Why your house is a terrible investment


James Altucher calls homeownership a part of The American Religion, so I know I’m treading dangerous ground here. But before you get out the tar and feathers, let’s do a little thought experiment together.

Imagine over a cup or coffee or a glass of wine we get to talking about investments. Then maybe one of us, let’s say you, says:

“Hey I’ve got an idea. We’re always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?”

Well, let’s see now (pulling out our lined yellow pad), let’s make a list. To be really terrible:

  • It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.
  • It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
  • It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.
  • It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.
  • It should generate low returns. Certainly no more than the inflation rate. Maybe a bit less.
  • It should be leveraged! Oh, oh this one is great! This is how we’ll get people to swallow those low returns! If the price goes up a little bit, leverage will magnify this and people will convince themselves it’s actually a good investment! Nah, don’t worry about it. Most will never even consider that leverage is also very high risk and could just as easily wipe them out.
  • It should be mortgaged! Another beauty of leverage. We can charge interest on the loans. Yep, and with just a little more effort we should easily be able to persuade people who buy this thing to borrow money against it more than once.
  • It should be unproductive. While we’re talking about interest, let’s be sure this investment we are creating never pays any. No dividends either, of course.
  • It should be immobile. If we can fix it to one geographical spot we can be sure at any given time only a tiny group of potential buyers for it will exist. Sometimes and in some places, none at all!
  • It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood! Imagine if our investment could somehow tie its owner to the fate of one narrow location. The risk could be enormous! A plant closes. A street gang moves in. A government goes crazy with taxes. An environmental disaster happens nearby. We could have an investment that not only crushes it’s owner’s net worth, but does so even as they are losing their job and income!
  • It should be something that locks its owner in one geographical area. That’ll limit their options and keep ’em docile for their employers!
  • It should be expensive. Ideally we’ll make it so expensive that it will represent a disproportionate percentage of a person’s net worth. Nothing like squeezing out diversification to increase risk!
  • It should be expensive to own, too! Let’s make sure this investment requires an endless parade of repairs and maintenance without which it will crumble into dust.
  • It should be fragile and easily damaged by weather, fire, vandalism and the like! Now we can add-on expensive insurance to cover these risks.  Making sure, of course, that the bad things that are most likely to happen aren’t actually covered. Don’t worry, we’ll bury that in the fine print or maybe just charge extra for it.
  • It should be heavily taxed, too! Let’s get the Feds in on this. If it should go up in value, we’ll go ahead and tax that gain. If it goes down in value should we offer a balancing tax deduction on the loss like with other investments? Nah.
  • It should be taxed even more! Let’s not forget our state and local governments. Why wait till this investment is sold? Unlike other investments, let’s tax it each and every year. Oh, and let’s raise those taxes anytime it goes up in value. Lower them when it goes down? Don’t be silly.
  • It should be something you can never really own. Since we are going to give the government the power to tax this investment every year, “owning” it will be just like sharecropping. We’ll let them work it, maintain it, pay all the cost associated with it and, as long as they pay their annual rent (oops, I mean taxes) we’ll let ’em stay in it. Unless we decide we want it.
  • For that, we’ll make it subject to eminent domain. You know, in case we decide that instead of getting our rent (damn! I mean taxes) we’d rather just take it away from them.


Boy howdy! That’s quite a list! Any investment that ugly would make my skin crawl. In fact, I’m not sure you could rightly call anything with those characteristics an investment at all.

Then, too, the challenge would be to get anybody to buy this turkey. But we can. In fact, I bet we can get them not only to buy but to believe doing so is the fulfillment of a dream, indeed a national birthright! We’ll run the thought experiment on just how we might make that happen in an up-coming post.

For now, in the comments let me know what other characteristics our “worst possible investment” should have that I might have missed. Here are two more from…

  • Mr. Risky Start-up: It should increase stress, lead to more divorces, but then be impossible to divide.
  • DMDave: You only need one motivated (read: desperate) seller to set the price for the whole neighborhood. Imagine your so-called “investment” suddenly get scuttled when your neighbor decided to sell his particle-board mansion at 20% below assessment.

Oh. Wait. I’m sorry. This was supposed to be about houses.

So a few weeks back I was at an awards banquet and sitting at our table of 10 with me was a woman I know. She began talking about how she was encouraging her young son to buy a house. You know. Stop throwing away money on rent and start building equity.

I suggested that, since  her son was single, living alone and without children maybe he didn’t actually need a house. That if he didn’t need one and since they are lousy investments (and here I gave her a few reasons why this is so), maybe he should consider some alternatives instead. Or at least run the numbers first.

This didn’t sit well and it was a short conversation. It ended when she said, “Well, he’d be better off buying a house than a clapped-out Camaro!”


Well, yeah. Maybe so. If this is the only alternative.

Addendum #1:  Case Study: Should Josiah buy his parents a house?

Addendum #2:  

Podcast —Why your house is a terrible investment with Radical Personal Finance

Video —Why your house is a terrible investment with Mike & Lauren YouTube.

Addendum #3: My new friend Patrick has some insightful articles you should also read before being pressured into buying. Here are two:

37 bogus arguments about housing

Eight groups who lie about the housing market

Addendum #4: Renters for Life If my post above rubbed your fur the wrong way, this one by Go Curry Cracker will really set your teeth on edge. But he calls me an idiot in this one, How I made 102k in RE, before coming to his senses.

Addendum #5: House prices since 1890

Addendum #6:  

Here’s a real estate investor’s take: Renting is throwing money away…Right?

Addendum #7: Still planning to buy a house? That’s OK. I’ve owned them too. Just go into it with your eyes open. This post will help: Rent v. own, opportunity costs and running the numbers.

Addendum #8: If you think I over state the risks associated with homeownership, here are a couple of cautionary posts from some friends of mine. For the record, they are fans of owning:

What do I do about our new neighbor???

Is it a good idea to own a home at all? The relevant story of Kay and Jay is about halfway down.

And just in case you are thinking about making your house a rental: The Rental from Hell

Addendum #9: Of the many interesting and insightful comments this post has drawn, this might be the most intriguing:

Brett Doyle
Posted May 31, 2013 at 7:08 am

A house is a terrible investment. It is a depreciating asset that gets worn out and needs constant maintenance. People’s tastes change over time, and thus they don’t want the characteristics of older homes… I.E. most people find a 1970′s house hidious unless it has completely been redone… people today want an open floor plan with granite counter tops and stainless steel appliances… I am sure those will be out of style soon and will need to be renovated again.

While the structure never appreciates in value, the land a house sits on can appreciate in value due to changes in supply and demand. Over long time periods homes generally appreciate around 1% higher than inflation.

Now, here is where my post really won’t make a lot of sense. While a house is a terrible investment, I own a house and recommend other people do so as well. Why? Not because the house is a great investment, but because the mortgage is a great way to borrow money due to all the government subsidies. Having a mortgage is a great way to short the US dollar because of the long maturity and low rates you can borrow at. I make sure to constantly take all of the equity out. If there was some way to borrow $400,000 at 3% for 30 years and buy stocks with the money I would much rather do that, but because our society has decided that homes are the “chosen” asset class and distorts the market by redirecting resources into mortgages it makes sense to buy a home. I would never even consider buy a home with my own money, but hey, if the US taxpayer and a bank is dumb enough to loan me several hundred grand a 3% for 30 years and give me a tax deduction sure why the hell not.

I do think a lot of homeowners rode the wave of 30 years of falling interest rates… that dynamic is going to change as rates have not risen in a generation. The returns of housing in the future will be nowhere near what they were in a falling rate environment and a lot of speculators are going to learn that the hard way. Potential homebuyers simply won’t be able to pay anywhere near today’s housing prices if rates were to go to from 3% to a more historical average of 7%. Even at today’s ultra low rates the home ownership rate is declining rapidly.

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  1. Tara
    Posted May 29, 2013 at 5:08 pm | Permalink

    My home is not an investment, it is a place to live where I can modify it to suit my tastes and needs, have pets, and not worry about being evicted at the whim of a landlord. When I am old and have no more interest in maintaining it, I may move to a small apartment, but until then I am very happy to be in my (paid-off) home.

    • Posted May 29, 2013 at 5:40 pm | Permalink

      Tara – that’s exactly what I *like* about owning a home. I can move walls, paint, upgrade some fixtures and other stuff that amuses me. Basically, my house is a hobby as well as a place to live.

      The key is to realize all the downsides as Jim pointed out and see if it’s worth it in the end. If I were retired and wanted a home base and a place to tinker, if I was reasonably certain that I love the place and will stick around for the long haul etc.

      With any luck, it would be cheap ($100K or less – and this matters less if I have a good nest egg so I don’t have to work for income) and I might even have a roommate or a basement rented out so the house is occupied when I’m abroad for a couple of months at a time.

    • Posted May 29, 2013 at 6:26 pm | Permalink

      It is not true that you cannot adapt rental home to your tastes. I am a very good tenant and as such, my landlord will do anything in his power to keep me happy.

      Few years back, he paid for professional paint job as per our own tastes. Then, he paid for (and we selected) kitchen and laundry equipment. Last year he paid for all new lightning and window coverings.

      This year he all on his own accord replaced kitchen counters with very nice granite and now he is offering all new carpets (we refused as our 3-year old still needs a year or two to get out of the spill everything everywhere stage).

      We are good to our landlord and we do small repairs, keep the place clean and neighbours happy. And, we are here for a long term, so he is happy to keep us happy.

      So, I think that this picture of evil landlords and nasty conditions is bogus. I am sure there are some scumbags out there who treat tenants like crap (and some tenants who treat properties like crap), but you can surely find the place to call your home without owning it. Most landlords are people like you and me who want to do best they can to scrape some money and prosper.

  2. Trish Rempen
    Posted May 29, 2013 at 5:26 pm | Permalink

    Boy, those reasons just keep coming! Excellent!
    Over the years, I’ve bought 18 properties and sold 12. Yep, still have 6.

    Yet: Even though they’re paid off, I totally agree with you! If I did it over, I’d rent cool places around the world – and LEAVE when I felt like it. To borrow a phrase, I’d be “homeless – but on a global scale”.

    Can I add one more to your list? Now that I have 4 rental properties, if I want to sell them, I have to consider the capital gains tax on the depreciated value. More tax…plus fees and commissions….never mind staging! =less incentive to sell.
    Guess I’ll just leave them to the next generation to figure out.

    • Trish
      Posted May 30, 2013 at 9:15 am | Permalink

      (If it sounds like I’m in the real estate business, I’m not!
      Before reading Jim’s blog, I just never really understood the stock market, and houses seemed a safe place to store money. Now I know better…!)

  3. Posted May 29, 2013 at 5:44 pm | Permalink

    It cracks me up when people call houses an investment, and yeah, if the kids only option is house or Camaro, then maybe the house is better.

    I find that I sometimes go a little evangelical on the “save, retire, live life” ideas and some people don’t want to hear it.

    Otherwise it would be nice to live cheap, save lots and know that at 35, you can retire. I think when the kid is 32, he’d like to have known that.

  4. Posted May 29, 2013 at 6:18 pm | Permalink

    Great post. I rent a condo and have been considering possibly buying it now. I can get it for $5-10k under the going price. I can buy it for cash by cashing my investments or use my banks money at 3% (they are begging me to take it). I do not have to pay the real-estate fees as I can do a direct deal with my landlord. Price for this condo is at the all-time low (30k lower than when I moved in 6 years ago)… Still, after crunching all the numbers, I cannot make myself do it.

    It looks like it would save me $50-80 per month to buy instead of rent it, but then I lose flexibility to move when I want, my money is tied up and would take effort and money to get it out, or someone may build a gas station next door dropping my house value…

    Yes, as an immigrant, I can see that people on this continent are well trained by the banks to believe that principal residence is a good investment. It is a good investment, but only for banks and developers in most cases… That is why they use the terms like “dream house”…

    It is a place to sleep in and hide from elements, nothing more.

    • Rockstache
      Posted May 30, 2013 at 10:01 am | Permalink

      Even more than a house, I don’t understand why anyone would ever buy a condo. It is essentially apartment living, but with all the downfalls in the post here. On top of that, you most likely have to pay some sort of HOA fee, which is generally not guaranteed to remain at the same level, and could increase at any time. Also, you are then subject to the HOA or condo association and have to follow their rules about maintenance, trash, landscaping etc… I would honestly like to understand what the benefit is of a condo, if there is one.

      • Posted May 30, 2013 at 10:16 am | Permalink

        Many benefits of the condo:

        – Much cheaper to maintain, heat, cool – and in general cheaper than houses. My wife retired when our son was born 3 years ago thanks to the fact that our housing expenses dropped dramatically.
        – Someone else is doing the yard, snow removal, garbage removal etc. Time saved for enjoying family life, making more money and traveling.
        – With condo, we simply turn off the AC system, lock the door and go on long vacations (we enjoy taking month off each year for major trips – again, thanks to low housing costs, we can afford it and still save 50% of our income.
        – Condo forces you to enjoy outdoors more – my wife and son spend every day in the parks, museums, zoo’s etc. Usually, my son is the only person in the gorgeous city provided parks and pools – other kids are stuck in the daycares as their parents have to pay for the 2 guest-rooms, 3 car garage, big back yard etc.
        – Condo limits stupid purchases – there is no space to keep all the dumb things people buy when they have a house. It makes us keep our possessions to the minimum, strangely making us feel more free.
        – Condo high-rises are usually built more sturdy – reinforced concrete, bricks etc – keeping potential for damages due to weather and environmental issues.
        I can keep going…

        • Rockstache
          Posted May 30, 2013 at 4:16 pm | Permalink

          I don’t argue the value in living in a small place, and I much prefer renting to buying myself for all the reasons already stated here. But I don’t see anything in your list that wouldn’t be the same for renting a small house, or even purchasing a small house (without a yard if you don’t want one). I guess for me I just don’t like the idea of someone else being in charge of something I supposedly own. Hence my aversion to house buying in the first place. But thank you for your thoughtful response. I just don’t think it is for me. I am glad to hear that it has worked so well for you.

          • MrRiskyStartup
            Posted May 30, 2013 at 1:08 pm | Permalink

            @Mark Ferguson.

            Good points. For example, we have a gorgeous private garden next to our condo building – 60 condos pay few bucks each year, and we all get to share the garden without need to do anything. We buy new BBQ, deck furniture etc each 4-5 years – it may cost $1-2 per month per condo – but if I had my own house, I would have to pay the full price for the BBQ and furniture and still use it as much as I do now for fraction of the cost.

            And yes, neighbours are another great thing – our condo building (1/2 of the complex with 2 buildings) is 90% old widows – they adore my 3-year old son, and spoil him constantly. Week does not go by without someone dropping off some candy, a toy, home-made dinner etc. Around holidays, we rarely have to cook at all :)

            As an immigrant from a third-world country, I am still surprised how much people value their individual space/property and how little benefit they see in sharing the resources. In the most of the rest of the world, people are better about pooling their resources to create something together.

            Good example are parks – my wife and son spend every day at the park, or community pool or library – and are usually only people there. People spend thousands on their own small back yard pools, but pooling all the money together could allow building an entire water park. Same is true for the playgrounds for kids, gardens etc.

          • Posted May 30, 2013 at 4:22 pm | Permalink

            Benefits to a condo not mentioned.
            1. the association usually takes care of all exterior maintenance and insurance as well as pays water bill. you don’t have to worry about exterior paint, roof, landscaping etc.
            2. Most HOAs have common amenities like a green belt and many have a clubhouse with workout room, pool etc.
            3. When your young many people like to be close to other people and have opportunities to socialize. Condo complexes provide that especially the common amenities areas.

          • jlcollinsnh
            Posted May 31, 2013 at 11:45 am | Permalink

            Interesting conversation here.

            I’d add that we enjoy all of the same benefits in our new apartment without having to own it.

            Which is also why, I’d guess, Mr. RS rents his too.

  5. Posted May 29, 2013 at 6:33 pm | Permalink

    It should increase stress, lead to more divorces, but then be impossible to divide… :)

    • jlcollinsnh
      Posted May 30, 2013 at 3:10 pm | Permalink


      How did I miss that one? :)

  6. Posted May 29, 2013 at 7:33 pm | Permalink

    The list is compelling but the strawman, er, Camero, isn’t the proper comparison. A home or condo purchase should be compared to renting a similar home or condo. Unless you’re considering truly alternative living situations (RV, national parks, etc.), your choices involve buying some walls and a roof or renting some walls and a roof. Renting might be the right choice in some (maybe most) situations. But painting a home purchase as a poor investment doesn’t change the fact that buying often still is the right choice when compared to renting. Buying your primary residence can simultaneously be a poor investment (compared to an index mutual fund) as well as the right thing to do with your money.

    • jlcollinsnh
      Posted May 29, 2013 at 8:54 pm | Permalink

      for more on rent v. buy, be sure to click on the last two links in the post.

      • Leno
        Posted May 30, 2013 at 11:59 am | Permalink

        I bought a condo and my mortgage+HOA+property taxes cost me 75% of what I would pay to rent. Without mortgage it will be <30%.

        • Posted May 30, 2013 at 3:05 pm | Permalink

          Property taxes and HOA fees are the same regardless of rent or buy. So, only portion outside of these fees is what you are working with.

          Then, you have to add maintenance, need for flexibility etc and decide based on that.

  7. Kenneth
    Posted May 29, 2013 at 8:01 pm | Permalink

    Very depressing, but rings true. But this is just one example of common wisdom that upon closer examination begins to look a little flawed. No wonder everyone once thought the world was flat.

  8. Posted May 29, 2013 at 10:01 pm | Permalink

    House ownership is, at best, land lease even if you have no mortgage. You are paying property taxes, and even end up losing property if you can’t pay your taxes. Way to go!

    My friend, You’ve hit the nail on the head with this:It should be something that locks its owner in one geographical area. That’ll limit their options and keep ‘em docile for their employers!

    It’s all by design to keep mere mortals happy in a shell so that they will happily work to keep the system going.

    It’s not only a religion; it’s a cult. :)

  9. Posted May 29, 2013 at 10:56 pm | Permalink

    I have to disagree with this completely. First off if you make money on a house and you live there two out of five years it is not taxed at all. I am selling my house and will be profiting over 100k after 4 years since it is my personal residence it is all tax free. I’d love to find any other investment that provides tax free income(not deferred).

    You also get to deduct interest payments on your taxes which is usually worth thousands of dollars a year. Compared to renting where you get no deductions and in my area rent payments are about 30% higher than mortgage payments for a similar house.

    Those property taxes pay for schools am public works, I guess the alternative is raising sales taxes and income taxes instead to pay for those things.

    A house can actually be much more liquid than a retirement account. You refinance or get a heloc in less than a month and there are no tax penalties for taking your money out before you are 65.

    If you are art you can buy homes below market value by buying fixer uppers and adding value. You can’t buy a stock and fix it up or have any control at all over the returns on that stock.

    Buying rental properties is one of the best investments out there. I own 7 and make over 24% CAsh on cash returns on all of them. That does not include appreciation, equity pay down or tax benefits. You can depreciate rental properties and save thousands more in taxes a year. I have over $4000 a month in cash flow coming from those rentals every month. Even if prices drop I am fine because I bought them below market, fixed them up, have tons of equity and cash flow. I don’t have to sell in down market, I’ll just continue to collect rent.

    If you obtain a mortgage you payment will stay the same or 30 years if it is a fixed loan. The landlord can’t raise your rent every year or decide to sell and not renew your Lease or decide they aren’t going to fix anything.

    • Nicholas Adams
      Posted January 23, 2014 at 1:42 pm | Permalink

      Thanks for sparing me the nuisance of essentially writing this exact post. Spot on.

    • RJK
      Posted February 26, 2014 at 4:44 pm | Permalink

      Just because you are renting doesn’t mean you’re not paying property taxes towards local schools and roads. Property taxes are included in your rent and are paid by your landlord. If everyone decided to start renting tomorrow, the schools would still be funded (apologies if I misunderstood the point of that, though).

      Also, you’re pretty lucky. I think you’d be hard-pressed to find anyone who earned $100,000 on a house in four years (unless the property value was somewhere in the millions) on their owner-occupied property, especially since the collapse… there are many places in the country where you couldn’t even sell a house for that much, much less have that be your profit in such a short time.

      Your liquidity argument is a pretty bad one. There are tons of investments that don’t punish you for taking money out before you’re 65, refinancing doesn’t really affect liquidity (unless you’re taking out more money, in which case it’s just a loan on which you have to pay interest), and HELOCs (home equity lines of credit) are nothing more than a credit card whose collateral is the roof over your head. HELOC interest rates are not locked, and can swing pretty wildly. Even worse are the tricks banks use to try and sucker you into these – including FRLOs (fixed-rate loan options) which have a fixed rate for a certain period of time and then either require a hefty “balloon payment” at the end of it, or a conversion to a much-higher rate. What other investment pulls this stuff when you need to access your money? You might get hit with a one-time penalty, but taking out a HELoan or HELOC (with or without the FRLO option) means paying a fee every single month until, essentially, you “pay yourself back”. And if something happens and you can no longer make those payments? At best, you have to sell your house and pray you get offered enough to cover how much you owe… at worst, you lose every penny you invested in your property and destroy your credit (which is a position a lot of people found themselves in after the recession hit).

      Also, a mortgage does not necessarily stay the same, even if you have a fixed rate. Changes in property taxes and insurance costs can and will affect your payment. In just four years, my mortgage amount changed three times for this reason, once by $150 per month because the mortgage company had “miscalculated” payments! It always went up, by the way. After I got rid of that house and moved back into an apartment, my rent has only gone up once in three years… by $5. And in that time I haven’t spent one red cent on repairs or maintenance, of course; everything is always fixed within a couple of days. The great thing about it is that if my landlord decided not to fix something, or he kept raising the rent, I could just move somewhere else. In a house, I can’t just pack up and move if I decide my mortgage payment is too much or repairs are breaking the bank.

      Rental properties are a completely different animal. It’s obvious that the author was talking about owner-occupied properties.

      • Austin
        Posted March 30, 2015 at 2:12 pm | Permalink

        “Rental properties are a completely different animal. It’s obvious that the author was talking about owner-occupied properties.”

        How can that be? How is it that the rental potential for a given property is a better investment than owning it to live in yourself? If the rent is $x, then you’re essentially being paid $x rent by owning it, whether you rent it or live in it.

        In fact, you can count on slightly better returns than a rental property, because you don’t have to worry about a 5%-8% vacancy of the property. You’re 100% occupying it.

        So, for the same house, you’d be paying somebody else $x, which includes all of the taxes, fees, maintenance, etc.

        So if it’s a good investment for somebody else to buy it and rent it to you, it’s an even better investment for you to buy it and “rent” it to yourself.

        You want a worse investment than a mortgage payment? You’ve already got it. It’s called “rent”. And the return on that monthly investment is ZERO, and that monthly “liability” for a place to live it will NEVER go away. Not even after 15 or 30 years of paying that rent every single month; and the cost will only go up with inflation.

        You think that owning a house is a bad investment for only staying slightly above inflation in its gains in value? Guess what your rent is going to do? It’s going to stay static in ‘value’ and the cost will go up with inflation.

        At the end of those 30 years, if you decide that you want to be free to live all over the world, you can’t sell your rented house/apartment for hundreds of thousands of dollars. You can only walk away in worse shape than you were in when you started: Hundreds of thousands of dollars given to somebody else, and nothing to show for it at the end of the day.

        Of COURSE people make bad investments in homes. But that doesn’t make homes an inherently bad investment.

        At the end of the day, you’re going to be paying the FULL cost of home ownership. You can either pay it to yourself, or you can pay it (plus a healthy profit margin) to a landlord.

  10. Posted May 29, 2013 at 11:56 pm | Permalink

    Somewhere recently I read that you’ll never find someone who rents a car taking it to a car wash.

    I do AC repair, and when in most homes, I can tell immediately if the house is a rental or owned. In fact, when it’s a rental and maintained, I’ll make a comment to the landlord.

    For many, it’s a forced savings plan. Without their house and social security, they’d have nothing.

    I do like the idea though of being a perpetual traveller and not having a home base though.

    • Posted May 30, 2013 at 12:05 am | Permalink

      I agree that largest benefit of home ownership is forced savings. However, as house prices generally move together, and as you have to live somewhere, rarely do you get to enjoy the benefit of those savings (your kids do :)

    • Posted June 2, 2013 at 8:50 pm | Permalink

      “I do like the idea though of being a perpetual traveller and not having a home base though.”

      We are now perpetual travelers, and this is one of the main reasons we rented rather than “owned.” Amongst all the other reasons that Jim listed in the post

  11. Posted May 30, 2013 at 12:34 am | Permalink


    Outstanding post. I laughed out loud. Nice hypothetical creation of the worst possible investment out there.

    Hmm.. I’m sitting here being glad that I didn’t invest in this bad investment. I’d bet this will be one of your most commented posts. People sure like to think that buying a home is the best way to go. For me, I’ll be renting for a while until I’m willing and able to spend the money on the expense that is home ownership.

  12. RW
    Posted May 30, 2013 at 5:00 am | Permalink

    Great post! Making me re-think ownership vs. renting. The Wife and I will make a move in about five years or so… I think renting might be the best way to go. She might take some convincing but this post would open hers eyes a bit.
    I think from an investment standpoint that owning would be a terrible place to invest, unless it is a rental property. I will admit I drank the Koolaid and was convinced that owning was a good investment. In hindsight renting and investing the difference would have gotten the both of us lots of F-U money with this stock market. Ahh, the joy of hindsight!
    Also fits with your motto “Spend less than you earn, invest the rest, avoid debt”

  13. Michelle
    Posted May 30, 2013 at 5:00 am | Permalink

    This post makes me sad, as the two rental propeties I have and am currently paying for seem to tick all the boxes as to why they were a poor “forced savings” strategy/investment. I can’t sell them now, because I won’ t be making any profits yet, if I do. I want to be rid of the mortgage, but realistically, would take me at least ten years of really aggressively paying it down to fully own the houses mortgage-free. I feel a bit stuck, not knowing whether to just pay the minimum payments and start investing in Vanguard, or pour all my money into aggressively paying down the mortgage now while I have a lowish interest rate.

  14. Cline
    Posted May 30, 2013 at 7:02 am | Permalink

    You are very wrong. The clapped out Camaro would have been a much better investment. More liquid, more fun, meet bunches of people who share your passion. If you get good at repairing and restoring you can make a great living off of others addictions.

    • jlcollinsnh
      Posted May 30, 2013 at 4:33 pm | Permalink

      Even as I wrote that story it occurred to me such a case could be made. :)

  15. arebelspy
    Posted May 30, 2013 at 10:54 am | Permalink

    Hah. This post made me laugh out loud. Completely accurate with regards to housing as an investment.

    That being said, I totally agree with Done by Forty. If I could live nowhere and invest all my “housing” budget, I would. Instead I have to pay housing costs, and what market rents are versus what it costs to own will determine which I should do.

    While the “throwing money away on rent” mindset is often wrong, and one is actually “throwing away money on owning” (and could have more in their pocket if they rented and invested the surplus), other times though they can have more money in their pocket if they owned and invested the surplus.

    Thus, while it’s not as good of an investment as equities, for example, due to all the reasons in this post, owning may still be the better financial move.

    It pays to run the numbers and figure out the correct decision for yourself. I’m sure most readers of this blog are smart enough to do so and not just jump on one bandwagon or the other, no matter how cleverly JLC presents it. 😀

  16. gestalt162
    Posted May 30, 2013 at 11:10 am | Permalink

    My fiancee (wife in 2 months) and I plan on buying a house soon after we get married. We see the following benefits:

    – We don’t live in DC, or LA, or even New Hampshire. Houses are pretty cheap around here, even though the market is picking up. Right now, a 30 yr mortgage + taxes + insurance on a decent house would cost us about $100-200 more per month than we’re paying now in rent, and we’re getting a rent discount (see next point). And of that, interest is tax deductible.

    – We have the best possible landlord right now- my fiancee’s parents. They cut us a big break on rent, give us substantial liberty with the yard and storage, and feed us a couple times per week. We have it good. Still, having to ask permission to plant a garden, dealing with them when they’ve had a bad day, or having them remind us to clean things up is a situation I’d rather avoid. No landlord is better than the best possible landlord.

    – Freedom to plant a massive garden, decorate, paint, store stuff where I feel like it, work on my projects, etc. I don’t need to go into this.

    – 100% of the rent payment goes to the landlord. A sizable portion of a mortgage payment does to equity, which can be directly subtracted from the price of a more expensive house down the road, or if it’s all paid off, is essentially a payment towards lower housing expenses (since all you need to pay then is rent and insurance, a fraction of the total mortgage payment or any rent situation). I would neevr call my house an investment, but it does have these financial benefits.

    – We both have stable jobs (well, as stable as they can be nowadays). We’re not freelancers who need to move constantly, and we don’t dream of being world travelers and renting places in Rio, Amsterdam, Bangkok, and Tokyo.

  17. Alram
    Posted May 30, 2013 at 12:41 pm | Permalink

    One of your best posts ever Jim – I too laughed out loud! Almost as interesting is how passionately opposed many of the commenters are. I think what you are uncovering here is just how rare it is to be contrarian. Happy to be learning from you and how to question the status quo! Just because everyone is doing it doesn’t mean we all have to jump off that bridge.

  18. Posted May 30, 2013 at 12:42 pm | Permalink

    I’ve just discovered your blog and have been loving reading the back posts. In casual conversations of late, I’ve discovered that almost all my colleagues took out second mortgages during the housing bubble on the advice of experts. “Experts.” Each one expressed regret.

    However, you will probably heap scorn upon me: my husband and I just started our recent-grad son on the ownership path–or treadmill. On the plus side, he’s renting two rooms to friends, so the numbers look ok. I’ll let you know.

  19. Posted May 30, 2013 at 1:28 pm | Permalink

    Yet another post from Jim on why homeownership is silly. Anything to justify his recent decision to move to an apartment.

    I submit that one’s primary residence is never an investment. It’s simply a cost of living (shelter). I could write absurd articles about how purchases of all of our other basic needs (food, clothing, etc) make for terrible investments too. But when something is consumed, is it really an investment? Of course not.

    Much like other commenters here, I’ve run the numbers and found it was more cost-effective to own my primary residence instead of renting it.

    • RJK
      Posted February 26, 2014 at 5:07 pm | Permalink

      Which would be fine, if that’s how houses were sold. But they’re not… not by bankers, not even by parents. We’ve always been told “don’t throw your money away, buy as soon as you can, it’ll be your nest egg, a great investment”, etc. There is a lot more risk to the “investment” of home ownership that young people are never taught, and are either lucky enough to avoid or learn the hard way.

      • Posted May 16, 2014 at 2:12 pm | Permalink

        I think that’s the point. Homes were always thought of as an investment, and that’s false. There’s a lot of positives that come from a home on the emotional end that aren’t quantifiable, but you have to remember that your best bet is probably a break even point compared to renting when factoring in all of your costs. Everyone assumes that those costs are standard costs of living (similar to someone who “has” to drive an hour to work because they “can’t” move), but they’re really not. You can avoid them and save instead and end up ahead.

  20. Trish Rempen
    Posted May 30, 2013 at 2:48 pm | Permalink

    I don’t think Jim said owning a home is silly. And he’s owned some fine homes!

    He’s talking about “good investments”.

    Home ownership – as a place to raise a family, do projects, keep (and use) your paint, your hobbies, as a shelter, a home, a cost-effective alternative to renting (in some markets), a gathering place, a landlord-free space, a haven, space for your pets – all these make perfect sense.

    But when someone says, “Yeah, I bought it because it’s a good investment.”
    -That’s where the discussion begins to get interesting.

  21. Posted May 30, 2013 at 2:49 pm | Permalink

    I like all of your points and agree with them to a certain extent. Calling a house a true investment does seem a bit silly, but they can (and do) go up in value. Plus, if you’re going to have to pay to live somewhere anyways, sometimes a house makes more sense because of the benefits.

  22. Posted May 30, 2013 at 3:12 pm | Permalink

    Point of the post is that primary residence should not be called an investment.

    Nobody is saying that buying or renting is better – it depends on the person and the circumstances. I know many people who find happiness and enjoyment in gardening, house improvements etc. Many are happy to have their own corner of this Earth and enjoy having that feeling of security. And then there are those who do not care about owning a home, maintenance and yard work.

    Saying that only rental or only ownership is the best way to go is pretty silly. This is one of those situations where there is no black or white answer – it is in shades of grey that we find the answer. Regardless which choice you make, your primary residence is only an investment in the eyes of the banks (that is why I invest a lot of my money into other people’s mortgages through banks and REIT’s while renting my condo, hehehe).

  23. bc
    Posted May 30, 2013 at 3:19 pm | Permalink

    At 37 I’m buying my first home with DH. It’s 3bed/3bath on 2 acres for $168K. It’s in the country, great schools, a couple miles from town, an excellent place to raise our family. I agree that a home is not an investment, it’s a living expense like transportation, insurance, food, clothing, etc. Pay rent to the landlord or pay it to the bank & government. Both come with their own set of headaches. On the micro level I am tired of landlords, even the nice ones, it never feels likes it’s my space to do what I choose with (put the garden here, etc..). It is some comfort that if we despise home ownership we can go back to renting, for a loss, but technically we take a “loss” on renting each month too.

  24. Voerendaalse
    Posted May 30, 2013 at 4:39 pm | Permalink

    I posted your blog on an internet forum and boy, did I get some visceral reactions. Apparently, by posting your blogpost I was attacking the idea of the American Dream :-) . Probably also some people are unsure about their previous decisions about buying a house, and instead of having to question their past decision, they took their insecurity (and maybe their houseunderwater-ness) out on me.

    I never owned a house, a bit by accident because I kept moving to a new area for a new job so much. Now I live together with my boyfriend who does own a house. Underwater, plus necessary repairs (leaky roof) have cost him another 10% of the entire mortgage now, seven years in. Last year, we were considering moving for a new job of him, but we knew we would have to sell at a loss. “Luckily” the new job didn’t work out.

    Like you, I’m not saying home ownership is bad… Just that there’s more to it than what the American Dream promises you. And that people should think their “buy” decision through.

    • jlcollinsnh
      Posted June 3, 2013 at 9:02 am | Permalink

      Thanks Voerendaalse…

      I appreciate you sharing it and I’m sorry you took abuse for it! I’ve taken a look at a couple of forums where it is being discussed and it has gotten pretty ugly.

      Makes me appreciate the calibre of readers commenting here. :)

  25. brighteye
    Posted May 30, 2013 at 6:22 pm | Permalink

    I hear you on this. I am one of those that doesn’t want to be tied to a place. So renting it is. What’s more, I live in Switzerland and buying a 2-3 bedroom condo costs at least $600’000, houses are more like $1’000’000. When you talk about buying a house for $100’000 in the US, it boggles my mind.
    And Jim, in your post after you sold the house you sounded relieved and at peace that you are now freed of house ownership. Happy for you!

  26. Andy
    Posted May 31, 2013 at 12:16 am | Permalink

    Renting is a horrible investment, you will lose 100% of your money.

    • Posted May 31, 2013 at 2:05 pm | Permalink

      One could say that owning is even worse – you will spend double amount lose 60% and have to do all the maintenance yourself, hahaha…

      Kidding aside, point is that owning or renting is not an investment – it is an expense.

      Pretend for a minute that you are a company and not a person – buying your office building would not go into your books as an investment.

      • Andy
        Posted June 1, 2013 at 10:00 pm | Permalink

        Thanks for making my point. Renting is an expense. It should never be compared to buying a home. There will always be some value in owning a home. At some point, you can get a return on that expense, maybe even a profit. You will never get any return on rent.

        • Posted June 1, 2013 at 10:19 pm | Permalink


          I don’t think that you can’t say that there will “always” be value in owning the home. In fact, I would say that those who win the home ownership game are fewer than those who lose. Point of the post is that making the profit on the home ownership is so rare that it cannot be called a good investment. Yes, it may turn out well, but on average, only banks win :)

          As for never getting a return on renting – you are again missing the point. It is not about making the return on the rent – it is about making the return on the money you save by avoiding pitfalls of home ownership.

          I can buy the condo I rent for cash tomorrow, but my return on the money that is invested is much higher than what I would save by buying the condo. Worse yet, I could buy this condo and then get nailed by some of the problems outlined in this post.

          I was considering taking 3% mortgage and buying the condo, but then I am could still be affected by the same issues, so I will probably keep renting.

          P.S. I live in Canada so lack of ability to deduct interest from my taxes makes home ownership in Canada even less attractive.

          • Andy
            Posted June 3, 2013 at 6:55 am | Permalink

            I’m not missing any point.

            As I said below. I pay $321 a month in mortgages, taxes and insurance It’s a 3 bedroom 2 bath home with a two car garage. I have not had a single major repair in 11 years. My upkeep is $150 a month on average max. The difference between renting and owning is a plus $700 a month in my favor in my neighborhood.

          • Posted June 3, 2013 at 9:18 am | Permalink


            Indeed, you are en exception that proves the rule. I am happy to see that it is working well for you – good job. My brother in law buys properties as primary residences, improves them and then sells them and moves on to the next. So far, in 10 years he is on a third property (just buying his fourth) and he built 300k in equity even though he only makes modest salary and has 4 kids.

            However, for every one of those stories, I hear 2-3 of bad ones… Friend of mine who is very smart when it comes to real-eastate (he owns building with 40 units, plus another 2-3 rental homes), bought his own primary residence a few years back for about $400k. Last year he discovered that his foundation was cracked and damaged, and insulation of the same ruined siding and bricks. His house is now covered in plastic for almost a year, he is spending 150k to salvage the house from ruin, and his insurance is conveniently not covering this type of damage. He is taking a $150k hit on this one case alone. Another friend had a termite damage, again not covered by insurance, and she is spending 50k to resolve it… Etc, etc. Over 30-40 years of ownership, there are so many potential pitfalls…

        • cv
          Posted June 1, 2013 at 10:27 pm | Permalink

          comment to andy- wrong and wrong and wrong and wrong. As a renter you will get about 8% yearly return on $5000 furnace you don’t have to replace every 15 years; $10000 roof you don’t have to replace every 10 years; $1000 paint jobs every time you decorate; $20000 every time you remodel a new (bath or kitchen); and assuming $3000 property tax per year over 30 years, that’s 100,000 with 8% yearly return. You do the math!

          • Posted June 1, 2013 at 11:34 pm | Permalink

            Your costs are way off. Furnace 2200, bath or kitchen less than 3k for bath, less than 5k for kitchen, 5,000 for a roof on most starter homes. If your talking condo probably less.

          • Andy
            Posted June 3, 2013 at 6:45 am | Permalink

            Funny, I’ve owned my house for 11 years and have not had to replace any of them. I also pay thousands less a year in mortgage, tax, insurance ($321/month) and upkeep(maybe $150/month), than rents go for in my neighborhood. So, that 8% I’m getting in return on higher principal crushes that 8% return you are getting on the smaller principal you get after you pay your rent.

          • jlcollinsnh
            Posted June 3, 2013 at 8:53 am | Permalink

            Welcome Andy…

            looks like another interesting discussion here and my thanks to you all for how civil it has been.

            Clearly, Andy, you’ve “run the numbers” and buying has been a profitable call for you. Well done! As I said in my post on “running the numbers” I’ve always suspected there were parts of the country where this would be the case. I’d be curious as to where you live, my guess would be the mid-west?

            I’d also be interested in hearing more about your success in keeping major repairs at bay. New house? All updated systems when you bought? Or is it a benefit of the $150 you spend on maintenance? Something else entirely?


        • Donovan
          Posted January 26, 2015 at 5:21 pm | Permalink


          You say that to rent a home in your neighborhood would be about $700 more than the $321 a month you pay for your mortgage, taxes and insurance. So call it $1,021 to rent comparable home in your neighborhood. You also said your maintenance costs about $150 a month and that you haven’t had a “major” expense in 11 years, so that figure will most likely be higher once a large expense emerges. So the difference between renting a home and owning in your neighborhood for you would be $550.00 per month (not accounting for major repairs). You didn’t say what your home is worth, but if you rented and wanted to make up the difference in monthly income on the ability to invest all the money that is currently tied up in your home you would need:

          $220,000 @ 3%
          $188,571 @3.5%
          $165,000 @4%
          $146,667 @4.5%
          $132,000 @5%

          It looks like owning vs. renting in your neighborhood is pretty much a wash, with the added major expense giving reason to lean towards renting from a numbers standpoint. Again, it comes down to personal preference.

  27. Brett Doyle
    Posted May 31, 2013 at 7:08 am | Permalink

    A house is a terrible investment. It is a depreciating asset that gets worn out and needs constant maintenance. People’s tastes change over time, and thus they don’t want the characteristics of older homes… I.E. most people find a 1970’s house hidious unless it has completely been redone… people today want an open floor plan with granite counter tops and stainless steel appliances… I am sure those will be out of style soon and will need to be renovated again.

    While the structure never appreciates in value, the land a house sits on can appreciate in value due to changes in supply and demand. Over long time periods homes generally appreciate around 1% higher than inflation.

    Now, here is where my post really won’t make a lot of sense. While a house is a terrible investment, I own a house and recommend other people do so as well. Why? Not because the house is a great investment, but because the mortgage is a great way to borrow money due to all the government subsidies. Having a mortgage is a great way to short the US dollar because of the long maturity and low rates you can borrow at. I make sure to constantly take all of the equity out. If there was some way to borrow $400,000 at 3% for 30 years and buy stocks with the money I would much rather do that, but because our society has decided that homes are the “chosen” asset class and distorts the market by redirecting resources into mortgages it makes sense to buy a home. I would never even consider buy a home with my own money, but hey, if the US taxpayer and a bank is dumb enough to loan me several hundred grand a 3% for 30 years and give me a tax deduction sure why the hell not.

    I do think a lot of homeowners rode the wave of 30 years of falling interest rates… that dynamic is going to change as rates have not risen in a generation. The returns of housing in the future will be nowhere near what they were in a falling rate environment and a lot of speculators are going to learn that the hard way. Potential homebuyers simply won’t be able to pay anywhere near today’s housing prices if rates were to go to from 3% to a more historical average of 7%. Even at today’s ultra low rates the home ownership rate is declining rapidly.

    • jlcollinsnh
      Posted May 31, 2013 at 11:53 am | Permalink

      Thanks, Brett! I appreciate you posting this here.

      For the rest of my readers, a small confession.

      Brett originally published his comment on another forum that has been discussing this post. I wanted you all here to have a chance to read it and so, for the first time ever, I reached out asked.

      This is what I posted there:

      Hi Brett….

      I’m the author of the post being discussed in this thread.

      As you and the other readers here might imagine it has drawn a fair number of comments. Some pro, some con, some simply clueless.

      But this one of yours is my favorite, for its unique twist on the theme. I’d like my readers to see it and I’d be honored if you choose to post it as a comment to my post.

      Oh, and thanks DealCrzy for linking to it here!



      • Trish
        Posted May 31, 2013 at 12:01 pm | Permalink

        Aha. I thought Brett’s post particularly well-written and clear.
        (Now his clear writing makes sense! I’ll ck the blog.)

        I’ve wondered that question – my house is totally paid off, and I have a line of credit on it for $250,000 – unused. I’ve often thought of taking that money out and investing it in VTSAX, taking advantage of the unusually low mortgage rates. It somehow seems like the wrong thing to do – am I making a mistake? I don’t know why!
        Brett, is this what you’re recommending? I may have to try a little…

        • jlcollinsnh
          Posted May 31, 2013 at 12:56 pm | Permalink

          Hi Trish…

          I don’t know Brett and don’t know if he’ll now be a regular around here, although I hope so.

          Anyway, he might not be back to see your comment.

          My take is it is not the “wrong” thing to do, but it is a very aggressive move that basically has you leveraging your stock (VTSAX) holdings. Leverage is powerful and dangerous.

          But that said, I’ve been meaning to offer you a suggestion since your earlier comment in this thread about your rental homes.

          You mentioned that you own these debt free and hesitate to take the money out by selling due to the tax hit. But there is another way.

          Do a careful analysis of your free cash flow after all expenses for each. Once you have that figure, secure a mortgage on each house the payment of which precisely matches this free cash flow. Now each house should be cash neutral: That is your expenses match your rental income.

          The taxable free cash flow from your rents is now gone.

          It is replaced by a tax-free lump sum from your new mortgage(s) that you can invest or otherwise use as you please.

          Over time as your rental income continues to pay the mortgage and, in part the principle, your equity will again begin to build. Any price appreciation will add to it.

          After some time you can repeat the process and “harvest” your equity again. All completely tax free.

          • Michelle
            Posted May 31, 2013 at 1:08 pm | Permalink

            Very interesting take on the situation, and something to think about, when I’m debt-free on even one of my rental properties. Thank you for sharing all these insights, Jim!

          • Trish Rempen
            Posted June 3, 2013 at 12:29 pm | Permalink

            Ok, let’s say I clear (after expenses) $10k on each house. 4 houses.

            I take a mortgage of $40k. Now I have no taxable income from the houses. I invest the $40k in Vanguard. Pay down the mortgage gradually. (I can use my LOC, since that’s how I bought the houses originally. The LOC on my primary residence is lower than a new mortgage on a rental.)

            Now I have stock income, not rental income. I’m not sure I understand why this is better – I haven’t quite grasped it.

          • jlcollinsnh
            Posted June 3, 2013 at 12:50 pm | Permalink

            Two reasons:

            One, you are now using leverage on your rental houses. While leverage is always riskier, you have rental income to pay those mortgages. This makes it safer than the typical home mortgage that leverages a single-family principle residence that has no income production. (short of renting out rooms)

            Two, assuming you invest in something like VTSAX you will also have returns, but with better tax treatment. They come in three types:

            1. Dividends. VTSAX currently pays about 2%. This is less than your rental income and dividends receive favorable tax treatment.
            2. Capital gains distributions. These are distributed by mutual funds at the end of the year and represent your taxable gain, if any, on the trading the fund has done. These also have favorable tax treatment. But since VTSAX is an index fund it does very little trading and it mostly avoids these taxable gains.
            3. Capital gains on the growth in value of your shares. This is the big one and what you are investing in VTSAX mostly for. Although the dividends are nice! Tax on these gains is due only when you sell shares, just like the capital appreciation on your houses isn’t due unless you sell them.

            This is why VTSAX is considered a “tax-effiecnt” investment.

            Does that make more sense?

          • Trish Rempen
            Posted June 3, 2013 at 12:54 pm | Permalink

            Yes, it makes sense.

            And I just transferred the $$ to Vanguard VTSAX. Got it!

            And really that answers the original question – the “Should I use the LOC for VTSAX?” with the reply – yes, esp. when it’s backed by rental income.

            Thank you.

          • jlcollinsnh
            Posted June 3, 2013 at 1:04 pm | Permalink

            Exactly. Having rental income to support this move makes all the difference.

          • Posted June 3, 2013 at 1:01 pm | Permalink

            Why not reinvest in more rental properties? My returns on my rentals far exceed any returns I can get in the stock market.

          • Trish Rempen
            Posted June 3, 2013 at 1:13 pm | Permalink

            That’s what I used to think. But I realized I have 2 things that are irreplaceable:
            Time and energy.
            And a rental house (or 4) takes more of both than an index fund investment.

            This year, I did better on the stocks. But it’s usually pretty close. (And I don’t need to fix the plumbing, or toss someone out.) These days, the simplicity of an index fund beats all the many issues of a rental house. At least for me.

          • jlcollinsnh
            Posted June 3, 2013 at 1:16 pm | Permalink

            She could, of course.
            But there are two investment considerations:

            1. While rentals can be very profitable, they are also labor intensive. As you pointed out in an earlier comment, sweat equity often is a source of part of the gains. In the most accurate sense, investment RE is a hybrid of investment and working a business.
            2. Expanding into more houses would expand the concentration of this asset class.

            For anybody comfortable with those, buying more houses would work just fine. Indeed, lots of RE investors expand by doing just that.

            That said, she could spend the money on anything, including living expenses. As I said originally, this is just a tax-free way of “harvesting” the houses without selling.

        • Brett Doyle
          Posted May 31, 2013 at 2:31 pm | Permalink

          I definitely can’t recommend you take all of the equity out and put it into the stock market… especially since I don’t know your financial situation. The market has had a big run up in the last few years and could very well be near a peak. You definitely should not put anything into the stock market that you can’t afford to lose.

          • Trish
            Posted June 1, 2013 at 2:19 pm | Permalink

            Brett – I always think that’s a good answer – don’t risk what you can’t afford to lose. Well put, and a good reminder!

            Jim, tnx – that’s what I felt – leveraging – is risky, and I don’t really “need” to do that. As for the reply on the rental homes, I’ve cut it out and – I’m going to think more on that!
            -Never looked at it in that light.

  28. Posted May 31, 2013 at 4:37 pm | Permalink

    It really comes down to making the numbers work in buying a house vs renting. You get so many great incentives such as tax savings and various credits, as well as the fact that if you want you can sell your house and recoup a portion of your housing expenses. Lotta numbers to crunch, but in the end you need to list somewhere

  29. Posted June 2, 2013 at 12:11 pm | Permalink

    Ha ha that is one ugly clapped-out Camaro! Anyways, Devil’s Advocate Collins, people often buy homes not because of any investment potential, but because we want a piece of land to call our own for a certain period of time. Probably the reason you owned a home? So the trick is to buy a home that’s very affordable, do as much of the repair and maintenance work as you can on your own, refi whenever it makes sense, and DON’T pay down your mortgage early, cuz you’ll want to use any extra money for investments with more a return. http://giddingsplaza.com/2013/05/13/part-2-get-rid-of-your-debt-today-and-buy-back-your-soul-except-for-your-mortgage/

    • Michelle
      Posted June 2, 2013 at 1:40 pm | Permalink

      I’ve recently been mulling over whether to pay off my mortgage on a rental property or invest with Vanguard. Your post gives me a perspective on it which I had not understood before.

  30. Posted June 2, 2013 at 9:08 pm | Permalink

    Great post Jim! It made me laugh

    If I had to buy a house or a Camero, I would choose the car 😀

    As another negative, you could advertise the great tax deductions available on the investment but insure that only the wealthy can take advantage of them. That way politicians can say they are trying to help the middle class own a home, when in actuality they are giving another subsidy to the rich

    (Based on the minimum income needed for Schedule A deductions to exceed the standard deduction)

    • jlcollinsnh
      Posted June 3, 2013 at 8:41 am | Permalink

      Hi Jeremy…

      You raise a very interesting question regarding the much touted mortgage deduction.

      In fact, I am currently researching this very topic along with another FI blogger. Hopefully in a few weeks we’ll have a post up on it, complete with a calculator that will allow readers to see for themselves if the deduction will in fact help and, if so, to exactly what degree.

      My guess is many will be surprised and disappointed.

      My own interest in this was piqued while doing income tax returns these past three years as a volunteer for VITA. It was striking just how rare it really was for the homeowners we helped to actually benefit from this deduction, given the already generous standard deduction and their low tax brackets.

      It was a surprise as personally at my own income level the deduction had always worked for me. So I naively believed it worked universally, missing the fact I happened to be in the “sweet spot.”

      • Posted June 3, 2013 at 3:25 pm | Permalink

        If you would like a 3rd party reviewer or research assistance, I would be happy to help. The “you should buy a house for the tax deduction” perspective is a personal pet peeve

        A calculator as you describe would be a great addition to the IRS website

    • Alex
      Posted May 21, 2015 at 12:14 pm | Permalink

      Hi Jeremy,

      Quick question: are you referring to the owner-occupied scenario vs. a rental investment property? I’m in the process of learning some of this tax code, and for rentals, it seems like mortgage deductions would end up in schedule E, not on schedule A, and thus would offset rental income regardless of your own income (and, in the case of a net loss, reduce the AGI as long as your income is < 100K. In other words, in this case, if you earn above a certain amount, you cannot take this potential deduction).

      • Posted May 22, 2015 at 3:06 pm | Permalink

        In this comment, I was referring to owner-occupied

        Rental properties have completely different (and favorable) tax treatment

        If one were to decide that owning real estate in some fashion was worthwhile, owning a rental property while living in a rented property is probably the best of both worlds

  31. DMDave
    Posted June 3, 2013 at 9:25 pm | Permalink

    I have another negative. You only need one motivated (read: desperate) seller to set the price for the whole neighborhood. Imagine your so-called “investment” suddenly get scuttled when your neighbor decided to sell his particle-board mansion at 20% below assessment.

    • jlcollinsnh
      Posted June 4, 2013 at 10:30 pm | Permalink


      That’s a good one and, in fact, it happened in my own neighborhood last year while we were trying to sell. Don’t know how I missed it.


  32. Posted June 4, 2013 at 8:48 am | Permalink

    Wonderful post! You make some strong points I can bring up as to why I’m not going to buy a property any time soon, and why I encourage my siblings and friends to really think about it before they take the plunge.

    I especially like “keep ‘em docile for their employers!”. Though we don’t like to talk about homes in this way too often, how many folks are trapped working at their current jobs in their current town because their homes are underwater? How many folks do you know with hour+ minute commutes because it’d be too difficult to move.

    • jj
      Posted March 13, 2015 at 12:19 am | Permalink

      Though we don’t like to talk about homes in this way too often, how many folks are trapped working at their current jobs in their current town because their homes are underwater?

      Can ‘t people just do a “home swap” ? My cousin does this for weeks at a time.
      Also my friend decided he wanted to move to Germany for a year so he just rented out his condo via Craigslist. In either situation what would it matter if they were underwater as long as they have a job.

  33. Johnny Aloha
    Posted June 4, 2013 at 5:29 pm | Permalink

    I assume your aritcle is primarily focused on single family residences. If someone buys a duplex or triplex that covers the entire monthly payment (or even provides positive cash flow before accounting for vacancy and maintenance), it seems like ownership becomes more attractive.

    We live in a high cost area, and plan to stay here a long time. This was part of our strategy: add on a rental apartment to our house. With low interest rates and the rental apartment, our monthly payment will be 80-100% covered in good months. In bad months, it will probably be 50-60% covered.

    • jlcollinsnh
      Posted June 4, 2013 at 10:49 pm | Permalink

      Hey Johnny…

      nice to finally see you over here!

      Yep, it was written with owner-occupied single family houses in mind.

      While investment RE shares many of the same drawbacks, it also has one powerful advantage. It generates income.

      Of course, it also requires work making it a bit of an investment/job hybrid.

      If you haven’t already you might want to check out: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

      If you are going to pursue this path, the best advice I can give you is to be sure to have a world famous financial blogger help with the renovations. If you haven’t already. 😉

      • Johnny Aloha
        Posted June 5, 2013 at 6:24 pm | Permalink

        Thanks Jim! I’ve been a long time lurker and really learned a lot from your posts.

        I’ve also run the numbers according to your site, the NYT buy vs rent calculator, and some homemade spreadsheets.

        My younger sister asked me about buying a house she really likes – I sent her this article!

  34. Posted June 4, 2013 at 9:18 pm | Permalink


    Epic, epic post. Best of! Bravo, bravo!!

    You nailed it on the head. It can’t be nailed any more. Fantastic.

    I think there is such a psychological draw to owning a home. Maybe we’re brainwashed when we’re little children into owning the “American Dream”. Even someone like me (who really can’t stand the thought of owning a home) sometimes drifts into a daze where I longingly think of somehow settling down into a home and all that and then I snap myself out of it. It’s crazy. It’s almost like a sheep wanting to join the rest of the herd, even as the herd is marching off a cliff.

    Great, great post. This one’s bookmarked.

    Best wishes!

  35. Posted June 4, 2013 at 10:26 pm | Permalink

    Fantastic post, Jim! You framed the argument in such a simple yet incredibly powerful way.

    Like Voerendaalse who commented above, I too decided to share a link to this article on another forum and I was very surprised by the reactions! It seemed people were so angry at the title of the post that they didn’t even bother to read it to hear what you had to say (at least that’s the only theory I can come up with to explain some of irrelevant counterarguments that were presented in the discussion).

    • jlcollinsnh
      Posted June 4, 2013 at 10:59 pm | Permalink

      Thanks, and thanks for passing it on MF!

      The “true believers” are never going to be comfortable with different perspectives.

      I am much more impressed with the commenters here who have chosen to own a home.

      They’ve evaluated their needs, run the numbers and made an informed choice that works best for them. They understand the risks and pitfalls, and in doing so will very likely enjoy a better owning experience than those who refuse to see any.

      Doing that, they’ll get no argument from me.

  36. Posted June 8, 2013 at 7:05 pm | Permalink

    One of the most brilliant yet deeply intellectual presentations of how we enslave ourselves for things that matter least for our happiness.

    Watch it if you don’t agree with Jim. House is a place to keep our stuff, and house is why we buy more stuff to please those who have no investment in our happiness.


  37. Posted June 19, 2013 at 5:27 pm | Permalink

    Great post. I hope more people think the way you do. That way I’ll have more tenants lined up to rent my condo, and in the meantime I get to travel the world! =P

    • jlcollinsnh
      Posted June 19, 2013 at 9:04 pm | Permalink

      Thanks, and I in turn hope more continue to think like you. Us tenants need a healthy supply of landlords to do the heavy lifting. 😉

  38. Jan Janson
    Posted July 1, 2013 at 3:49 pm | Permalink

    I find this post really helpful in one unique regard: if you have a detailed spreadsheet, use conservative assumptions, and let the numbers lead you one way or the other, then you almost certainly won’t have a problem. But if you believe, as a heuristic, that a home is always a great investment it’s easy to run into a lot of financial trouble. Since your post is primarily emotional, you force the best responses to your post to be mathematical: you have flipped the normal discussion on its head!

    My mother, who has lived abroad for the last 25 years, is moving back to the US for retirement. She has been emotionally committed to buying, even though it would probably swallow half her net worth. It’s been brutal just convincing her to “run the numbers.” When we’ve done back of the envelope calculations, so far they haven’t supported buying (by a wide margin), but the commitment to the idea is unshaken. The punchline: she’s a certified accountant!

  39. Aleks
    Posted July 11, 2013 at 3:17 pm | Permalink

    Great post! This sums up a lot of the reasons why I’ve been happy to rent. I want to quibble with a couple of things, though. :)


    It should be something that locks its owner in one geographical area. That’ll limit their options and keep ‘em docile for their employers!

    This point — and many of the others — implicitly assume a certain model of behavior. While it’s very common, I would also argue that it’s irrational.

    As you say, there are big transaction costs associated with buying and selling a real property. Those transaction costs aren’t worth paying if you don’t plan on owning the property for a long period of time.

    Given this, I would argue that the correct approach is simple: when you buy property, plan to own it for a long time. If you move out, just rent it to someone else. Don’t sell it unless it’s marginally unprofitable, or until you’ve earned enough to make up for the transaction costs, or unless you desperately need the capital. There’s nothing wrong with owning two homes and paying two mortgages, if you have the rental income to support it.

    Basically, whenever you buy a property, you should think of it as an investment property. If you plan on living there, then you’re renting it to yourself, and you should think of the rent that you would be paying as a housing expense.

    Of course, there are still plenty of arguments against holding over 50% of your net worth in a single investment, which is what many people do when buying their primary home. But those are also arguments against owning a small portfolio of local rental property, as opposed to investing the money in an REIT index fund.

    And also, there’s still the fact that people will happily purchase a property to live in just because they like it, even though the purchase price is far higher than it would need to be for the property to be a profitable rental. In that case, the difference between the investment value and the price is effectively a “deposit”; you set aside that money for the sake of indefinitely reserving the home for your own use.


    It should be unproductive. While we’re talking about interest, let’s be sure this investment we are creating never pays any. No dividends either, of course.

    I disagree with this assessment. If you own a rental property — which many people on this thread have argued in favor of — then your property earns you rent every month. If you happen to live in the property that you own, then you still “pay rent”; you just pay it to yourself.

    This imputed rent is just as valuable as the actual rent that you would earn from a rental property. In fact, it’s arguably more valuable, since imputed rent is not taxed. And you also avoid costs associated with maintaining a rental property that aren’t applicable to owner-occupied housing, such as the costs of finding tenants, drawing up legal documents, etc.

    To illustrate this, suppose that Alice and Bob each owned half of a duplex in Townville. Alice lives in the half that Bob owns, and Bob lives in the half that Alice owns. Each one pays the other $2,000 a month in rent, which is taxed at their marginal rate. If Alice and Bob were to swap homes, their living situations would be identical, but they would each have $24,000 less in annual income, saving them around $5,000 or $6,000 in annual taxes.

    Having said that, the imputed-rent model does reveal yet another downside of living in a home that you own: you can’t control how much you pay in (imputed) rent. If you live in a rented home, and rents go up by 50%, then you can leave and go to somewhere cheaper. But if you live in your own home, and rents go up by 50%, and you aren’t interested in renting your home out, then your housing expenses just went up by 50% as well. Of course, your rental income also went up by 50%, but that’s cancelled out by the increase in housing expenses.

    I think the most compelling argument for renting is the simplest. At the end of the day, everyone pays rent. If you buy an expensive property in a low-rent area, then you’re buying an overpriced asset, and that’s a bad deal.

    • jlcollinsnh
      Posted July 12, 2013 at 11:52 am | Permalink

      Thanks Aleks…

      And welcome!

      Thanks, too, for your thoughtful analysis in the comments here: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

      As for your quibbles :) mostly I’d agree…

      But I would be very cautious in assuming you can easily rent a house you own if you decide to move. The country is filled with cities and towns where demand for housing has collapsed. Many are stuck in homes they can neither sell or rent.

      Cities dependent on one company or industry are especially vulnerable. 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. At least for me.

      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. :)

      • Aleks
        Posted July 12, 2013 at 1:57 pm | Permalink

        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). This is especially true if the reason that you’re moving is that you want a better job; it’s likely that other people are leaving your area for the same reason.

        And of course, as you say, there are a lot of intangible reasons to own or to rent. I really like your “wings or roots” analogy; I think it does a great job at explaining why renting or owning has a visceral appeal to different sorts of people.

        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. At least for me.

        Can you elaborate on this one? To me, it seems like the amount of taxes that you’ll pay on the imputed rent will dwarf any other financial benefits. But I might be missing your point. :)

        • jlcollinsnh
          Posted July 14, 2013 at 5:44 pm | Permalink

          The idea comes from back in the day when I was a landlord and a renter at the same time.

          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 (?) years out of the last five they owned it.

          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. Since I don’t care for that kind of work, it was a beautiful thing. :)

          • Aleks
            Posted July 14, 2013 at 6:32 pm | Permalink

            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.

            That’s true. However, I’m curious if those tax deductions are really worth more than the savings from not paying tax on imputed rent. 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. :)

            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. Since I don’t care for that kind of work, it was a beautiful thing. :)

            I think that’s the real answer. :) I’m with you — I love the fact that I don’t have to worry about maintaning my current place at all. I wonder if you can hire a property management company for a home that you own and occupy 😉

  40. Posted September 17, 2013 at 9:44 pm | Permalink

    Great one, Jim.

    I would also add that the price of the investment should be greatly influenced by an opaque government entity that can arbitrarily change a parameter (prime rate) that is subject to ill-defined political pressures that the homeowner can’t predict or influence.

    • jlcollinsnh
      Posted September 20, 2013 at 12:50 pm | Permalink


      Well said!

      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.

  41. Henna
    Posted October 16, 2013 at 10:48 pm | Permalink

    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. Even though the numbers didn’t make sense to me, it was 2007 and the real estate market was booming. 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 2008 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. Not counting the house, we could consider ourselves financially independent (with the 4% rule). 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? Rent it out and figure we’ve already done the damage by “investing” so might as well ride it out? Any suggestions would be helpful as we weigh our options!

    • Brian
      Posted October 17, 2013 at 10:25 am | Permalink

      One thought check out Craig’s list to see what you could rent it out for or sell.
      Let the numbers tell you what to do.

    • jlcollinsnh
      Posted October 23, 2013 at 1:24 pm | Permalink

      Welcome Henna…

      Thanks for sharing your story. I’m so sorry this happened to you, but maybe reading it will help somebody else avoid the trap.

      Basically, I agree with Brian. Run the numbers and see what looks best.

      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. But backing into as you’ll be forced to do can be very problematic.

      You say: “But we want to be foot loose and fancy free. Not counting the house, we could consider ourselves financially independent (with the 4% rule).”

      Sounds like you have the resources to take your losses, lick your wounds and move on wiser (if poorer) for the experience.

      This is what I’d do, and in fact did do as described here:

      Good luck and please keep us posted!

  42. Brian
    Posted October 17, 2013 at 10:22 am | Permalink

    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.
    I read one comment that $300 a month in realestae costs was hurting their marriage. How sad.
    No one should live so close to the edge because we never know when things will good bad.
    I have made a lot of $ mistakes in life but always come back because of my low cost of living compared to my income.
    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. and was still able to save some my 1300 monthly income.

    • jlcollinsnh
      Posted October 23, 2013 at 1:16 pm | Permalink

      Hi Brian…

      A big savings rate saved me, too, from lots of investing mistakes over the years!

  43. cgk
    Posted October 17, 2013 at 3:37 pm | Permalink

    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.
    My husband and I purchased a home in 1994 for $230,000 and could sell it now for $750,000. Looks good on paper at first glance. We moved do to a job change in 2000 and rented the house and continue to rent the house. $2500/month rent. Our peers always think we are doing so well and made such a “great investment”.
    Not great at all!
    We need to use a property manager (2% of rent) because we live far away from the house. We pay 1 1/2 months rent to the real estate agent each time a new lease has to be signed. The repairs, don’t even get me started, but there have been years where repairs have eaten almost 100% of profits. The property taxes alone are $8000/year!
    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!

    • jlcollinsnh
      Posted October 23, 2013 at 1:13 pm | Permalink

      Welcome cgk…

      and thanks for sharing your story.

      Yours is a great example of a scenario that is easy to portray as a big win without looking a bit under the surface.

  44. Posted October 17, 2013 at 6:46 pm | Permalink

    Funny update… Since this post came out, my situation changes 180 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. So, we have to move at some point and rental situation is bleak in our city (most condos are intended for retired couples, very little available in the area/type/size that we would need)… What is available is in the “premium” locations where condos go for more than houses 3 times the size. And they have hefty condo fees ($600) and taxes ($400+).

    Since we currently live in a $130k condo with $1000 rent, we figured we can get a small mortgage and buy a small townhouse and pay it off in 5 years and be fine regardless of the house value fluctuations (we also considered using cash to buy it, but with great credit, interest rates are lower than investment appreciation). 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. It sounds like a good deal – $1800 per month mortgage for enough bedrooms to house soccer team. 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).

    Anyway, I just wanted to say that I do not blame those who get caught in the “buying primary residence is investment” scheme… Whole system is one gigantic mermaid song – they make it look so simple and easy, so affordable, so good for you… But once you sign the dotted line, you crash into the rocks and have to thread water for the rest of your life to save yourself…

    • jlcollinsnh
      Posted October 23, 2013 at 1:11 pm | Permalink

      “Whole system is one gigantic mermaid song..”

      Great line! :)

      Not surprisingly, Mr. RS, you are going into this eyes open and clear headed. Keep us posted!

      Condos also add the siren song of carefree living. True if you rent, but not once you buy and are at the whims of the owners’ association, rules, special assessments and rising HOA fees.

      I’ve owned two. Nice places to live. Nightmares to own.

  45. Posted January 23, 2014 at 12:51 pm | Permalink

    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. In my 20s I was living in a $350/month apartment and I loved my free cash flow that it gave me.

    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.

    • jlcollinsnh
      Posted January 23, 2014 at 1:39 pm | Permalink

      Welcome PMU…

      Glad you’re here and pleased to here my post brought a smile to your face. :)

      I think I would phrase your last line a bit differently:

      “It can benefit the real estate agents, mortgage lenders, home repair/supply companies, roofers, plumbers, electricians, painters, landscapers, etc, etc or it can benefit the landlord you rent from.” 😉

      Rent or own, living anywhere is going to cost money.

      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. For those who care, I wrote this post describing a simple way to run the numbers: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

      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.

      But for many years, owning was more desirable and worth the extra expense to me.

      Who knows? Maybe next time I move the less expensive choice will be owning. If renting is still more desirable, I’ll have to decide then if it is worth the premium.

      But either way, when the time comes I will certainly take the time to know.

  46. Daniel Born
    Posted February 10, 2014 at 4:30 pm | Permalink

    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.

    So it’s not the worst advice but a better column would be about how to buy a house right. Although, I guess that would be the size of a book.

    If you properly account for all of the costs and model the cash flow right, a multifamily home that you owner occupy, especially as a young person, can lead to the ability to live for free, reduce your taxes, and invest what you would’ve paid in “rent” into equities. Not many people can max their 401 k at 22 but I could — b/c I didn’t pay rent.

    People are buying whether they like it or not b/c they HAVE to pay to live somewhere. If you can substantially reduce that cost, in a tax advantaged way, AND only risk a small amount of money (basically giving you low-cost optionality), then I think it’s the height of stupidity to not do so.

    Don’t get me wrong. If you can rent for less than you can buy a similar house or if you live in a market that’s not so solid (say the suburbs of Ohio), then hell yes, keep renting. Why would you EVER buy? Well, I’ve been in places where the rental stock sucks so that would be reason but if you can live in a substantially similar rental I totally agree.

    But hey, I was completely financially independent at age 35 and still am, largely due to real estate and I’m able to easily live a middle class lifestyle on my rental income. I’ve owned 3 properties TOTAL and still hold all 3.

    So I dunno. This blog was very one-sided. I get what you’re fighting back against, but it’s not the real estate that’s a bad investment — it’s the investor making a poor investment.

    Real estate is an asset class like any other that has it’s advantages and disadvantages.

    Where I live right now, I just bought the place (a 2 unit), and it’s probably the worst real estate investment I’ve ever made, but I’ve still reduced my living costs to around $500 / month and that’s not including principal paydown of about $500 / month from the get go or the tax reductions, etc etc but it does include 10% vacancy rate, repair estimates, and capital improvements costs.

    The alternative is that I was renting in a worse area and in a crappier house that was falling apart for $1375 / month. I mean it doesn’t take a genius to figure the math out here.

    It’s also a decent inflation hedge to have a mortgage. Yeah, you want me to pay back that loan with tomorrow’s money? Hell yes I’ll take that deal.

    A single family home as an investment? I dunno. Only did it once and I modeled it just like a rental and was getting a 30% discount off market at purchase b/c it was distressed but it’s a really logical way to reduce your tax burden esp if you’re in the high income bracket and you’re already getting soaked on rent or there’s no inventory in the rental market that meets how you want to live.

    I’ve never been in the high income bracket so it’s actually less of a positive for me on that front.

    Anyway, I like the shock appeal of the article but it’s just brutally one-sided and I’d hate to think you’re really giving that advice in such a blanket fashion.

    • Daniel Born
      Posted February 10, 2014 at 4:41 pm | Permalink

      I probably should’ve figured people would’ve made these points already. Looks like most of it was dealt with already.

      A point to support your blog that wasn’t included though that I just thought of is that there was a NYTimes article recently that mentioned how higher levels of unemployment actually correlate with high home ownership % areas.

      Here’s a snippet from the freakonomics site:

      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.S. state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate. 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 evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

    • jlcollinsnh
      Posted February 10, 2014 at 10:30 pm | Permalink

      No worries, Daniel…

      I’m still glad you added your thoughts and experiences to the conversation.


  47. Shannon
    Posted February 18, 2014 at 7:51 am | Permalink

    Jim, you are my hero! I have nothing further to say or discuss. Thank you SIR!

    • jlcollinsnh
      Posted February 18, 2014 at 9:28 am | Permalink

      Why, Thank You! Shannon.

      Too bad you have nothing further to say. You sound very wise. 😉

  48. GD
    Posted February 21, 2014 at 6:31 pm | Permalink

    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.

    • jlcollinsnh
      Posted February 21, 2014 at 8:30 pm | Permalink

      Please post the link here

  49. Jon
    Posted March 1, 2014 at 3:56 pm | Permalink

    Mr. Collins:

    Another terrific article where you provide a compelling arguement mixed in with a “single finger salute” ( f-u money’s second cousin, twice removed) to tired conventional wisdom. Of course, many of these “experts” that dispense this advice are broke and/or leveraged. I wish I would have “met” you years ago but sure enjoy your work now. Thanks for what you do. By the way…I’m a satisfied homeowner yet don’t claim be a real estate baron by any means. :)

    • jlcollinsnh
      Posted April 7, 2014 at 5:05 pm | Permalink

      Thanks Jon…

      Glad you liked it and glad we’ve “met” now. Also glad to meet someone who can be both a satisfied homeowner and still appreciate the concepts in the post. I’ve owned them myself for 28 years. 😉

  50. Nickster
    Posted April 6, 2014 at 12:56 am | Permalink

    I don’t mind renting, but I don’t know how much is my “F-You Rent.” That is to say, how much money do I need to:

    1) Rent in pretty much any area I like
    2) Rent as much space as I need
    3) Have the option to renovate or decorate as I please
    4) Not worry about getting evicted

    • jlcollinsnh
      Posted April 7, 2014 at 5:20 pm | Permalink

      Welcome Nickster….

      The best way is to simply take your annual rent and multiple it by 25. That is, if your monthly rent is $1000, you’d multiple 12k x 25 = $300,000. In turn, 4% of 300k = $12,000. It is the same formula as for figuring your FI number:


      Only you can answer your questions 1 & 2. 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. At the very least, you’ll be expected to return the place to it’s original and presumably more rentable condition.

      It is the same as if you owned the place. Come time to sell you’ll need/want to walk back any exotic renovations you’ve made. 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.

  51. MK
    Posted April 24, 2014 at 11:23 pm | Permalink

    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. I’m guessing you’ve probably seen it, but thought I’d share with you, just in case you have not. 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!


    • jlcollinsnh
      Posted April 24, 2014 at 11:37 pm | Permalink

      Thanks MK…

      ..actually I hadn’t seen it.

      I’m not surprised to hear the comments are heated. 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. I least I haven’t seen any traffic flow from it…

      Glad you are enjoying it here!

  52. Posted May 3, 2014 at 11:05 am | Permalink

    Excellent aricle. Since the crisis begun in Greece real estate is over-over-taxed.
    It is over taxed even if the owner is unemployed!
    Income tax is 26% and deducted, that is if own a house and a small car you will be taxed 26% on a imaginary income of 18.000 € a year.
    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.

    • jlcollinsnh
      Posted May 4, 2014 at 4:06 pm | Permalink

      Welcome Pericles….

      Very cool to have a reader from Greece join in the conversation. (My mother was Greek)

      Yikes! You guys get taxed on imaginary income??!! :(

      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?

      How is the tourism business doing? It is a gorgeous country and I keep meaning to return….

      • Posted May 5, 2014 at 3:15 am | Permalink

        YES! You get taxed on imaginary income, deducted from your RE and the cc of your car, even if you are unemployed, as described!
        PLUS 23% VAT
        PLUS direct RE taxation that could be equal to a month’s rent.
        (calculated from the surface of your property and its oldness)
        PLUS insurance that professionals have to pay even if they have no clients.
        Tax evasion?
        I am a doctorate student but my univercity does NOT provide me A4 sheets! I have to buy them! (Of course, I don’t get any financial aid to finish my degree)
        If you go to a public hospital, you have to buy gauzes and even drugs (“free health care”).
        Why should I pay taxes?
        Money from taxes go to idle groups of people whose only “job”, is loyalty to a party.
        This is why Greek government has so intensely attacked fiscally on RE, because you can’t hide it or move it.
        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, 2013 was a record year, in touristic resorts you could barely hear Greek.
        See my blog:

  53. KJ
    Posted May 13, 2014 at 7:56 pm | Permalink

    I will be reading this (and all the comments) in more detail, but I can tell you right now that my 70+ -year-old parents sure wish they were able to hold onto their crappy investment, now that they are on a very low fixed income (due to unforeseen medical issues and other bad choices) and their landlord raises their rent every single year.

    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.

  54. Posted August 23, 2014 at 3:47 pm | Permalink

    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 2007 peak:
    Marketsnapshot and a recent report by the National Association of Realtors points to further appreciation in home values:

    • jlcollinsnh
      Posted August 24, 2014 at 7:21 pm | Permalink

      Welcome Bob.

      You are very likely correct, but in doing so they are conflating lucky market timing with a good investment.

      There are many reasons I consider stocks an excellent investment: http://jlcollinsnh.com/stock-series/

      But the fact I was lucky enough to sell my house in a raging bull market and invest the equity in the market isn’t one of them.

  55. Cheryl
    Posted September 9, 2014 at 5:19 pm | Permalink

    Thank you so much for your article! I was just contemplating buying a house again after selling one 2 1/2 years ago in a down market in the Cleveland, Ohio metro area. I’m now in Florida and the market is less expensive than other parts of the country, however, everything you said is true. 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.

    • jlcollinsnh
      Posted September 9, 2014 at 5:37 pm | Permalink

      Glad to hear it helped Cheryl!

      We spent 18 years in the Cleveland area ourselves, Lakewood to be exact.

      Where in FL are you and how do the housing prices compare to Cleveland?

      • Posted September 13, 2014 at 7:44 pm | Permalink

        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. By the way, I lived in Lakewood after I sold my place and before I was able to retire from NASA.

  56. Beth Hall
    Posted October 1, 2014 at 10:23 am | Permalink

    I’m listening to these conversations with rapt attention. 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. )

    A decent house here in a neighborhood not overrun with crime from marijuana growing is at LEAST $600,000 now. Preferably closer to $700,000. But the rents in those same neighborhoods are $42,000/yr. I’ve been anxious to find a home to buy to avoid “throwing our money away”, but these thoughts have me rethinking my plan. We rent now as we had to short-sale our seriously underwater home 4 years ago when the housing bubble popped.

    (We actually happen to rent a pretty nice home for $21,000/yr, but it drives me insane that I can’t do anything I want like put a screen door on the house, plant a lemon tree that I want, no pets for me kids, even hang a gosh-darn wind chime (not that I want one, but…still). :)

    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?

    • jlcollinsnh
      Posted October 1, 2014 at 11:02 am | Permalink

      Welcome Beth…

      Glad to hear you are listening to conversations other than those of the real estate industry!

      Just to clarify, I don’t oppose owning. 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. That’s real estate industry nonsense.

      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. Here’s a simple way to do it: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

      It doesn’t matter how high these costs are, it matters how they compare to each other.

      With that information in hand you can decide for yourself if the risks and rewards are worth it.

      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?

      Good luck!

      • Beth Hall
        Posted October 1, 2014 at 11:26 am | Permalink

        Great advice. Thank you. I will definitely run the numbers.

        Our landlord is very conscientious and responsive to when things need to be repaired/are broken and I am very grateful for that, but he wants us to make zero changes to the house as he perceives that it will bring down the curb appeal/value to the house. He raised his kids here and lives in the neighborhood, so I think there is a high emotional attachment to it staying ‘exactly the same’.

  57. Ricky
    Posted February 25, 2015 at 3:29 am | Permalink

    The title of this article is inherently flawed. Yes, it is a terrible investment in relation to other investments, but renting isn’t an investment at all! Since everyone has to have a roof over their head (debatable), you can only compare buying a house to renting a house. If most people sold their homes today, stock market returns (we’ll say 4%) wouldn’t give them enough money to cover the equivalent rent. You downsized, so your scenario doesn’t count.

  58. dls24
    Posted March 8, 2015 at 1:52 pm | Permalink

    Mr. Collins: New reader here… introduced to you through Mike and Lauren’s YouTube channel and blog. I find this buy vs. rent discussion immensely intriguing as I have for many years followed the conventional wisdom regarding the “value” of home ownership and I am questioning this traditional thinking.

    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, dls24

    • jlcollinsnh
      Posted March 8, 2015 at 6:43 pm | Permalink

      Hi dis…

      and welcome. Glad you found your way here.

      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.

      For those promoting the idea of owning rental houses, it frequently seems one of the advantages they’ll mention is having the tenants handle yard maintenance and even small repairs.

      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.

      There’s no universal standard and, like any negotiation, it is a matter of finding a landlord whose needs match your own.

      Good luck!

  59. Posted September 15, 2015 at 4:20 am | Permalink

    Late to the discussion, but enjoyed it. Well, a lot of it. I didn’t read every comment, so I might have missed if someone mentioned what I’m about to.

    At some point in the past year, I started asking people who say “renting is a waste of money” et al. the following question:

    “Would you be willing to rent your residence if the rental price was zero?”

    If they say they wouldn’t agree to the terms of a rental contract no matter what, then the issue is entirely non-financial for them. As far as I’m concerned, that is perfectly fine, except these people shouldn’t be justifying the decision to buy in financial terms such as “renting is a waste of money”.

    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.

    A couple months later, the flip side of the coin occurred to me, a committed renter:

    “Would I be willing to buy my residence if the purchase price was zero?”

    I think my answer is, “Absolutely!” Similarly, this means the issue is only partly financial for me too (but up until recently completely academic). 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.

  60. Ian york
    Posted September 20, 2015 at 3:24 pm | Permalink

    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. 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. Weather the investment increases or decreases in value, I’d be assured of something when i retire at 62, wait 67…no wait 68, or is it 72. F it I’ll just work till i die maybe. sincerely your friendly neighborhood cynic.

  61. Devan
    Posted September 20, 2015 at 9:55 pm | Permalink

    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 had something that wouldn’t be taken from me, and I wouldn’t be homeless if I lost a job. I was an owner! Then my ‘rent’ was only the cost of property taxes. 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? It paid for maxing out my 401k, Roth 401k, IRAs and Roth IRAs. Today, I am FI, and it started with buying a home. Not bad for a blue collar worker.

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