but you're asking some good questions man.

  • http://twitter.com/manningfinance Christopher Manning

    Chris,

    I like the premise you present. It is similar to what I've discussed before when I say we should question “conventional wisdom”. Not that it is right or wrong, but we have to evaluate it within our lives. Just like the home ownership issue. Conventional wisdom says it's the American dream, but is it the correct thing for YOUR dream?

    Thanks for sharing!

  • http://www.danieldecker.net Daniel Decker

    We bought our current home at the height of the bubble. Two years later it's worth about $50-75k LESS than what we paid for it. For me though, I'm not worried about it because I don't plan to sell anytime soon and I love the house, neighborhood, etc. We are in the burbs but it's almost one of those self sufficient deals where everything we want (schools, supermarket, community pool, etc) is within a mile or two of the house – thus enabling us to walk or bike to most things. I do hate that I am paying a mortgage on a house that is worth less than what I bought it for but I consider my house like my car. I buy it more for it's use than for the investment it holds. I know for many that is the wrong way to look at it but to me it's one in the same but usually the home has an upside with equity over time. (I agree on the urban renewal deal but honestly, having two young girls under the ages of 10… their safety trumps my desire to help reinvigorate a dead area).

  • Nick

    I get pummeled by my transit-friendly co-workers because I’m the only one of us who drives to our office in downtown Chicago. What I have tried to explain to folks is that by picking a suburb not on a rail line, I literally saved 60% on my purchase price of my townhome compared to a similar but 15% smaller property within walking distance of the 3x/hour peak, 1x/hour offpeak train.

    I figured out that the interest savings alone were $7000 a year. That pays for a LOT of gasoline and parking, even when parking is sometimes as high as $28/day if I go at the wrong time. If I worked downtown every day, it’d still be cheaper to have bought the expensive home. But since I know I telework a little and travel on business a lot, I’m ahead of the game.

    If I didn’t have family in the area, however, I’d be doing an even more extreme approach: a studio apartment (e.g. glorified hotel room) in the city in an overbuilt condo development which needs cash flow, and a home even further away, maybe the south side of Milwaukee near Amtrak or even someplace accessible by cheap air like Minneapolis or Kansas City. Tim Ferriss talks about “earning dollars, living on pesos, and paying employees in rupees.” But even within the US, for single people, arbitrage across the country can still be very profitable.

    To the Realtor above: it’s not that real estate won’t appreciate again. It’s that people don’t think through clearly how much of their self-worth, their cash flow, and their actual net work should be tied up in any one likely to appreciate asset, whether it be a car, a company, or a significant other.

  • Trainwithshane

    Chris, the past 3 years of my life have been spent transitioning, prunning, shedding and redefining “what roots me”. I sold my townhouse last year (owned 9 ys), most of my furniture this year, and I feel unburdened with any debt and responsibility, not to mention FREE to move about the cabin! You are raising a family, and a home may represent different roots. Right now, it just might be smart to stay put and keep investing in other things. The housing market will be a buyers market for a LONG time. No need to rush. check this out, What Roots You? (http://www.deborahshanetoolbox.com/what-roots-you/)

  • http://twitter.com/TimBrownson Tim Brownson

    Until we moved to the US I hadn't not owned a house for 20 years. It was at the top of the market (although to be fair we didn't know that) and to buy would have taken every spare cent we had and I didn't want to set up here immediately under the cosh.

    Man it was the best (or luckiest) decision I have ever made. The house we're in is now worth $150k less than when we moved her in 06.

    Every time we hear about a hurricane we're not worrying about damage. Cinch bugs attacking the yard was a headache for the owners not me as was the A/C quitting along with the washing machine and fridge! When the drains became blocked I called the plumber and then knocked the bill of my monthly rent and I didn't even see the bill for repainting the house.

    As we don't have kids I see no real value in ever owning a house again other than the flexibility to make structural changes, and I'm not sure that is worth all the grief and extra cost to be honest.

  • http://twitter.com/TimBrownson Tim Brownson

    Holy crap, now that does sound bad. Maybe we just have good landlords because we have none of that gin.

    I have spoken to other landlords and they say at the moment filling houses and getting paid is the hardest thing and good tenants are like gold dust. We just signed an 12 month extension to our lease which means we know we're here until at least September of next year and all we had to do was ask.

  • http://dannybrown.me Danny Brown

    Having a roof over your head and giving your family somewhere to call home outweighs any thoughts against ownership. Sure, you don't get equity until it's sold or paid off; but then it's not really about you, is it? It's about setting something in motion for your kids to benefit from; least that's the way I see it.

    To “reurbanize” our cities now, you'd have to de-industrialize them to make them fit homes. Start to do that, and then you start to see people lose their jobs because they don't want to have to travel 20-30 miles (or more) to where their workplace re-located. Then you're back to square one.

    Change is a great thing, but sometimes the status quo is needed too.

    • http://chrisbrogan.com Chris Brogan

      A roof over one’s head is not equal to ownership. We rented for quite a while with kids and still were okay.

      You’re really right about the reurbanization. The thing is, at least in the States, those efforts are underway in lots of prominent cities.

      • http://dannybrown.me Danny Brown

        Hey there Chris,

        Oh, for sure. Renting still provides a roof. What I meant re. ownership is that a bank can’t force you out from your home because they want to sell; something a landlord can do pretty easily. That’s where the difference lies. And a mortgage is very often less expensive than renting.

        It’ll be interesting to see how the reurbanization affects the cities in question, and how it reflects the reasoning behind the move. Are they short-term options to being more people back to the city, or is it a long-term approach that’s been properly mapped out? The funny thing with city planners is you never quite know their agendas.

        In Toronto, all that’s happening is block after block of condos. And because it’s inner city real estate, you’re looking at double the price of the equivalent options a little further out. Which then begins a class divide of “haves and have not’s”. Which kinda goes against the whole “revamping the community” take. Unless, of course, Toronto’s take on revamping a community means just having the corporate city slickers in place… ;-)

      • http://dannybrown.me Danny Brown

        Hey there Chris,

        Oh, for sure. Renting still provides a roof. What I meant re. ownership is that a bank can’t force you out from your home because they want to sell; something a landlord can do pretty easily. That’s where the difference lies. And a mortgage is very often less expensive than renting.

        It’ll be interesting to see how the reurbanization affects the cities in question, and how it reflects the reasoning behind the move. Are they short-term options to being more people back to the city, or is it a long-term approach that’s been properly mapped out? The funny thing with city planners is you never quite know their agendas.

        In Toronto, all that’s happening is block after block of condos. And because it’s inner city real estate, you’re looking at double the price of the equivalent options a little further out. Which then begins a class divide of “haves and have not’s”. Which kinda goes against the whole “revamping the community” take. Unless, of course, Toronto’s take on revamping a community means just having the corporate city slickers in place… ;-)

    • http://chrisbrogan.com Chris Brogan

      A roof over one’s head is not equal to ownership. We rented for quite a while with kids and still were okay.

      You’re really right about the reurbanization. The thing is, at least in the States, those efforts are underway in lots of prominent cities.

  • http://twitter.com/mayaREguru Maya P.

    Well this definitely pushed my button. =)

    As a Real Estate professional, and one who clearly believes (as I have even stated to you Chris) that you buy what appreciates and rent what depreciates, you might be doing a bit of disservice here.

    1. Real Estate values ALWAYS increase, if you are only looking at the short term, or the current down-turn than you are missing the big picture. Real estate is cyclical – I believe we are at the bottom of an 11 year cycle. For instance I use my own residence as an example – I purchased my home in 1999 for $132,000. In 2006 it was probably worth close to $330,000, today I would likely say $285,000. Did I lose money on the house? No, did I lose equity – possibly. The other key factor here is that unless you pay cash – which most people do not – it is a solid investment and the historically lowest interest rates are today – there is not less expensive way to borrow money or build wealthy. When the stock market was faltering over the past decade the return on your investment in real property was a far steadier and more reliable gain than in any stock, mutual fund, or bond investment.

    Yes things are a bit of a mess because it became far too easy to get the money to buy a house, and people were using ARM products, LIBOR negative amortization products, and 80/20 loans, or even 103% Loan to Value products. All not ideal. BUT – unless you leveraged the equity in your house – and purchased with the mindset “This 5/1 arm is great, I can buy this $1mil house for what I would pay for a $700,000 house and in 5 years I will refinance and get a great conventional/jumbo mortgage” then you were taking a risk and a gamble. When people CHOOSE to over extend themselves it is only their fault, not ours – but we are all paying for it now.

    I counsel my clients to purchase a house they can afford – just because a lender approves you for $750,000 doesn't mean you are comfortable with those payments.

    So homeownership – it is not for everyone, too many people don't understand that homes require maintenance, repairs, updates/upgrades, and a constant flow of capital, but that is WHAT keeps and increases a homes value.

    Real estate is, and will always be a good investment, for the right people. If someone thinks that by paying $350,000 cash for a house they aren't making the most of their money I present the “Bernie Madoff” scenario to you (I do know people, and family members who were hit by Madoff). So really? What do you have the most control over as far as where and how safe your money is? Your own Real Estate.

    I can provide a ton of examples of positive gains in real estate, and I can also show you many examples (including a short sale I have worked with) of people who use the equity on their homes every time it is available. Real estate is finite, there is only so much on the planet, and no two properties are alike – the definition of real estate, the structures we put on the land are the improvements, and how we choose to improve them is up to us.

    Ask Donald Trump if real estate is a bad investment, I suspect he will tell you it is not, and he has seen a few cycles. The fastest way to build wealth – aside from hard work – for the average person is by purchasing real estate, and keeping real estate. If someone has their eye on the short term return, then they are missing the point, and maybe renting is a better option for them. Another example – the home my parents purchased in 1971 in Palo Alto, CA for $70,000, transferred/sold the last time it was on the market for $4.5million and that was probably in 2005 I think – so show me any other place you would have gotten that kind of return on your investment in the same time frame.

    3. Yes you can get at the equity in your home – it is called an Equity Loan. Happens all the time, and needs to be watched carefully. Still one of the lowest rates of interest to borrow your own money.

    2. Cars – I lease my car, I stopped buying cars over a decade ago – why buy something that might be a lemon, and depreciates the second I drive it off the lot. I consider my lease an extended test drive, and I determine whether I am happy with the vehicle and will buy it out at the end of the lease – if not I walk away.

    Are there days when I think – wow it would be so easy to have a landlord who took care of all this stuff I have to deal with on a day-to-day basis as a homeowner – absolutely, but then again – I prefer to have the control of my own home and choices I make, as well as when things are taken care of.

    Interesting point to your post, most thought provoking, but I think you aren’t really looking at all the possible sides to this argument. I could go on for pages, but will stop now.

    Thanks for being so thoughtful though Chris, I always enjoy your posts. But it IS the time to buy real estate for the smart investors. I advise any of my clients who purchase prior to 2005 that they should seize the opportunity now to move-up or invest.

    • http://chrisbrogan.com Chris Brogan

      1.) Trump invests in properties that others rent or lease. That’s exactly my point. Home ownership is more the question. Not the investment.

      2.) Equity loans are all but shut off, as equity fell under with home devaluation. Might come back.

      3.) leasing seems the way to go.

      And your last point is that real estate INVESTMENTS are good. I don’t disagree.

      My question in this post: is home ownership still a good investment? Single home ownership. I’m not so sure.

      • TheBankChannel.com

        Renting homes in Europe is mostly the preferred option and has been for decades, mostly because buying is too expensive but perhaps also because there are better ways to spend your money. In Australia the property is reaching a critical point where many first home owners cant afford anything let alone something expensive, so the rental market is becoming entrenched in Aus culture.

        • http://twitter.com/mckra1g mckra1g

          There are better ways to spend your money. Ding.

        • http://twitter.com/mckra1g mckra1g

          There are better ways to spend your money. Ding.

      • TheBankChannel.com

        Renting homes in Europe is mostly the preferred option and has been for decades, mostly because buying is too expensive but perhaps also because there are better ways to spend your money. In Australia the property is reaching a critical point where many first home owners cant afford anything let alone something expensive, so the rental market is becoming entrenched in Aus culture.

      • http://twitter.com/mayaREguru Maya P.

        1. Good point – and as I have said to you – buy real estate, I am not talking just residential, commercial too. And I should have specified in my original comment (so thank you for forcing my clarification) that I was talking about investments beyond primary residence ownership – beyond that people should be purchasing investment properties, rental properties, vacation properties, that is the best way to build wealth, so I should have clarified that. You have financial security in owning your own home, but you build wealth thru real estate investing – in all areas. I have clients who own 10, 20 or more properties. Can you say “cha-ching”? See Trump, Branson, etc.

        2. Equity loans do still exist, if people are qualified and equity is available. I can give you the names of at least three banks to go to, and they lend nationally. Equity loans are not available if there is no equity. People need to be smart with money, and many aren’t.

        3. If you mean leasing real estate, then have at it – make someone else wealthy. I will never understand why anyone would want to pay someone elses mortgage, and make them money. So yes, homeownership is not for everyone, but obviously it is for me, so I can’t see the perspective normally. I ask this question of my own brother who lives in the Boston area – rents his apartment, owns his car. He hesitates to purchase, so I say then buy an investment property!

        Yes home ownership is still, and always will be a good investment – IF the person buying a home wants that responsibility and understands the process. I think some of that education falls back on the Real Estate agent, part of our job is in educating the consumer/client as to what the truth of home ownership is. I have often convinced clients that home ownership was not for them – and guess what, that’s my job too.

        The smart, and prepared home buyers today understand they are seeing some of the lowest interest rates every, and lowest prices, combine those two things, purchase and watch what happens in 5 years. The market will be back – 2013 you will see the value returns.

        For you – perhaps not, but I think you are being a bit short sighted, you like to read, and I once gave you a list of Real Estate books. I challenge you to read them, do more research and come back on the topic. I bet you $1 that you will feel differently.

        And thanks for giving me my topic for the DC 140 Conference, I had been wondering what I was going to speak about. =) And I will write a full post on my blog with my complete reaction. As usual Chris, very thought provoking.

        • Anonymous

          Maya,

          You have some valid points. However I feel that, you too, “are being a bit short sighted” with your arguements. I’ll try and address some of these issues from a comprehensive approach to financial and life planning tomorrow. I invite you to read and submit your thoughts.

          Regards and have a great Sunday!
          Chris

          • http://twitter.com/mayaREguru Maya P.

            Agreed, but I will expand on my thoughts elsewhere, not taking up Chris’s blog real estate. =) Look forward to reading what you have to say as well!

          • http://twitter.com/mayaREguru Maya P.

            Agreed, but I will expand on my thoughts elsewhere, not taking up Chris’s blog real estate. =) Look forward to reading what you have to say as well!

        • Anonymous

          Maya,

          You have some valid points. However I feel that, you too, “are being a bit short sighted” with your arguements. I’ll try and address some of these issues from a comprehensive approach to financial and life planning tomorrow. I invite you to read and submit your thoughts.

          Regards and have a great Sunday!
          Chris

      • http://twitter.com/mayaREguru Maya P.

        1. Good point – and as I have said to you – buy real estate, I am not talking just residential, commercial too. And I should have specified in my original comment (so thank you for forcing my clarification) that I was talking about investments beyond primary residence ownership – beyond that people should be purchasing investment properties, rental properties, vacation properties, that is the best way to build wealth, so I should have clarified that. You have financial security in owning your own home, but you build wealth thru real estate investing – in all areas. I have clients who own 10, 20 or more properties. Can you say “cha-ching”? See Trump, Branson, etc.

        2. Equity loans do still exist, if people are qualified and equity is available. I can give you the names of at least three banks to go to, and they lend nationally. Equity loans are not available if there is no equity. People need to be smart with money, and many aren’t.

        3. If you mean leasing real estate, then have at it – make someone else wealthy. I will never understand why anyone would want to pay someone elses mortgage, and make them money. So yes, homeownership is not for everyone, but obviously it is for me, so I can’t see the perspective normally. I ask this question of my own brother who lives in the Boston area – rents his apartment, owns his car. He hesitates to purchase, so I say then buy an investment property!

        Yes home ownership is still, and always will be a good investment – IF the person buying a home wants that responsibility and understands the process. I think some of that education falls back on the Real Estate agent, part of our job is in educating the consumer/client as to what the truth of home ownership is. I have often convinced clients that home ownership was not for them – and guess what, that’s my job too.

        The smart, and prepared home buyers today understand they are seeing some of the lowest interest rates every, and lowest prices, combine those two things, purchase and watch what happens in 5 years. The market will be back – 2013 you will see the value returns.

        For you – perhaps not, but I think you are being a bit short sighted, you like to read, and I once gave you a list of Real Estate books. I challenge you to read them, do more research and come back on the topic. I bet you $1 that you will feel differently.

        And thanks for giving me my topic for the DC 140 Conference, I had been wondering what I was going to speak about. =) And I will write a full post on my blog with my complete reaction. As usual Chris, very thought provoking.

      • Anonymous

        Without having read all comments on this area, I want to thank you for drawing the distinction between home ownership and real estate investments.

        Some of the problems in the housing market can be attributed to comments like “they should seize the opportunity now to move-up or invest”. The fact is that home ownership, in and of itself, is not the best option if someone simply wants to add real estate exposure to his or her portfolio. There are many more options that are more liquid, less risky, etc.

        The rent v. own argument is interesting though. I don’t want to seem like I’m doing a shameless plug for my own blog here, but I do want to go deeper on the issues discussed here on rent v. own from a life & financial planning standpoint. It has to do with both quantitative and qualitative issues. As you first brought to the forefront, the conventional wisdom of home ownership does not always win.

        If anyone is interested, they can find information on how to get there by looking at my DISQUS profile.

        Thanks for the thought provoking questions!

      • Anonymous

        Without having read all comments on this area, I want to thank you for drawing the distinction between home ownership and real estate investments.

        Some of the problems in the housing market can be attributed to comments like “they should seize the opportunity now to move-up or invest”. The fact is that home ownership, in and of itself, is not the best option if someone simply wants to add real estate exposure to his or her portfolio. There are many more options that are more liquid, less risky, etc.

        The rent v. own argument is interesting though. I don’t want to seem like I’m doing a shameless plug for my own blog here, but I do want to go deeper on the issues discussed here on rent v. own from a life & financial planning standpoint. It has to do with both quantitative and qualitative issues. As you first brought to the forefront, the conventional wisdom of home ownership does not always win.

        If anyone is interested, they can find information on how to get there by looking at my DISQUS profile.

        Thanks for the thought provoking questions!

      • http://www.homesarehere.com Todd

        Yes, but only if you buy a primary residence that you can put 20% down on a 15 year fixed mortgage. If you can’t do that, then rent until you can. I don’t believe you can put 5% down with a 30 year fixed mortgage and call that a good investment for home ownership.

        If rent and mortgage payments are equal, which will not be the case for all markets, but pretty close for the market I’m in (Austin, TX) figure you can buy a home for $200,000. At current interest rates, your mortgage payment, taxes and insurance would be $1602. You could rent a comparable property for about the same. 15 years later…you would spend $288,000 for both. Of course, you would spend more on maintenance and renovations for your personal property and you would have to sell or use financing to get the equity out. Oh yeah, and you can’t move to buy a bigger house! This is not a risk free option.

        If you rent, you are allowed to move whenever you want, usually no maintenance, rent could go down or up…pretty much a risk free option. The cost of that option is $288,000.

        Do the math for the market you are in and the lifestyle that you live. Are rents and mortgage payments for comparable properties about equal? Do you move around a lot? Could you live in the same place forever? Is your home a place to live or a place to impress your friends and neighbors?

        Answers to these questions can help you decide if home ownership is a good investment.

        • http://www.homesarehere.com Todd

          I woke up at 3am and thought about something…I forgot to add the cost of down payment and closing costs to the cost of buying. So add $45,000 for a total of 333,000 to buy.

          And here is something good to check out for a little more detail on rent vs. buy

          A Fresh Look at Rent vs. Buy: http://www.marketwatch.com/story/rent-vs-buy-2010-06-03

    • http://chrisbrogan.com Chris Brogan

      1.) Trump invests in properties that others rent or lease. That’s exactly my point. Home ownership is more the question. Not the investment.

      2.) Equity loans are all but shut off, as equity fell under with home devaluation. Might come back.

      3.) leasing seems the way to go.

      And your last point is that real estate INVESTMENTS are good. I don’t disagree.

      My question in this post: is home ownership still a good investment? Single home ownership. I’m not so sure.

  • http://simplewebguys.com JayTurn

    I think an equally important question people should be asking is, why are we working 30 years of our lives to pay off this home or investment. I can't speak for others but 30 years is a common loan period many people I know have taken on.

    Of course, having your own private space that can be adjusted as you see fit is a major positive to owning your own home. However what happens when our time is up? Do we get to take this home with us? Do we pass it on to family to improve their quality of life?

    What I am getting at is that we work so long and hard for this item which we don't get to take with us when we go. Is it really worth spending 30 years of stress and responsibility to own an item we don't get to keep forever? Not to mention we never really own it unconditionally, rates must be paid and the home can be torn down the instant the government decides it needs the land for something else.

    You tend to question the intelligence of the entire affair. We work 30 years to pay off an item that stays when we go. We give up to 10% of the item's value to the bank over the 30 year period. When the house is sold, someone else then gets a loan and pays the bank up to 10% of the house value over a period of 30 years. You tell me, it is in who's best interest that we continue this pattern?

    • http://chrisbrogan.com Chris Brogan

      I hear you. It’s definitely a great question to ask. We’re doing 30 years of time to hand something off?

    • http://chrisbrogan.com Chris Brogan

      I hear you. It’s definitely a great question to ask. We’re doing 30 years of time to hand something off?

  • Sarah Wallace

    I consider home buying to be a very long term investment. I do not miss renting where my money was going toward a greedy landlord, I had to deal with noisy neighbors and live in space that I couldn't alter in any way. We bought our fixer up by the sea in a very desirable area. We're updating it gradually but have already increased its value significantly. I'm glad we're not renting anymore.

  • http://www.superdumbsupervillain.com/ superdumb

    Home ownership does feel like a blessing and a curse. It's more of an emotional investment than a financial one since I'm not looking to sell anytime soon. I love having a place to equate with home. I lived in several places growing up so it's nice that my kids have a house that is theirs, with acreage to run around. I love not having neighbors who clog dance, ring fire alarms or play death metal at odd hours. I love not having to argue about parking or trash with anyone. That being said it's also a constant investment, something always needs attending to or fixing up. The size of the yard and square footage of the house demands more regular attention than the lofts and apartments I've rented in the past. Three bathrooms to scrub instead of one, that sort of thing. When I'm doing housework, the 600 sq ft domiciles of yore sound awfully appealing.

    • http://chrisbrogan.com Chris Brogan

      Three bathrooms. Holy cannoli. I’d go crazy.

      • http://www.superdumbsupervillain.com/ superdumb

        Of course you can only use one of them at a time…

      • http://www.superdumbsupervillain.com/ superdumb

        Of course you can only use one of them at a time…

    • http://chrisbrogan.com Chris Brogan

      Three bathrooms. Holy cannoli. I’d go crazy.

  • http://twitter.com/paulwallbank Paul Wallbank

    I'd suggest the assumptions we need to challenge go deeper than just home ownership, we're come to the end of 40 years of easy credit and the assumptions built upon an economy dependent upon ever increasing levels of debt.

    Some of those assumptions include that proprety prices always go up, each generation's standard of living will be better than the previous generation and commuting hundreds, sometimes thousands, of miles a week is affordable and acceptable.

    Interesting for Australian posters is Richard Florida's point about the subsidies given to home owners, Australia subsidises property ownership more than any other developed country which is leading to a sclerotic domestic economy dependent on external Chinese mineral demand.

    Where I disagree with Richard is that we will have to reinvent ways to deal with this. I suspect we don't have a choice in the matter as Adam Smith's invisible hand is doing it for us.

    • http://chrisbrogan.com Chris Brogan

      You’re not wrong about the fact it’s much deeper than that. The fact that we, the people, seem to think credit is an inalienable right, is definitely at the root of a lot of financial issues, eh?

      • http://twitter.com/paulwallbank Paul Wallbank

        Actually Chris, I don’t think we as societies see credit as an inalienable right; we just assume it’s forever there and easily obtainable. It’s one of those assumptions we need to rethink.

        The end of the easy credit era means the average person can’t afford a five bedroom mac-mansion eighty miles from their office and the days of five million dollar city apartments is coming to an end.

        If we challenge the assumptions that ever increasing household credit is good and should always be freely available, then we challenge the basis of much of the developed world’s economy over the last 40 years.

    • http://chrisbrogan.com Chris Brogan

      You’re not wrong about the fact it’s much deeper than that. The fact that we, the people, seem to think credit is an inalienable right, is definitely at the root of a lot of financial issues, eh?

  • Ginakaysellshomes

    Maya noted the existance of home equity loans, where people can pull out the equity in their homes prior to sale. While in some areas this option no longer exists, in many areas it still does. It's your own personal bank, to be used just like any loan – with careful thought, planning, and being conservative in today's economic climate.

    While I appreciate the thinking behind the “burden of home ownership” for many people owning their own home simply means *they* own it, not another person or entity. Someone owns every piece of transferable real estate all over the world. Not owning where you live leaves you at the mercy of the person or entity who owns your home, be it an apartment, loft, house, or condo in US real estate speak.

    I'm a bit disappointed that the focus was solely on the negative side of car and home ownership.

    The benefits of owning a home that you live in are many:

    – Stability for the neighborhood (renters of single-family homes are often transient, only staying a year or so and with no psychological ties to the neighborhood or home)
    – An investment of dollars into a product with rapidly shrinking availability – there is only so much land, and as noted above, someone owns it all.
    – The potential for an increase in value exists, giving rise to availability of funds by drawing equity from the home (the current situation is a correction to the market when prices overshot actual value and sketchy loan practices were the norm)
    – The pride in ownership and uniqueness of each home product – no one's home is exactly like another's and renting does not provide the same custom outfitting of a home space as does home ownership.

    While all the above is true, home ownership requires a deep understanding of all the costs, tasks and legal ramifications of owning a home (taxes, neighborhood requirements). It would behoove anyone attempting to own a home to take a Home Ownership Course, offered by many housing agencies across the country. Every home has maintenance, taxes, neighborhood issues and environmental issues; to know how to work with all these things sets a prospective homeowner on the right path.

    Gina Kay Landis
    Real Living Realty Services
    Dayton, OH
    http://www.thislandisforyou.com

  • http://www.RoninMarketeer.com John Wall

    Things that are rented get treated like crap. If you want to crapify anything, encourage full scale rental.

  • http://uptownuncorked.com geechee_girl

    I owned, I hated it. It took the joy out of coming home after a business trip, etc and made my house a chore. So now I rent an average apartment in a cool downtown area and I love it. It's also less than half the physical size of the house and less than half the mortgage payment (property tax + insurance was included). It forces me to keep my stuff, my baggage, down to the essentials, and I really love that. I feel lighter inside and out not owning a house. I downsized the car a while back – from an SUV to a little Matrix. That I don't like as much, I miss the room and heft of the SUV, especially in winter driving, but I feel it's important to take up less space and use less gas, so I've adjusted.

    I think removing home ownership from my focus allows me to focus on things that are really important, like my business and my family and friends and my continued quest for knowledge, and not spend all of my free time on maintenance and yard work and home repair and worrying about mortgage rates and property taxes.

  • http://twitter.com/alanweinkrantz Alan Weinkrantz

    This is bullshit. At the end of the day, someone has to pay for this. If you are not “burdened” with a mortgage, and a developer is, you will pay for it with higher rents.

    Home ownership is not broken. The process of buying and selling is. Real Estate agents, are for the most part antiquated. In my last house, I created a blog about it which made national media coverage. I told a story about my house, the neighborhood, and even had offers from local merchants. I was already tied to a real estate agent, but I would never use one again. I would have no problem paying an agent that brought me a buyer and would gladly pay 3% to the selling agent, but never 6% again. Title companies need to be re-thought. The lending process needs to be re-thought. We need to own homes because it teaches young families to be responsible, save for down payments, and care for a neighborhood. It's also YOUR house, so you can do what you like to it – at least on the inside.

    The issue is not home ownership per se. It's owning a home, instead of a McMansion. I love Richard Florida's thinking and have read his books. I have heard him speak at various events. Like any evangelical / intellectual, he sounds great, but I would like to visit his home, see what kind of car he drives, and examine his carbon footprint. I doubt he lives in an apartment:)

    I live in a 2,500 square foot home. I could afford much more, but I chose to live in the smallest home, on a great block, in a great area of San Antonio, Alamo Heights. Less real estate and less home is where the brain needs to shift, so you can use the money for other things, like traveling, your kid's education, or sharing with those who have less.

    Florida was telling in this video because he never mentioned the South. He left off Texas, which is now the 3 most populous state.

    If you can afford – repeat afford, a nice home and it's not going to kill you or over extend you, and either through luck, hard work, marrying into it, inheriting it or whatever, then by all means you should own- yes own your own home. And if you want a 10,000 sq foot home and you can pay it all off, then by all means go for it. This is the U.S., not a Soviet State (even though our Communist President is taking us there).

    I consider my home an investment. It's not my only one. A home should be though of as a place that's yours, and part of owning cash, stocks, bonds, and – if you are so inclined, other homes or real estate that you can rent:)

    Chris, I love you man, but this one was way over the top.

    Ah…. I feel better.

    Oh- and if you ever come to San Antonio, mi casa es tu casa. You can't say that when you rent..

  • http://chrisbrogan.com Chris Brogan

    So, none of what you mentioned countered my thoughts. What I said was that homes as a value proposition aren't necessarily all they used to be. Homes as vessels of equity.

    You just said you bought a home because you can afford it.

    They don't relate.

    What does the US or Soviets have to do with the choice to have your money tied up in inaccessible and questionable equity?

    • Judy Helfand

      Good Morning,
      I am actually replying to Alan, John and Chris. I “know” John and Chris; I don’t think I know Alan. Here are my thoughts, on what I now refer to in the Chris Brogan world as “Assumption Sundays”. Considering how most people dislike the word “assume” and every form of it, I don’t know why so many of us get riled up on a Sunday to talk about assumptions.
      Alan hit on two things: (1)the standard 6% commission absolutely needs to be rethought and redesigned with a sliding scale. It can mean the difference between someone walking away with a little “equity” or not. (2) Not only should Title Insurance be re-thought it should be investigated by every level of government. I have purchased and financed 7 houses (notice I didn’t call them homes) in the past 32 years. Also, I financed one business that included real estate and improvements. Every time you finance real estate the “rules” say you need to buy title insurance for the lender and if you are “smart” you will buy title insurance for yourself. This is an item on the closing statement that becomes incidental in the excitement of signing. The title insurance policy is for the length of the mortgage- 30 years. But if you sell, refinance, or lose the home to foreclosure, fire, hurricane, etc…the insurance policy stops, but you get no refund on the unearned premium! (Chris, write a post about that!)
      John: I am excited to watch you go through the process of building a home. I am reading your blog, you know that. You have really thought out all the practical items. And I am so happy that when all is said and done, you will own your new space on Hornby Island, sans bank.
      Chris: As I mentioned above, I have financed a lot of houses. In late 82, we were transferred to Anchorage. We found a beautiful home 2500+ sq ft on one acre with views of Cook Inlet for $200,000. My husband was with ARCO Alaska (read now BP). Alaska has a law that they wrote when the pipeline was being built: If a company moves you to Alaska, they must move you out if you lose your job. They did not want to become a welfare state. In 1985 there was a recession that impacted all of the major oil companies and ARCO went through a re-organization offering early retirement packages. I will tell you that the only thing that protected our “equity” or “down-payment” was the law and in the early retirement package it included a clause that they would buy you out of your home for at least what you paid for it, or the average of two “independent appraisers.” We were ok, but many of our friends who were not protected by big oil lost everything and I do mean everything. People were literally walking into the banks and placing the keys to their homes down on the mortgage officer’s desk.
      -I lived in rural New England for 12 years and as a banker there, as well as a business owner, I came to learn that many people in rural New Hampshire that owned homes had inherited the home from their ancestors. They could not afford to buy, and many did not earn enough to take care of their inheritance.
      -I wrote you, Chris, two months ago in response to one of your newsletters where you mentioned the size of your loft and how you wanted to think about owning. Remember, I said to you then: “I get why you want more space for your wife and children, but I might also say…pretty soon you are going to turn around and the little ones will be debating college with you and you might find that 955 square feet is just fine! Think of the money you will save on movers!”
      - Have you ever read Harry Browne’s “How I Found Freedom In An Unfree World”? I read it in 1974, he talks a lot about “Assumption Traps”. Very interesting.
      -Exactly one year ago today I wrote about my perspective on cars and the automobile industry. http://blog.webconsuls.com/2009/06/good-night-gmque-sera-sera.html Take a look and tell me what you think.
      Have a good Sunday…

    • Judy Helfand

      Good Morning,
      I am actually replying to Alan, John and Chris. I “know” John and Chris; I don’t think I know Alan. Here are my thoughts, on what I now refer to in the Chris Brogan world as “Assumption Sundays”. Considering how most people dislike the word “assume” and every form of it, I don’t know why so many of us get riled up on a Sunday to talk about assumptions.
      Alan hit on two things: (1)the standard 6% commission absolutely needs to be rethought and redesigned with a sliding scale. It can mean the difference between someone walking away with a little “equity” or not. (2) Not only should Title Insurance be re-thought it should be investigated by every level of government. I have purchased and financed 7 houses (notice I didn’t call them homes) in the past 32 years. Also, I financed one business that included real estate and improvements. Every time you finance real estate the “rules” say you need to buy title insurance for the lender and if you are “smart” you will buy title insurance for yourself. This is an item on the closing statement that becomes incidental in the excitement of signing. The title insurance policy is for the length of the mortgage- 30 years. But if you sell, refinance, or lose the home to foreclosure, fire, hurricane, etc…the insurance policy stops, but you get no refund on the unearned premium! (Chris, write a post about that!)
      John: I am excited to watch you go through the process of building a home. I am reading your blog, you know that. You have really thought out all the practical items. And I am so happy that when all is said and done, you will own your new space on Hornby Island, sans bank.
      Chris: As I mentioned above, I have financed a lot of houses. In late 82, we were transferred to Anchorage. We found a beautiful home 2500+ sq ft on one acre with views of Cook Inlet for $200,000. My husband was with ARCO Alaska (read now BP). Alaska has a law that they wrote when the pipeline was being built: If a company moves you to Alaska, they must move you out if you lose your job. They did not want to become a welfare state. In 1985 there was a recession that impacted all of the major oil companies and ARCO went through a re-organization offering early retirement packages. I will tell you that the only thing that protected our “equity” or “down-payment” was the law and in the early retirement package it included a clause that they would buy you out of your home for at least what you paid for it, or the average of two “independent appraisers.” We were ok, but many of our friends who were not protected by big oil lost everything and I do mean everything. People were literally walking into the banks and placing the keys to their homes down on the mortgage officer’s desk.
      -I lived in rural New England for 12 years and as a banker there, as well as a business owner, I came to learn that many people in rural New Hampshire that owned homes had inherited the home from their ancestors. They could not afford to buy, and many did not earn enough to take care of their inheritance.
      -I wrote you, Chris, two months ago in response to one of your newsletters where you mentioned the size of your loft and how you wanted to think about owning. Remember, I said to you then: “I get why you want more space for your wife and children, but I might also say…pretty soon you are going to turn around and the little ones will be debating college with you and you might find that 955 square feet is just fine! Think of the money you will save on movers!”
      - Have you ever read Harry Browne’s “How I Found Freedom In An Unfree World”? I read it in 1974, he talks a lot about “Assumption Traps”. Very interesting.
      -Exactly one year ago today I wrote about my perspective on cars and the automobile industry. http://blog.webconsuls.com/2009/06/good-night-gmque-sera-sera.html Take a look and tell me what you think.
      Have a good Sunday…

  • http://chrisbrogan.com Chris Brogan

    Not untrue. Rental things are rarely treated as well.

    What about the financial argument, however? Is there value in owning still? Seems less true.

  • http://uptownuncorked.com geechee_girl

    The most interesting thing to me about this post is the comment section and the high level of emotion people attach to the idea of home ownership. I think that is how home ownership was marketed to us (basically, I agree with “Life, Inc” author Rushkoff on how homes have been marketed to us over the years).

    I don't knock it if people are happy in their homes and love owning (and constantly mowing, and repairing, and paving, and siding, and painting, and…). I get that real estate agents have to make a living. But I think it's a question best answered with less emotion, not more. At soon as I took the emotion and feeling of obligation and “have to” out of my equation, I was able to make a decision that was right for me. It's important to see that the decision right for you or others may be different. Either way, objectivity is key

  • http://chrisbrogan.com Chris Brogan

    As far as I know, home equity loans have all but ceased. Most people's equity flipped to the negative in the most recent financial turmoil.

    There are emotional and neighborhood benefits, I can cede that.

    As a financial matter, however, I'm less convinced than I used to be.

  • http://www.mindadventure.com/ rob white

    The POWER OF ACCEPTANCE. The assumptions that we accept as true become part of our reality. Paper money is only valuable because we accept this assumption. What if everyone rethought that assumption and went back to accepting the assumption that gold is valuable and paper money is nothing more than worthless pieces of paper with pictures of notables on them? Yes, indeed – with everything -rethinkiing those assumptions that you've accepted as valid is a great idea. That's growth!

  • http://www.RoninMarketeer.com John Wall

    The “value of owning” is open to interpretation. If you live along 495, owning a home may look like an incredibly foolish thing to do. Empty housing complexes and ones with only a gate and big sign at the front show the state of the market. On the other hand, Channel 5 reported yesterday that home values did not drop in Needham last year.

    I'll take the market over becoming a sharecropper. There are no fire sales in Nantucket or Manhattan right now.

  • http://ariwriter.com Ari Herzog

    Ownership of houses and cars is testament to consumerism and capitalism. Once you accept that, and want to live in your moment and not the moment that someone thinks you might like, you will be happier.

    Don't get me wrong, though; some people are very happy living in multimillion dollar homes and driving $100,000 cars — but who really owns those things? Do they, or does society which propelled the illusion of money buying happiness?

  • http://www.WhatDidEricSay.com Eric Miltsch

    I don't believe our passion for cars is declining, rather, the ability for the demo group Florida references simply finds themselves in a difficult ownership environment.

    Younger drivers still want to drive – several ownership barriers are at work here:

    - Tighter credit markets make it difficult for younger drivers to get approved; Co-signers (parents) may be spread thin as well
    - Rising vehicle costs
    - Rising fuel costs
    - Lower available vehicle supply (less used vehicles to choose from as well)

    Ideas like ZipCar.com are unique solutions for consumers w/different lifestyles while also addressing the above items.

    It'll be interesting how the usage statistics change as the auto industry moves towards its anticipated recovery stages in 2012-13.

  • http://chrisbrogan.com Chris Brogan

    I think you're right that we're still passionate about cars, and that he's pointing to other financial problems. Do you think this will recover? Do you think we'll be pushed out of buying cars we can't afford? (We in general, here)

    • http://www.WhatDidEricSay.com Eric Miltsch

      Yes, I do think we’ll recover…

      We’re in the midst of a perfect-storm. Ultimately it’ll be read about in the history books as a key turning point in the automotive industry w/regards to the OEM, dealership and consumer changes

      All forecasts call for global industry growth to continue. from 672 million vehicles in 2008 to 1.1 billion in 2013 & to 1.5 billion in 2018. (the avg. age of a used car is older than ever before in history – those vehicles will need to be replaced)

      The banks will probably continue their tight stance & help ensure consumers buy what they can afford.

    • http://www.WhatDidEricSay.com Eric Miltsch

      Yes, I do think we’ll recover…

      We’re in the midst of a perfect-storm. Ultimately it’ll be read about in the history books as a key turning point in the automotive industry w/regards to the OEM, dealership and consumer changes

      All forecasts call for global industry growth to continue. from 672 million vehicles in 2008 to 1.1 billion in 2013 & to 1.5 billion in 2018. (the avg. age of a used car is older than ever before in history – those vehicles will need to be replaced)

      The banks will probably continue their tight stance & help ensure consumers buy what they can afford.

  • http://twitter.com/rickhamrick Rick Hamrick

    Chris–your point that “most” homes have flipped into negative equity is simply not true. As of last month, the percentage was about 24, and if you count in all the folks who have very little (less than 5%) equity, the number increases to 28%. In particular pockets of the country, though, where the rampant speculation led to hugely inflated prices, it is true for a huge percentage of the homes purchased in the last ten years.

    For those who have owned their homes a long time, it is still possible to get a line of credit or equity loan. Is it harder than it was in 2007? Of course! And, that's a good thing.

    Once people get over some of the fear which has poisoned all real estate markets. I saw a report (60 Minutes, maybe?) on buyers flooding the Florida markets in search of bargains. Brokers were renting small buses to take groups around because the demand to see the places was far greater than they could manage to support in the traditional, one-buyer-at-a-time style.

    It's the same way it always is when the pendulum gets a big push in one direction, which is what happened when the housing bubble was artificially inflated by poor credit practices by banks and other lending institutions.

    It swings back.

    Because it went way farther than normal, it came back past the zero point and kept going…way farther the other direction.

    It may take ten years before things settle again into a more-typical ebb and flow, but they will. Home ownership will, again, be a prudent investment.

  • http://chrisbrogan.com Chris Brogan

    Agreed on all parts. It's definitely open to interpretation. A home in Manhattan or Nantucket is still going to be worth a lot because the location and surroundings are the value. What about all the other places? What about … I dunno… Hamilton or Gloucester? (In Mass). Does it matter if you rent or own there?

  • http://chrisbrogan.com Chris Brogan

    Agreed on all parts. It's definitely open to interpretation. A home in Manhattan or Nantucket is still going to be worth a lot because the location and surroundings are the value. What about all the other places? What about … I dunno… Hamilton or Gloucester? (In Mass). Does it matter if you rent or own there?

  • http://johnmclachlan.ca/ John McLachlan

    Chris, I really like the idea of challenging assumptions, not just about houses and cars, but everything. We all tend to get stuck in so many ways and not even know it.

    But, regarding your points, and Richard Florida's in general, (his new book is next in my list), I really like the gist of what he says, but I actually find his views are not always based on facts but rather his own assumptions. I find his ideas tend to start turning into utopian dreams as if all you have to do is a, b and c and your city will be perfect. It's like saying, once you own your own house, your life will be perfect.

    Up until a month ago, my partner and I owned in the most expensive city in Canada, Vancouver. We sold, the bank got it's portion back and with what's left we are building a small house on an island off the coast (very connected, and though not at all a city, it certainly has a “creative class” as Mr. Florida would call it). We will be able to do this to have no debt and live how we wish to live.

    I think the problem with this whole discussion is that there are just so many variables as to where you live and what age you are, and what the values of land are etc. And with cars, I don't believe they are any less wanted now than before. When the economic crunch came in 2008 everyone said “Oh that's it, nobody will every want to buy again. We are all changing our priorities in life, blah blah blah.” The great consumer machine is alive and well and as soon as people have money or access to money they will be spending. It's not easy to change old habits.

    My main point would be, definitely challenge your assumptions, but we have to realized that we can only do this for ourselves. As you often say, Chris, “your mileage may vary.”

  • http://johnmclachlan.ca/ John McLachlan

    Alan, I'm in agreement with you on this except for one of your assumptions, if you could see your president from how a lot of the rest of the world sees him (I'm from Canada), he's not as “communist” as you suggest.

    This entire discussion that Chris brings up is a good one because it goes to show how we must always challenge ourselves on our assumptions and even try to “smoke 'em out” because we often don't even know we have assumptions.

  • http://twitter.com/mckra1g mckra1g

    I sold cars for 2 years. In addition to a first rate education into the mind of the male psyche, I came away with a very elemental realization: a car is an expense. I worked alongside guys who would wrangle buyers into more car than they needed, only to step into a fully-paid for 5-7 year old car that got them from Point A to Point B. Cheap tags, cheap insurance. Transportation.

    I now rent. Left a 5 bedroom house w/two living rooms and a wrap around porch and am weaning myself to an eventual rental. Part of it is Escape Velocity, but part of it is realizing that what houses us does not define us.

    I want to pare back to the essentials so that I can experience Life, and not Maintenance.

    Thanks for the forum, Chris. Best to you, M.

  • http://twitter.com/mayaREguru Maya P.

    Prices go up everywhere…. it is more about the % of return and not the actual price point… see my Palo Alto price example, versus my neighbor here in Wilmington who paid $26,000 for his home in 1968 and it is worth about $300,000 today. Lots of other factors influence the price points, but no matter where they always increase in value. As well, in the 1990 dot.com downturn, Silicon Valley was hit hard, while other parts of the country remained stable.

    Don't oversimplify something that is very complex.
    Yes, it matters – ownership always ends up in a positive gain when you look at the long term. The people who were unfortunate to purchase after 2006 and now need to sell in many markets due to job relocation, loss, etc. are the victims, and it is not pretty.

    A side note – in my area there is a shortage of rental properties and options for those who have lost their homes to foreclosure or shortsale, or just did deed in lieu of foreclosure. So – opportunities all around!

    PS. I love cars, I would have 10 if I could. =)

  • http://ianmrountree.com Ian M Rountree

    This certainly is a different consideration in America than it is elsewhere. gin_ev_ra brings up a good point about Australia – and the same is true in Canada.

    Got pets? Rental is almost universally out. Got bad credit? Getting a good apartment is difficult. Growing a family? Living in the same space as others where there are perhaps smokers (of many kinds), party people, or common space challenges can be very difficult.

    Part of the appeal of ownership is the Ownership component. I'm looking for a house this year for exactly this reason – 100% control (within reason) of what goes on within certain proximities of me and my family, how far we are from certain amenities – these considerations move beyond simple money/credit economics and toward total life experience economics.

    There's a reset needed for the system. But changing the societal values outside of money that surround Ownership may take some more national (or even international) finesse. The pressure here isn't just money.

  • http://chrisbrogan.com Chris Brogan

    Thanks for the stats. Much better information than I have. Maybe it's just a “feeling” more than not.

    So maybe in 10 years, I should consider a home an investment?

  • http://chrisbrogan.com Chris Brogan

    That's the point. LONG term. That's precisely the point. Stop defending for just one moment and tell me your response to this:

    * Buying a home may not be the best “investment” these days. Given all the various things people have as bills in their lives (let's assume they're in their early 30s), is it a good choice?

    • http://twitter.com/rickhamrick Rick Hamrick

      Chris, you don’t specify the term of the investment. If we’re talking a few years, I would say it is a great investment only because home prices, generally, are below value. If we’re in that mystery middle ground, which some would say is as short as 6 or 8 years, it is a hard decision. Any gains made over the couple of years during recovery may well be lost by the next unforeseen downturn.

      If someone in their 30′s is looking for a good place to keep a big hunk of their net worth for decades, it is a slam dunk. Just as the stock market is a good place for capital which can be left for decades, homes are, too.

      Where the trouble arises is when the investment is tied to some external event over which the investor has no control. We are seeing the individual tragic stories of people with seemingly sound investments completely wiped out when they lost jobs and, thus, their homes. The same kind of disaster befell investors who had leveraged stocks to increase their holdings, only to be subject to margin calls which wiped them out.

      As lots of folks here have pointed out, the level of risk which each of us finds acceptable, coupled with our individual financial situations, drives this decision. There’s no generalized right answer.

    • http://twitter.com/rickhamrick Rick Hamrick

      Chris, you don’t specify the term of the investment. If we’re talking a few years, I would say it is a great investment only because home prices, generally, are below value. If we’re in that mystery middle ground, which some would say is as short as 6 or 8 years, it is a hard decision. Any gains made over the couple of years during recovery may well be lost by the next unforeseen downturn.

      If someone in their 30′s is looking for a good place to keep a big hunk of their net worth for decades, it is a slam dunk. Just as the stock market is a good place for capital which can be left for decades, homes are, too.

      Where the trouble arises is when the investment is tied to some external event over which the investor has no control. We are seeing the individual tragic stories of people with seemingly sound investments completely wiped out when they lost jobs and, thus, their homes. The same kind of disaster befell investors who had leveraged stocks to increase their holdings, only to be subject to margin calls which wiped them out.

      As lots of folks here have pointed out, the level of risk which each of us finds acceptable, coupled with our individual financial situations, drives this decision. There’s no generalized right answer.

  • http://chrisbrogan.com Chris Brogan

    You're right about the variables. That's very important to consider.

  • http://twitter.com/mckra1g mckra1g

    I sold cars for two years. In addition to a first rate education into the male psyche, I came away with an elemental realization: a car is an expense. I worked alongside guys who would wrangle people into more car than they could afford only to step into their own car at the end of the day (a fully paid for 5-7 year old car that got them from Point A to Point B). Cheap tags. Cheap insurance. Transportation.

    As for housing,I currently rent. I left a five bedroom house with two living rooms and a wrap around porch with an eventual goal of moving to a studio apartment in a major urban center, designed to be highly walkable. More than Escape Velocity, its a realization that what houses us does not define us.

    My goal is to pare essentials so that I may live a of Experiences, not one of Maintenance.

    My thanks for the forum. Best, M.

  • http://twitter.com/robertecooper Robert Cooper

    An interesting emotional discussion pretty much devoid of math.

    Sadly, I'm too lazy to do the math myself, but I'd suspect if you did the math on owning vs renting over a 20-25 year period that you'd find home ownership looking pretty attractive as long as you buy a home within your means (and not at the height of the market). It goes without saying that you also have to be prepared for the responsibilities and enjoy the maintenance element.

    Also, if you like DIY as a hobby and take the time to learn proper techniques you can definitely get ahead in the market. I know folks will make the argument you're better to make money at your profession and hire others for renovations, but bear in mind the caveat “if you like DIY as a hobby” (everyone needs a hobby and it's not as hard as you think if you do your research, AND improving/fixing/making things has a very fulfilling element to it).

    The U.S. will get the economy together (I'm Canadian btw) at some point in the next few years and a lot of folks will be wishing they had got into the market around now. Not to beat a dead horse, but the fact that so many folks made brutal mistakes (with the banks being complicit) and got in way over their heads does not make home ownership an invalid concept.

    Plus, how can you be nodding your head that leases are good? Leases are GREAT, but only for car companies, which is why many ads show lease rates without showing what the purchase price actually is (chew on that for a moment). Leases also have some business tax advantages, but they are brutal for most consumers.

    My own strategy with our recent car purchase was to get a year and a half old vehicle (which was like new and is still within the warranty period) and borrow the cash we needed after selling our old car. The cost for this was about less than buying new and this will be paid off within 18 months of purchase, at which point there is an asset that you can actually sell if you like. Again, apologies on being too lazy to provide the math, but I'll take bets that this approach nets out thousands of dollars ahead of leasing…

  • Dj

    I chose to sell my home and only rent. However, apts in big cities are not the only options. I live in a fourplex and literally all maintenance and upkeep are provided.

    Water, sewer, trash removal, mowing, grooming of yards, snow and ice removal in the winter and if my refrigerater, range or hot water heater acts up, it is replaced by them, not me…along with many more benefits.

    I have more free time than ever just by not needing to keep up with all of this, plus more money as I'm not paying the cost of any maintenance or upkeep other than via my lease cost. And if I travel, everything is kept up while I'm away.

    I carry only personal renter's insurance on my belongings. Don't have hired help I need to supervise and pay for any of the needs of a home.

    So I feel, at this point, that I'm further ahead financially than I was trying to simply build equity in my own home, and totally agree that property itself is a very good investment for those who wish to invest the money and time it requires to be into that type of investing.

    However, as Robert Kiyosaki has pointed out so many times, a personal, single family residence is not an asset til paid for..and may not be then…it is a liability.

    One that cost me a lot of both time and money til I changed my views and my residence.

    Like some others mentioned, I would not want to live in an apartment building with many other residents in the city though and understand that feeling perfectly.

  • Dj

    Sorry Ian, posted this thinking I was at bottom of all posts. Was not in direct reply to just your post. Don't see a way to delete and repost…

  • http://www.ManishaThakor.com ManishaThakor

    Heave-Ho to Home Ownership?

    So glad you brought this up, Chris. As a 40 year-old personal finance junkie… I've long argued (mostly to deaf ears :) that the reason home ownership was such a massive win & source of wealth generation for our parents was a set of perfect storm of conditions that is not likely to repeat for our generation. Specifically:

    1. Our parents bought smaller houses, typically for prices of 3x or less than their household income – so no McMansions & functional sized houses they could truly afford.

    2. Our parents HAD to put 20% down and pretty much their only choice of mortgage was a 30-year fixed rate mortgage – so they knew exactly what they were paying every single month (no ARMs, no Option ARMS…)

    3. We had periods of high inflation in the 1970s & 1980s so our parents ended up getting large “cost of living increases” in their take home pay – thus enabling them to pay off that flat, fixed payment with a rapidly increasing paycheck (that paycheck may not have been increasing so fast in real terms but that didn't matter b/c the mortgage payment was fixed).

    You combine this with the fact that “back then” people tended to stay in the same house for decades (thereby negating the costs associated with buying & selling multiple homes as your career took you from place to place) and the fact that home equity loans & HELOCS weren't common (meaning you couldn't use your house as a piggy bank), and that meant… whooosh! Home ownership was a big wealth creator for that generation.

    I so agree with you & Richard Florida – times have changed, and in our more mobile & energy starved society it's time for a total housing rethink. My gut says 50% is probably the “natural” level of home ownership in a more mobile society.

    • http://twitter.com/ginarafkind ginarafkind

      I like how you broke this down as well. Boy have things changed! But that is life so we have to go with the flow and rethink some conditioned patterns and beliefs that were ingrained in us way back when. And what about those McMansions? some of these huge mansions costing in the millions and like 2 people live there??? To me that’s just a bit excessive.

      Growing up in my family, I always heard the same, traditional stuff…go to college, get a good job, save 10% of your salary, get married, buy a house, have kids etc etc.

      Well, I’m the little rebel of my family….lots of those traditional beliefs just never sat well with me.
      You have to do what’s important for you. And what I have learned, from seeing many examples, is owning a home doesn’t bring you happiness – so don’t own one and work to just pay your mortgage- life won’t be fun that way.

      Chris, the video is really interesting. And I love reading all these interesting points people here are bringing up.
      Thanks for stirring up some great conversations!

  • http://ianmrountree.com Ian M Rountree

    Discussion is like that – still, it brought your post to my attention, and I have to agree with it.

    One of the things Florida talks about in the video is multi-family dwellings, and I'd say you're working exactly that angle. certainly reassuring, from the perspective of someone with a rent-or-own-only experience.

  • http://uptownuncorked.com geechee_girl

    Sounds like you and I have similar experience vs maintenance goals in our moves :) Love it

  • http://twitter.com/wtalbot Warren Talbot

    As a person who just completed the sale on my 8th home (all in the last 13 years) I certainly see your point. Each of these was a personal residence, and the net result from all this ownership was precisely $6,452 in “gain” over this time. I can guarantee you that I could have gotten better returns on my money by putting it into a simple savings account. There is a longer diatribe sitting dormant here around all the exorbitant fees and commissions required to buy/sell in this country, but I will leave that soapbox for my more intimate discussions over wine.

    Regardless of the financial benefits/risks with home ownership, I firmly believe that owning a home is a deeply emotional matter. People may just feel good owning a home. The freedom to do whatever you want to it, the desire to “keep up with the Joneses”, or the confidence it gives you to know each day you are walking into YOUR house. No amount of deep financial analysis will help to overcome these desires, they can simply guide you away from very bad decisions (i.e. don't buy a 100 year old home and not budget for the repairs).

    Ultimately, we sold our 8th home last month also for purely personal reasons. Financially, it was a horrible market and we lost all our equity built up from all the other gains. However, the liberation I feel today to live our dream of traveling around the world is a small financial price to pay. We have never been happier, but any investment advisor would be quick to point out the folly in our decision.

    Home ownership can be financially rewarding over the long term, but if it requires putting your happiness & dreams on hold it was just too big a price to pay.

  • http://www.gofreelancing.info Freelance forums

    I have my apartment my folks left me. In Romania it's a good idea to own since most landlords are a pain. If there was a good system in place and I didn't have my apartment, I would certainly consider the “rent” option. Many people have homes they pay for in 30-40 weeks. That's not owning anything, that's paying for it and owning when you pay all your debt.

    We have many people in my country to have started a mortgage and now, with the recession, some are being thrown out of 'their' homes. If you have to pay for 40 years for a house, maybe it's a good idea not to.

    Cars are good, when the public transportation is not too good or you just need the freedom. It does require a lot of costs though, but at least you're getting some freedom. we're traveling mainly by car through Europe and we enjoy the fact we can see everything we want, when we want. Still, I got my car when I was 30 (2 years ago). That was the moment I knew I am prepared for all the costs.

    I'd like to see people be more interested in saving and making money, than just get into debt to “look good”.

  • http://www.RoninMarketeer.com John Wall

    Ah, great question, that snapped the answer into focus for me – there is a change in mindset going on now. Many believe that the value of real estate always goes up, while that is true most of the time, it is not ALWAYS true. Normally it's because of rare things that affect few – a prison or group home springs up a block away (or an all residential neighborhood switches to a high percentage of rental – ZING!)

    The cycle of fear leading to slowdown causing more fear seems worse than ever. The shocker for me are complexes that were at say 60% capacity and then suddenly there's a sell off and the neighborhood crashes. The abandoned properties look like hell, and then everyone else runs, or throws keys back to the bank.

    So although I am against encouraging rental as a long term way of life, unless you have the finances to ride out this down cycle (others would call this taking advantage of bargains), you are better off renting. If you are going to have to sell in the short term you're at risk of taking a hit.

    Cars BTW are a sucker deal, they always depreciate. Anything beyond basic transportation is a discretionary expense – luxuries many take for granted.

  • Mark Gillard

    Don't know if we @sullivantire like that no car idea! :)

Newer Comments →
GetSocial