Why your house is a terrible investment

Intro by JL’s Team


“Is now the time to buy a house?” As national mortgage interest rates hit +7% and housing prices fall across the country, many people are asking themselves this very question.

But like the stock market, “investing” in a home isn’t a question of timing.

In this post, JL highlights why buying a house is one of the worst investments a person can make. And if you’re still on the fence, check out Brett’s comment in Addendum #9 about mortgages as an investment tool, rising interest rates, and returns.

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house made of money

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 of 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 upcoming 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.


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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: The real cost of home ownership Real numbers presented fairly from Clipping Chains.

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.

Addendum #10:

Ben Carlson shares how to think about buying a house in 2023’s age of high mortgage rates:

When you shouldn’t buy a house



The Art and Science of Living in Hotels
Think you are not only done with owning houses, but maybe with renting as well?
Full-time travel and hotel living is our thing just now. If you think it might be yours, this is your book.


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  1. Tara says

    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.

    • RobDiesel says

      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 JL 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.

      • KP says

        I wish, I would have read this post and whole stock series before I bought my first ever Condo last month. Now I am stuck with the mortgage for next 15 years…

      • Joe says

        I think all of you have missed the second to the last paragraph where are the interest rates being below three make it a no brainer to obtain a 30 year mortgage and invest the equity at 11.9% or a little less.

    • Mr. Risky Startup says

      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.

        • Erwin says

          Make that 4, Our landlord is so easy to work with. He just let us pick our own style/color of carpet and a brand new fridge of our own choosing as long as it fits the current space. They’re out there. You just have to find them like finding good friends.

          • Erwin Villaroman says

            Make that 5. Our landlord has done whatever we asked. New carpet? Sure what color do you like? New refrigerator? Sure, pick what you want. It’s a 2 way street.

    • Ryan @ WantFI says

      Although you can have both if you live in an up and coming neighborhood. I lived in a condo for 2 years then sold it for $90,000 in profit (28% gross gain). Now onto the next condo that I live in 2 blocks away (larger). I was quite certain that the gains would occur because the neighborhood is still emerging. I’m a big advocate of stock market investing, but even some of the best sturdy investments like preferred stocks (if chosen properly, direct link on name) can only net you about 7-10% a year. But I do agree that most people should not expect housing gains because they choose it to be a house, not an investment.

    • John says

      This is a reply to the author. IMO, your concerns might be valid for the average property market in USA, but not for high end markets like the SF Bay Area. Such markets have a lot of tech jobs which have seen a lot of job and wage growth until recently. They will continue to do so in the future, once the impending recession is over. If your location is good (in terms of jobs and schools), then you can still sell an old shack for 1mn plus and still get a buyer for it in 2022 who will break it down, and spend another 1mn for new construction. These buyers are not multimillionaires, but often somewhat ordinary tech couples doing ordinary tech jobs and having high six figure incomes each. The home prices in such areas are likely to at least hold their values in the long term (10 years or so), if not rise a lot. To break this cycle, we’d need good companies which setup offices far outside of these areas and then make a big supply of new homes there. Those things don’t happen easily. To make matters worse, mega landlords scoop up large number of properties (for rental income) in such areas i.e. reduce supply and milk tech workers who rent there. But that’s not all, some of these landlords artificially restrict supply by using commercial software (with special algorithms) to earn higher profits and force the others to bid up prices. I hope that these problems can be solved, but I doubt there will be any meaningful solution anytime soon.

  2. Trish Rempen says

    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 says

      (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. RobDiesel says

    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. Mr. Risky Startup says

    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 says

      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.

      • Mr. Risky Startup says

        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 says

          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 says

            @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.

          • Mark Ferguson says

            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 says

            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.

        • NoCondos says

          Condo is the worst. Condo fees are a rip. Remove snow once a month for $400/month hoa? Taxes per sq ft worse than a house and they charge the same to the unit below you. No yard that is usable. Nobody in a condo has a real bbq. And if the elderly can’t pay hoa they raise it on the other units to make it up. Totally true and have seen it twice. They can force you to replace windows at your expense and you can only get approved Windows. You can hear neighbors. Condo is for suckers

      • D N says

        The tax/share cropping thing is the only thing I’ll say is BS. Just because you get taxed on something regularly, doesn’t mean you don’t “own” it in a real sense. I’m a supporter of Georgian land taxes, for the record, but the idea that property taxes mean you don’t own your house means that being taxed on my investments mean I don’t own the capital generating taxable returns, and let’s ignore the realities of the costs of ensuring all of the public goods that mean your house or community have pennies of value at all, the implications of “renting” and income taxes, etc.

        I mean I do agree with most of your post, but that stuff irked me hard.

        • Vasile says

          I agree with your post.

          But house ownership-wise, this is (I think) the litmus test: Try not to pay those taxes and see what happens: WHY does a municipality, State Government or even Federal Government, have the right to separate one from his property, if the property is supposed to be “inalienable”?

          Are you familiar with Allodial Titles, or with the Napoleonic Code of law (which is quite different than the U.S. / British Common Law)?

          With an Allodial Title, for example, nobody can take your house, land, or other form of really-owned property, if taxes aren’t paid, or in any other conditions.

          And regarding the legitimacy of collecting property taxes, argued to be due to your integration withing a community or municipality, and some “services” offered in exchange for being part of such (“public school services” included), that’s debatable: Aren’t the Income taxes supposed to pay for that!? WHERE do those money from Income taxes go!? Answer: to a privately owned corporation of racketeers, called “Internal Revenue Service”, which is NOT a Federal or Government Agency, but a private enterprise of “financial mercenaries” and registered in Puerto Rico. The Income taxes go to federal employees’ pensions, or to fund WARS. But I digress.

          • Vasile says

            @D N, you were also comparing taxes on capital gains (which are a form of income, even though not “employment income”) to a property tax.

            What “income” is a property considered as making? Why does anyone have to tax my land and house which I am fully owning (no mortgage to the bankster), just for my right of having that to sustain my life, and to live there? Therefore, a property not used for renting to others, but to ensure my minimal form of existence on this earth.

  5. Done by Forty says

    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.

      • Leno says

        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%.

        • Mr. Risky Startup says

          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.

  6. Kenneth says

    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.

  7. Shilpan says

    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. 🙂

    • Angela says

      So people who “can’t pay their taxes” can pay their rent every month and will never get evicted? That makes zero sense. Whatever it is they cannot pay, the result is the same: they STILL have to leave. That is not a good reason not to buy a house.

      • Kevin says

        losing an asset you’ve put thousands of your own money in vs leaving a bit rental is not even the same thing!!

        • Angela says

          No one said it was the same thing. But the end result about where the people are going to live is the same. They get kicked out for not paying rent or they get kicked out for not paying taxes. And you’ve brought up a good point. Owning a home counts as a huge asset. Renting a home does not. I still think all these “don’t buy a house, rent forever” people are completely wrong unless the renters are nomads or some such.

          • Steve says

            I agree with you, Angela. I can’t wrap my head around people wanting to pay rent for the rest of their lives just say they can uproot whenever they want. A year of taxes/insurance on a house you’ve paid off is WAY cheaper than paying rent/mortgage for 12 months. In my area (PHX suburb), a year of property taxes is roughly 2.5 current mortgage payments. If you love where you are, there’s no problem in setting roots.

  8. Mark ferguson says

    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.

    • RJK says

      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 says

        “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.

        • Brian says

          The point he is making is that neither renting nor buying a personal residence are an investment at all. They are a place to live. I don’t agree with all the Robert Kiyosaki says, but one of his maxims is that an investment puts money in your pocket (i.e. Monthly cash flow from profits, interest payments to you, dividends, etc) while a liability pulls money out of your pocket. Both renting and owning pull money out of your pocket, and both give you one thing in return: A place to live. Think of it as an expense just as you do clothing, food, transportation etc but definitely not an investment. If you buy a property with the intent of renting it out to someone else, that can be considered an investment as it provides monthly cash flow to you. Entirely different conversation.

        • Thomas says

          Couldn’t agree more with Austin. You have to live somewhere, and Rent is a black hole with Zero returns.
          Converting from renter to realestate owner and subsequently landlord, has generated me over 30% cash on cash returns. Not to mention, doubling my equity on all my properties in less than 5 years. Sure, homeownership comes with some headaches/costs of maintenance, but it doesn’t compare to suffering the whims of a landlord’s choosing and anxiety associated with having to pack-up and move again. The likelihood that the government is going to take your home from you is REALLY slim, at best, far less than a landlord just deciding to sell the place or back-up your rent to whatever the feel like. There’s a great deal of security in homeownership — there’s no ability for roots in renting.
          I’d also like to mention, unlike the fictitious world of making seeminglt infinite shares in the stock market, real estate is a finite resource. As populations grow, the demand will only increase. I’d rather be holding onto shares of a finite resource, than shares of some corporation that may collapse, merge, sell-off, etc. I do believe in diversified stock market investing and long arc of its growth, but I also believe in the long arc of real estate/land value continuing to grow.

      • Ryan says

        He is not that lucky, and it doesn’t take a million dollar home… I bought mine for $225k (zillow said $240k), it is currently worth $420k (zillow) just 5 years later. My mortgage is $1000/mo (including tax/ins about $1600/mo), and I bought when my previous landlord raised my rent (similar house) from $2000 to $2800 (after 5 years of zero increase). How could it possibly be better to rent in my case?

        Maybe monthly rent is still better with the math of putting my 15% down-payment in VTSAX, but the stock gains would really have to make up for the extra amount it costs to rent here. It could not make up for the “luck” of the value nearly doubling over 5 years (honestly I believe I could get $450k for it now, as does a neighbor that is selling his less-upgraded model).

        I did like the idea of borrowing 80% of equity and putting it in VTSAX. I should do that, but a re-fi is a lot of work.

  9. Mike @ UB says

    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.

    • Mr. Risky Startup says

      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 🙂

    • Jeremy says

      “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

      • ron says

        Im a perpetual traveler and i own a home free and clear as a home base when Im not travelling. It’s otherwise rented, paying for property taxes, insurance and maintenance and providing a small in town. There’s a room I can use when Im in town.

        I do agree that people can pay way too much on a house, spend a high percentage of their resources on mortgage and expenses and be overly optimistic about appreciation, etc.

        Rents are sky high in my area and more expensive then a mortgage for comparable properties.

        Index funds are a good thing too.

  10. Kraig says


    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.

  11. RW says

    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”

  12. Michelle says

    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.

  13. Cline says

    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.

  14. arebelspy says

    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. 😀

  15. gestalt162 says

    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.

  16. Alram says

    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.

  17. frugalscholar says

    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.

  18. Executioner says

    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 says

      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.

      • Chris says

        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.

  19. Trish Rempen says

    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.

  20. Jake Erickson says

    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.

  21. Mr. Risky Startup says

    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).

  22. bc says

    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.

  23. Voerendaalse says

    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 says

      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. 🙂

  24. brighteye says

    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!

    • Mr. Risky Startup says

      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 says

        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.

        • Mr. Risky Startup says


          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 says

            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.

          • Mr. Risky Startup says


            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 says

          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!

          • Mark ferguson says

            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 says

            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 says

            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 says


          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.

  25. Brett Doyle says

    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 says

      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 says

        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 says

          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 says

            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 says

            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 says

            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 says

            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 says

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

          • Trish Rempen says

            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 says

            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 says

          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 says

            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.

  26. thepotatohead says

    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

  27. Giddings Plaza FI says

    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 says

      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.

  28. Jeremy says

    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 says

      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.”

      • Jeremy says

        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 says

      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).

      • Jeremy says

        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

  29. DMDave says

    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 says


      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.


  30. CashRebel says

    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 says

      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.

  31. Johnny Aloha says

    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 says

      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: https://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 says

        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!

  32. Dividend Mantra says


    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!

  33. Mad Fientist says

    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 says

      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.

  34. Shilpan says

    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.


  35. Chipamogli says

    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 says

      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. 😉

  36. Jan Janson says

    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!

  37. Aleks says

    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 says

      Thanks Aleks…

      And welcome!

      Thanks, too, for your thoughtful analysis in the comments here: https://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 says

        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 says

          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 says

            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 😉

  38. lentilman says

    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 says


      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.

  39. Henna says

    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 says

      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 says

      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!

  40. Brian says

    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.

  41. cgk says

    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 says

      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.

  42. Mr. Risky Startup says

    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 says

      “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.

  43. Pullingmyselfup says

    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 says

      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: https://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.

  44. Daniel Born says

    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 says

      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.

  45. GD says

    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.

  46. Jon says

    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 says

      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. 😉

  47. Nickster says

    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 says

      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.

  48. MK says

    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 says

      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!

  49. Pericles Papadopoulo says

    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 says

      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….

      • Pericles Papadopoulo says

        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:

  50. KJ says

    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.

  51. BobZandi says

    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 says

      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: https://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.

  52. Cheryl says

    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 says

      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?

      • Cheryl Washam says

        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.

  53. Beth Hall says

    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 says

      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: https://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 says

        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’.

  54. Ricky says

    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.

  55. dls24 says

    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 says

      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!

      • dls24 says

        It took over a year but we were finally able to sell our very large house with a very large mortgage, the sense of relief and freedom is amazing. We are now renters. My remaining question is: why do rent vs buy calculators almost always show buying being better than renting?

        • Jay A. says

          I think it depends on the data you enter. Maybe using price and rent data for the area(s) you use, buying at least appears to be the better option. For example, if rents have stayed more or less the same, but purchase prices have dropped significantly over the same period, the calculators would show buying better than renting.

  56. Jay A. says

    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.

    • Ryan G says

      I’m also late to commenting on this post, but I think you hit the nail on the head. Renting vs buying is a personal decision, and there are more factors than $$$ that must be considered. If you need or want to be highly mobile due to your career or lifestyle, then renting is definitely the way to go. However, if you don’t need/want to be highly mobile, then the decision to rent or buy in a given area (the area you want to live) should be driven by the cost to rent vs the cost to own in that area. When considering cost to own, you must factor in property taxes & insurance, and the cost to not only maintain the home and property, but also keep it “up to date”.

      My parents lived in their home for nearly 30 years, and did very little to update it in that time. They kept it mechanically sound, but the decor never changed. In fact, when they bought the house, the decor was 5 years old. I think that over time people tend to become blind to their home’s decoration. Now they are trying to sell, they are having to spend a lot of money to update the house and make it attractive to buyers. In my opinion, that is part of the price you have to consider in home ownership. Homes that are well maintained with updated decor and finishes will tend to appreciate over the long run.

      A house is not necessarily a great investment (though I recently sold one I lived in for 6 years and it appreciated 45%, but that was more luck than anything). However, a house is the best investment that you can also live inside of. Consider buying a home today with a 30 year mortgage. Compare the cost of the mortgage, taxes, and insurance to the cost of renting a similar amount of sq footage in the same area. The mortgage basically secures your housing cost for 30 years! Imagine how much the cost to rent in a given area can change in 5 years, let alone 30 years. Granted renting gives you the freedom to more easily pick up and move, but generally this freedom comes at a price, but financial and intangible.

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

      Saying a house is a bad investment may be true for reasons besides simple economics. However, you have to live somewhere.

  57. Ian york says

    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.

  58. Devan says

    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.

  59. Hacknat says

    Late to the party, so maybe someone said it already:

    We’ll highlight the exceptional home sales so that people think they’ll probably beat inflation. We’ll refer to people that go under water on this investment and go bankrupt as losers, so that their experience sounds as though it’s many standard deviations away from the average person, even though it’s less than one.

    We’ll have people refer to their payouts in non-inflation adjusted terms so that their nominal gain sounds much larger than it actually is.

    We’ll have people calculate their total gain on the sale of the investment, by only taking into account the purchase price and the sale price, thus neglecting to include their cost of ownership, insurance, interest, and taxes, to make the nominal gain sound even better.

  60. Ken says


    One use case to consider is the 1031 exchange. My realtor has made tons and tons of money on real estate because he just buys properties, rents them out, collects income, and then when they become old he 1031s them into a newer property. Then when he passes away he’ll just pass them all away to his children with a stepped up basis, so essentially he never has to pay capital gains tax on them.

    Too bad there’s no 1031 exchange for stocks.


  61. Ken says

    Awesome article by the way.. from a purely financial perspective this makes a ton of sense.

    There are other considerations though outside of financial:

    – By buying you can make the place completely bespoke to you, how you’d like it. With renting the options are a lot more limited.
    – There can be a big cost to re-furnishing, re-decorating etc a new place, so if you have to move every year or every couple of years (in the renting use case), have to consider the cost of that.

    Also re: financial considerations:

    – I live in San Francisco and the demand to live here keeps going up and up. There’s a big shift going on where people are moving more to cities, especially the younger generation. So while the net combining every place to live in the US appears to give a real return of 0%, if you can find an area where demand keeps rising relative to supply you can get positive real returns. Also there’s an international impact too where people overseas are mostly buying in big coastal cities like SF, LA, NYC, etc.
    – re: oppt cost with stocks, one thing I keep hearing again and again is that in today’s market with interest rates at record lows (98% percentile compared to all of history), we cannot just expect the same 6-7% real return from stocks going forward, and that is will be a lot lower than that.

  62. Simon Kenton says

    Benjamin Graham: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” A lot hangs on defining “satisfactory return.” I admit other possible meanings, such as capital gains, but I have always taken this to mean: reasonable payouts on a stated schedule. Given the stress he put on dividend payments for the defensive investor, I think this is a reasonable explication of the phrase.

    Obviously stocks puffed at cocktail parties have not been subjected to “thorough analysis.” And only under exceptional conditions do stocks have enough of a margin of safety to “promise(s) safety of principal.” Only exceptional stocks bought under infrequent conditions pay dividends so automatically and so large that their return is “satisfactory.”

    Now, a rigid adherence to this definition drains your conversation of a lot of codswallop. “My wife and I will be investing in an SUV this fall.” Bullshit. Not an investment. “I decided to invest in the biggest engagement ring I could afford.” Bullshit. Not an investment. “I’ve about persuaded the little woman that the family needs to invest in a used Cessna I have my eye on.” Bullshit, unless you are adding it to a stable of commuter airplanes you operate. Not an investment. “My degree in gender studies is the biggest investment I ever made.” Bullshit redoubled in spades: not an investment.

    But it is not just in stifling stupid remarks that his definition works in your favor. It stifles stupid deeds too; it forces you to separate investments from wants, it makes self-delusion harder to put over on yourself. Your house may be something you have always wanted, but it is not an investment unless 1) you have a nice, stable, well-compensated renter in part of it to meet the “satisfactory return” test, and 2) you have bought low enough based on a historic analysis of home prices in your area, and can hold long enough, to be sure you will eventually get back your money (plus appreciation greater than inflation) – the safety of principal test. Barring those, your house is a want and you need to look elsewhere for your investments.

    I wish I had a dollar for every time applying Graham’s investment definition has prevented me from convincing myself that some stupid use of money was an “investment.” Oh, wait! I do….

  63. The White Coat Investor says

    I had a reader post a link to this post in a comment on my recent post of a similar subject: http://www.whitecoatinvestor.com/homeownership-is-not-the-american-dream/

    I agree with almost everything you’ve written. However, you failed to account for the fact that a house really does pay you a dividend each and every month- that dividend is the amount of rent you saved. That’s the real benefit of ownership. The dividend rate may be way too low, but there is a dividend.

  64. Jacq says

    My rent has gone up every year, while my paycheck hasn’t. That mythical 3% raise “they” tell you to predict hasn’t happened. I understand all of the reason Jim lists, and the idea of selling & breaking even or making a profit appeals to me more than handing over thousands in rent money year on year. It’s frustrating that to continue renting means I can’t save as much!
    The commute from my apartment to my new job is exhausting, but apartments near work are even more expensive (as you get closer to the major city). Between my current location & work, due to preserved land, and farms, there aren’t other apartment options.
    Running the numbers, a 30 year mortgage, even with an HOA/COA fee & taxes, lets me be flexible should job conditions change, and gives me the ability to save more when I do get raises, or pay more towards the house.
    I’d love a small square foot house, but the “keep up with the Jones” mentality of a major city suburb doesn’t have many (if any) on the market, or the build McMansions for profit idea, means they don’t exist!
    As for mobility – I’d love a tiny house on wheels, but there aren’t many opportunities to go that route in this area. I’m not giving up on it, perhaps future state. 🙂
    I have a friend who owns his home & lists many of the same reasons Jim does. If it was reasonable to rent, with a reasonable commute I’d consider it. Alas!

  65. Kristen says

    This is a great post and outlines many things most people ignore or just don’t realize. Do you think the investment is equally foolish if the property is in Manhattan? Surely there are some locations in the world that defy some of the general principles outlined here…

    • jlcollinsnh says

      Hi Kristen…

      This post is intended to be an antidote to all the propaganda out there that buying a house is always a wonderful financial move.

      Certainly there are times and places where buying is the better (cheaper) option than renting. In Addendum #7 I link to my post that shows how to run the numbers in any given situation so you know where you stand.

      As for Manhattan, I’m afraid I know nothing about that RE market and so can’t comment.

      • Maya says

        I know nothing about investments but I am a renter in Manhattan and crunched the numbers per your instructions and in the rent vs own calculator. The fact that even the crappisest tiniest studio condo in Manhattan will cost at the very least $300,000 (and that’s quit a fantasy price), and my rent is $1700/month in a rent-regulated 2-bedroom apartment, buying is never going to be a financially sound investment for me here. I’m shocked at all the commenters who can buy a HOUSE for under $200k. Where are you all at?

        • jlcollinsnh says

          Hi Maya…

          Thanks for weighing in on Manhattan and running the numbers there.

          As for sub-200k houses, you can find them all over the Midwest and South and here in small town New England.

          Of course, rents are cheaper in those places too. 😉

  66. Veva says

    You’re right – a house has never been considered an investment. Having lived a long time and watched the price of homes escalate and rental rates do the same thing I like the idea that I own my own home without a mortgage and have never considered it an investment. When the 2008 recession forced the price of homes to crash I went out and bought each of my children a house so they’d always have a place to live and I got them for a price close to what they were sold at new before the turn of the century, but I don’t consider those investments, either. I never have to worry that the landlord will sell out from under me and force me to move because he’s sick of having a rental house to take care of or he needs the cash. My taxes stay pretty even as does my home insurance, because the longer you’re in a home the slower your property taxes go up and you can hunt for good insurance rates. Yes I have to take care of upkeep, but I’d be doing that in a rental, too, through my rent. A paid for home is one’s castle, a refuge, a comfortable place you get to stay in for as long as you can afford it. But you’re right – it’s not an investment and was never meant to be one. But, there’s no place like (your own) home.

  67. dave d says

    Boy, I wish I could email this to myself in 2009. Currently tearing my hair out trying to sell the house I bought then, and I’m rapidly running out of hair. I thought I was clever, buying as home prices were bottoming out, figuring they’d bounce back up in short order. Well, not in my area they didn’t. My home has lost value after adjusting for inflation since then. Now I just want to move on with my life and go back to being a happy, relatively carefree renter.

    Although, even if time-travel email were possible I probably wouldn’t have listened anyway. Some people need to learn the hard way.

  68. Louis says

    Do you have any articles about buying a house in an up-and-coming as an investment to rent out, while the mortgage+ gets paid by the renter, and while interest rates are at historic lows?

    • jlcollinsnh says

      Hi Louis…

      It has been a long time since I owned investment RE. Even if I could remember anything about it, that information would likely be out-of-date.

      These days my go-to source on this is my friend Paula: http://affordanything.com

      If you want to learn how to invest in rental houses, she the one to read.

      Good luck!

  69. Sealth says

    Well…Why is the landlord paying all the maintenance and what money he uses? Does he do it for free? Of course not. You pay little more to rent then to own because you don’t have to spend your own time and money to fix stuff and don’t get any profit out of it. I have owned few houses and I have invested in stocks and feel I have done equally well on both sides. I have paid my first house of in 4 years, invested money in stocks, pulled some money out when my stocks doubled, bought another house to rent out. My stocks have almost doubled again and my rental property has almost doubled in value and now I want to move to another part of the world. All it takes is about 2 months of preparation and then lets go. No problem here. 🙂

    • jlcollinsnh says

      Hi Sealth…

      I’m glad your investments have worked out for you.

      However, you seem to have fallen into the fallacy that rents are set by landlords. They are not. They are set by the market.

      Market rents may or may not be high enough to cover a landlord’s expenses and provide a profit, but there is certainly no guarantee.

      The world is filled with landlords who own “alligators.” That is, money losing properties that are eating them alive. And that by extension are bargains for the tenants.

      Moreover, these “alligators” and the desperate landlords who own them, pull down the overall prices for rents in their markets.

      Certainly, a wise investor considers carefully each prospective property with an eye towards its fiscal characteristics. But such properties are hard to find, in demand and take considerable skill to recognize.

      Just as the general public has been suckered in to believing buying a house is always a good idea, so too have many potential RE investors been suckered into buying property with the silly idea that tenants will always pay enough rent to cover all the expenses and line the owners’ pockets.

      Tenants pay only what the market demands. The owner’s expenses and profit are immaterial.

      If you are considering investing in RE and want to avoid owning an “alligator,” read this to start:

  70. 50% rule says

    This is a complex topic. I think it is good to be rational and clearly there is an irrational cultural bias in the USA towards home ownership. In Germany, the bias is in the other direction. Most Germans prefer to rent. But I think you need to analyse this problem on a case-by-case basis. This article assumes that a potential home buyer earns an above average salary, has a comfortable standard of living, plans to borrow most of the money for the home purchase and will, as a result, “trap” themselves into at least a decade of mortgage payments. But the truth is that different people have different amounts of money to burn, different goals and different locations, implying different tax situations. If your desired home value represents less than 50% of your net worth (assume a 400 K home and net worth of 1 million, for example), then you can buy your home with cash and still have 600 K in other more liquid investments. In this case, home ownership becomes (1) a type of investment diversification, (2) insurance against rising rental costs and (3) insurance against being forced to relocate during retirement years (stressful, uncomfortable, risk of lifestyle downgrade). A simplified rule might be that a person should only buy a home when the following conditions are met: (1) no desire to relocate in the future, (2) cost of home is less than 50% of net worth, (3) willing to deal with some of the inconveniences of home ownership listed above (clearly there are some), (4) risk of divorce or similar legal complications is low. Admittedly, if you have less than 100 K in savings, you should be focused on how to be more efficient with your investing so that you can earn and save more. My point: Home ownership can be rational for those with sufficient capital.

  71. Jon says

    Yeah I honestly find it very sad that most people think of their house as an “investment.” These are normally also the same people that end up struggling to figure out their retirement plan because they don’t have any money to show for their many years of working 9 to 5 jobs. I feel bad for them. I truly do.

  72. Andrew says

    Hi Jim,

    I’m a new reader and just wanted to let you know that I really loved this post. It’s probably because it makes me feel better about my personal situation. I owned a house from the years 30-38 and left it behind in a divorce. I just couldn’t live with the big mortgage. The market completely left me in the dust. Some would say it is a bubble and time will tell. I’ve learned to enjoy the freedom and just sold all my house maintenance stuff – ladders etc. after 5 years of collecting dust. That’s $300 to invest in Index Funds!

  73. Bill Joyce says

    Hey Jim, great post.

    I’m a real estate Broker in Sacramento and I couldn’t agree more that there are a lot of very important reasons not to buy a house. I would add manipulation from Government, Federal Reserve and Wall St. make property values subject to external (non market) influences. Your point about home values in an environment of falling interest rates is important. What happens to home values in an environment if rising interest rates?

    I see first hand the abundant enthusiasm for a home purchase and the near cult like faith in the ‘dream home’ as the single most worthy goal. I appreciate your article challenging the largely unchallenged views about home ownership.

    That said, I find the two camps (buy and rent) almost overzealous in their commitment to their respective cause. I happen to believe there are appropriate circumstances for a home purchase, including financial advantages. I believe it’s time for people to educate themselves about finances, saving, investing and the real costs and benefits of owning a home.

    I’m happy to have found your site.

    • jlcollinsnh says

      Hi Bill…

      I’m glad you found your way here. It is nice having someone in your line of work not immediately start burning me in effigy after reading this. 🙂

      Truth is, I am not against homeownership. I’m against the marketing drumbeat that it is always a good idea for everyone at all times.

      While we rent now, we owned homes for 30 years and, for the most part, enjoyed them.

      But they were expensive indulgences we could easily afford, not investments.

      If you are curious, here’s more me on the subject: https://jlcollinsnh.com/category/real-estate-2/

      • Bill Joyce says

        Hi Jim,

        Your homes were expensive indulgences? That sounds like a poor financial choice. Like an expensive hobby. I’m not sure owning is really that much fun.

        What would you recommend to the young family determined to buy a home that would make it a better financial decision?

        For instance, you moved to a smaller apartment from a bigger home. Would a more modest home purchase be a smarter choice? What about down payment? Length of ownership? Any thoughts on financing and refinancing?

        What I want to know is what is the cautious man’s careful advice to help people do better when buying a home.

      • jlcollinsnh says

        Expensive indulgences are probably always a poor financial choice, but nothing wrong with that if they bring joy into your life and you can easily afford them. This is one of the benefits of reaching FI.

        For the young family not yet FI but determined to own a home my advice would be:

        –Ignore the nonsense you’ll hear from mortgage brokers and real estate agents about how much house you can afford
        –Focus instead on finding the most modest house that can meet your needs.

        Remember, you achieve FI by investing and the more money you tie up buying houses, cars and other spending the less you’ll have to buy your freedom.

        The most recent guest post here might help: https://jlcollinsnh.com/2016/10/21/buy-your-freedom-rent-the-rest/

  74. Adam says

    Hi Mr Collins-

    I stumbled across your blog 2 days ago and have been reading it ever since. I am 26 and just learning about FI. I’ve always wanted to own a home, but after reading articles on your blog, as well as other financial blogs, I have started to realize it isn’t going to be the best financial decision. I understand that finance isn’t the only variable, but any way, I digress.

    In this blog, I haven’t found a lot of information about buying rental properties. Part of what draws me to real estate is that once your house is paid off, you own that home and can either keep living in it for whatever tax and maintenance is (which is hopefully less than rent would be), or rent it out and have continuous passive income (I now understand it’s not that simple, but for sake of simplicity, I will assume this). This brings me to my question for you – what are your thoughts on rental properties?

    I really appreciate all of the information you have shared on your blog. Hopefully one day, I can pay it forward!


  75. Ashlee says

    These downsides make sense, but what about when the cost to rent is a good $200-$300 dollars higher than a mortgage?

    We sold the house we owned for $6k more than we bought it for. We only lived there for 4 years so that covered closing costs, a realtor, and left us a little to put into savings.

    We had a 2 bedroom, 1.5 bath house and a fenced in back yard. In our area, a 2 bedroom, 1 bath apartment would have cost $200-$300 more.

    Maybe not the best “investment” but I’d argue it was a solid financial decision. It helped that we got lucky and only had one major repair that cost us $330.

    • Jay A. says

      I don’t think the monthly mortgage payment should be used as the barometer. It can be manipulated to the detriment of the home purchaser: You can lower the monthly payment by increasing the payback period, which increases the interest paid, and reduces the ROI.

      In general, I believe looking at costs purely on a monthly basis is short-sighted and disguises the true cost of home purchase and ownership.

      Sure, plenty of people see increases in values of their residences, and depending on the price-to-rent ratio for that area, might even spend less money purchasing a residence.

      However, many people never realize that increase in value until “retirement”, aka financial independence, when they move to a lower COLA or into a smaller residence. Over those decades, though, the amount of money they have spent on mortgage interest, transaction costs, maintenance, and so on, in many cases wipes out a lot of or all of the capital gain.

      • Ashlee says

        Certainly. I’m not saying that this particular example should be the rule, but “saving” $200 per month certainly helps balance the scales, even with repairs and the cost to sell.

  76. Marcus says

    Interesting article on change in thinking where “In Greece, Property Is Debt”: http://www.nytimes.com/2016/11/02/opinion/in-greece-property-is-debt.html

    In the US what would people do if the mortgage interest deduction was eliminated? Interesting comments from recent Planet Money episode: “Three quarters of your mortgage goes to interest. So if they eliminated that, that deduction, it would be like you’re throwing your money out the window every month, you know, if you didn’t get that deduction – get something for it.”

    Sounds similar to people who think renting is a waste of money right? Yet in most countries you do not get to deduct mortgage interest… Maybe there will start to be a rationalization on “home” ownership vs “asset” ownership…

    Has anyone looked at calculating an “MER” on their home? Mine is ~1.15% (insurance, taxes, maintenance, basic utilities – all the things required to maintain the home’s value). This does not include my labour on various tasks…

    Would I invest in an ETF with an MER that high? Never…

    Food for thought 🙂

  77. Erith says

    I’ve just spent some time doing a total review of the amount I have spent on my home (in the UK) over the last 40 years, and the results don’t agree with your report. I suspect there is a difference in the UK market (over-priced housing, both rental and owner-occupier). Rent would have cost £292k, mortgage and maintenance were only £150k, house worth £300k. Total gain £440k….
    However, as I am retired, I am now starting to think it might be time to consider renting, for many of the reasons mentioned above. Flexibility, opportunity cost (a 5% yield on the investment would pay the rent), the house price has been pretty stable for a few years now and as I get older I am less keen to have to do work to maintain it.

  78. Jeff says

    Heard all these arguments before. There are people who get rich with real estate and the stock market. Whatever suits you best — some people are geniuses at picking stocks (although rare) and others are great at picking properties and learning that business. Some of the arguments as to why real estate is bad have to do with its illiquidity — but that is exactly WHY I like to diversify into some real estate. I can’t touch that money so easily, where as it can go up in flames in a matter of seconds in the stock market. Slowing down money is a good idea because it can also prevent you from selling too soon or not thinking through the decision to sell, whereas it is very easy in stocks to just dump everything in 5 minutes.

    • jlcollinsnh says

      “Slowing down money” is indeed a worthy advantage and the ease of panic selling stocks has indeed lost much money.

      Good points.

    • Financial Samurai says

      This is another reason why I like real estate. I’ve found that my illiquid investments have OFTEN saved me from my dumbass self b/c even if I wanted to sell in a downturn, I couldn’t!

      I tried to sell my rental home in 2012 at the bottom of the market for goodness sake. Thank goodness nobody wanted to buy then.

  79. jeantravelbean says

    My first home was a house I built. Now I live in the house and am a landlord with a maximum of 3 tenants at a time (there is a detached garage apartment). I have never paid my mortgage, my renters have. The electric bill on a 2000sf house during the summer in Texas is $75 thanks to green materials. No solar panels and I won’t be investing in them. My house value has doubled in 8 years since it was built, but because of my state, I can not take out an equity loan. I put 80k in the house to build/buy it. If I sold the house I would walk away with 300k. In one week during the year, the house rents for $15,000 for the whole week turning profit on the already paid mortgage. That’s a pretty good return in 8 years. I have, however, paid a lot for repairs and general upkeep.
    I agree wholeheartedly with this article. If it were not for my unique situation, I would not own a home. For me it has become strictly an investment that also gives me a nice place to live. It can be a lot of work, but so can a regular home.

    • jlcollinsnh says

      I imagine many readers, hearing the story of your house, will be very surprised to hear you say, “I agree wholeheartedly with this article.”

      Those who are will likely be equally surprised to hear me say, I agree wholeheartedly with your housing choice and strategy.

      Well done!

  80. Financial Samurai says

    Thanks for this post! And all the addendum’s that followed. I’m actually currently in the middle of deciding whether to sell or keep cutting it out as a landlord for a rental house I bought in 2005. It’s been a great ride here in San Francisco, and believe it or not, the house has been a great investment. But now that I’m a middle-aged, and have a family to take care of, I really want to gain back as much time as possible to be there for my family.

    I’m now looking for validation to pay all of this commission, all the taxes, and try not to regret selling a home which I believe will be worth much more in 10 to 20 years from now. The economic engine here in San Francisco it’s just incredibly strong. Supply is restricted but the man seems to be forever rising. But life is short, and I don’t want to spend another $500,000 in property taxes over the next 20 years and more time trying to maintain a home to fit someone else’s standards.

    I’d love to hear it even more reasons to sell! I got a decision to make soon. Thanks


    • jlcollinsnh says

      Hey Sam…

      Nice to see you over here!

      Too bad we are not going to be on that FinCon panel together this year. Would have been fun doing it with you and the others.

      Congratulations on the great run with your SF place. You clearly have the financial skills and the location knowledge to better judge than I what your next move with it should be.

      Were it me, I’d look at the net left after all those expenses selling it and where I would then invest that capital, and then let that evaluation guide my decision.

      Good luck. As problems go, this is a sweet one to have. 😉

      • Financial Samurai says

        Yeah, totally waiting for the Fincon Hawaii or Fincon SF event! It’ll be so much fun. I try and go every other year. Given I went to San Diego last year, this is year is rest time.

        I think I’m crazy, but I’m going to reject the offer I got. It is literally $1M more than what I could have sold it for in 2012 when I had the house on the market for 28 day with ZERO offers.

        I just feel I will have regret in 20 years. It’s impossible to predict 20 years from now, but I do know one thing: once I sell and pay all those taxes and commissions, there’s no going back.

        Where in America are you based again?


      • jlcollinsnh says

        This will be the second year in a row I’ll miss FinCon. Just life getting in the way, I’ve always had a great time when I’ve gone.

        We are currently in NH and have been since 2000. But that is about to change.

        In the last few years we’ve been traveling more than we’ve been in NH. When our lease runs out at the end of August we are going to establish low-cost residency in SD and let the travel flow.

        I also have a new twist to all this that I’ll be announcing with a post or two soon. 🙂

    • jlcollinsnh says


      I add addendum that expand on the ideas in a post or provide a counterpoint to it.

      The fact that I bought a beach house does neither and the points in the post apply equally to it.

  81. Scott says

    I had a home built in ’89 when I was starting a new career. It cost me $78,000 in a nice neighborhood of mostly new homes where we raised our kids and had bbq together. Then some of the neighbors we didn’t know, began renting their homes. In a matter of a few years, our charming neighborhood brought in the riff-raff of people who didn’t care for their rentals or neighbors. They left crap in their front yards, didn’t mow (“Why should I mow…I don’t OWN this place!), and they were lousy, neighbors.

    We saw the writing on the wall. We sold our $78,000 home for $250,000 in 2 hours, 27 years later, used that to buy a lot in a beautiful “doctor/lawyer” neighborhood overlooking a creek and a neighbor’s pond. We just moved into our new home and it couldn’t be more beautiful. Beautiful home, caring long-term neighbors with some class and concern for each other.

    Our $450,000 home, at a modest appreciation, will be worth about $1.5 Mil in another 25 years. We can then either sell this home or stay in it free and clear.

    A lousy investment? In terms of pure numbers, perhaps. But if diversification, spreading risk, pride of ownership, enjoyment of good neighbors, mortgage interest write-off and the ability to do mostly whatever we want in and to our home is a terrible investment, then it’s the best “worst” investment I’ve ever made! This property is not repeatable. In our area of the country real estate is in extreme demand. You can almost name your price, and it will not be changing anytime soon.

    Renting a home sucks. If one needs to do so for a short to medium short time frame due to job moves or unsurely of career or whatever, then fine…rent. But for those who mostly are staying put, it is a fantastic decision, if a terrible investment.

    I enjoy your blog! I may not always agree, but I think (especially for millennials), you’ve got some good advice!

  82. Giancarlo says

    Hi Jim,

    I enjoy reading your blog. It was passed on to me by my aunt who is a huge mentor of mine in this space. What are your thoughts on VTSAX vs. VTI (total stock market index ETF) Both carry the same expense ratio of 0.04%. I apologize if this is covered elsewhere in the blog and I just haven’t seen it yet. Please direct me there if that is the case.


  83. Jay says

    One question I have about the rent vs. buy argument is that it seems like most commentators assumed that rent is a fixed value but it seems like rent is generally adjusted annually? This is true at least where I live.

    I know that the same can be said for real estate taxes, home owners insurance, etc. but their value is much lower then the entire rental payment.

    Thanks for the blog and the informative analysis.

  84. Angela says

    This whole “rent or buy” argument completely FORGETS the idea that when renting, you are at the whim of your landlord. My husband and I had been living in a nice rental home with a great yard for over 12 years. We had paid almost every bit of the entire value of the home in rent. But at year 12, when the landlord decided to sell, we had to go. We had zero choice in the matter and all that money we paid into that house effectively got flushed down the toilet. Sure, we got a nice house to stay in for those years but again, we paid almost the entire value of the house in rent in that time. But when it came time for them to sell, we were the losers. Big losers. I think this whole “you should only rent” idea is hideous.

  85. Shane says

    All of those are great points, and I’m inclined to agree that buying a house isn’t as great of as an investment as most people think. However, perpetually renting doesn’t seem like that great of an investment either. I mean, for most people, it’s not about buying a house vs not buying a house, it’s about buying a house vs renting a house. So how do we properly compare buying with renting?

    • jlcollinsnh says


      Neither buying or renting is an “investment”. Both are paying for shelter, and that’s the point.

      There is a link to my post on comparing rent vs. buying in the post above.

  86. Mark Farr says

    This is a super article. However bring it up at a cocktail party and you will be left standing alone at the fireplace. I also fell into the house owning trap. In my case though I was only able to purchase when the market crashed. I also built a custom house on a 25 acre wood parcel which carried a mortgage of $50K. Years later that home sold for double and my wife groaned we “should have held on to it”. However when I took the capital appreciation and deducted fees, taxes, heating, electricity, maintenance etc and lost opportunity on my capital the gain was 1.2% per year. I rent now and the headache is solely my landlord’s. Whenever I want to travel I hand over several dated cheques, lock the door and away I go. I have worked at lucrative contract jobs all over the world being able to do so because of the mobility renting enabled. I visit the big houses of friends and family, many living hand to mouth to enjoy their facade. They scoff at my humble apartment but in more thoughtful times complain about the stress they are under.The whole home ownership philosophy is clever trap and best avoided for all the reasons in the article.

    • Scott says

      If you think living in an apartment is an upgrade to owning your own home in a nice neighborhood, and watching your equity fly out the door each month, then God bless you! Here’s my experience with apartment life:
      Loss of equity forever
      Thin walls
      Noisy, inconsiderate neighbors
      Drug usage just feet away while raising children in that environment
      Hearing other people’s love-making while trying to sleep for your job or an exam
      Cheap-quality appliances
      Floors/carpets that have had food, drink, vomit, urine and other human fluids
      ground in that were ostensibly “cleaned” prior to you moving in (Uh, Huh!)
      Cigarette and/or pot smell from your neighbors while you’re trying to entertain

      I’ve known many net assets millionaires and was fortunate to become one, and I can assure you, not one of them got there from renting! That’s just a silly millennial concept because someone doesn’t want to have stability in their life or is irresponsible
      (temporary job or life situation excepted).

      Need I go on…? Yeah, renting and apartment life is a real hoot!

        • Scott says

          Congratulations man! I’m genuinely happy for you! You’re the first one I’ve met, out of thousands, who’s gained financial independence by renting! Way to go! Well done!

          • Scott says

            Jeremy, I did not want to imply that I only run with millionaires, only that I’ve met many and grew up with them and learned from them. In truth, I have great compassion for the poor and those with difficult life situations. I’ve been broke and I’ve been wealthy. Wealthy is much better, because it gives one choices and options. Being wealthy allows one to chose who to bless with the fruit of your labors. When I was broke I couldn’t give much to anyone and it hurt, because I like to give to others less fortunate. Not trying to defend myself, but just mention that in the space of a few lines I couldn’t give the BIG picture! I’m glad you seem to connect with the less fortunate. I have many friends less fortunate and I love them just the same. I appreciate your comment Jeremy!

      • Angela says

        Scott, you forgot the part where your landlord can make you move out at any time. My husband and I were renting a house (not an apartment) for the last 12 years; we sunk the entire value of the house into it in rent. Last year, the landlord decided to sell and we had to get out. I would not willingly put myself into that situation again. Not ever.

      • jlcollinsnh says

        Hi Scott…

        Welcome back!

        That sounds like a truly horrible apartment and, from your earlier comment above, it sounds like when you bought your first house it was a substantial step up.

        If I am right about that, then your experience really isn’t: Renting is bad and houses are good. It is more: Crappy apartments/landlords are really bad and the house you bought, quoting your comment above, “…in a nice neighborhood of mostly new homes where we raised our kids and had bbq together.” is much, much nicer.

        Personally, I have rented spaces that were nicer than some of the homes I’ve owned and have owned houses that were nicer than some apartments. I was careful in choosing both and, knock wood, have so far managed to avoid most of the problems you experienced. (Well, there was that truly horrible condo I bought early on but I’m ignoring that. 🙂

        I have had bad neighbors in both. In the apartment when the guy’s lease ran out the landlord kicked him to the curb. Problem solved. With the house next door, and with no landlord to run interference, we suffered for years.

        With this beach house we just bought our neighbors on both sides have gone from very cautious to extremely welcoming. Turns out both were terrified that a problem neighbor would buy the place. Guess we are OK. 🙂

        Lucky for us, they are both great.

        Finally, since starting this blog in 2011 and the Chautauquas in 2013, I have had the chance to meet a lot of people who are FI or well on their way. Not the thousands you and Jeremey have, but a few hundred anyway. Maybe I need to get out more.

        Some are homeowners and some rent. My guess is it is about 50/50.

        Setting aside house-hackers (buying 2-3 flats or taking in roommates) and RE investors — both great paths to FI — I can’t think of a single one who attributes achieving FI to the purchase of their single family home. This includes those who were astute or lucky enough to buy a house that enjoyed rapid and substantial application, as in a gentrifying neighborhood. I had one of those once and it is a wonderful ride.

        Except for that one, every house has been a drag on my FI journey even though each (other than that damn condo!) went up in value.

        I don’t regret them as they provided the lifestyle I wanted at the time and I was willing to pay for it. But I ran the numbers and bought and owned them eyes wide open.

        Since you are an asset millionaire, this likely reflects your own situation. After all, even mortgage free, you and I both need productive investments to pay all those other expenses Mark points out. Unlike that carefree Jeremy. 🙂

        • Scott says

          You make some good points, and perhaps we can agree that if one prefers renting over owning (or the bank owning it until the debt is paid in full!), then that is a personal decision. I rented for about 10 years of my adult life. That was enough, thank you! I had my first home built for $78K. I sold it 27 years later for $250K. In our area, rentals are about what a 30 year mortgage would cost, because of demand. So renting if one is staying in their home for 5 years or more, renting just doesn’t make financial sense. If one is unsure of their future, then I believe renting makes a lot of sense, and I’ve done just that.

    • jlcollinsnh says

      Thanks Mark…

      …glad you like it.

      “and you will be left standing alone at the fireplace.” If you are lucky. LOL.

      More often they will be gathering the tar and feathers in my opening illustration. 🙂

      Your story of your wife lament after just looking at the raw price number is illustrative of how people are duped into thinking houses are a great investment. Only after looking at the full range of expenses, as you did, does the true picture become clear. And, of course, this is for a house that happens to enjoy strong appreciation. Many more stagnate or lose value.

  87. Angela says

    I notice that “jlcollinsnh” isn’t answering any of MY posts: about how one can rent a house for over a decade and pay the entire value of the house in rent in that time and then be told by the landlord that they’re selling and you have to leave. This sort of thing happens to people ALL the time. I brought this subject up about three years ago on jlcollinsnh’s YouTube channel and some commenter said it was rare. Well guess what? 18 months later, it happened to us. After having been so established in the home, moving was a HUGE expense and very difficult on my husband’s disabled body. People who don’t plan to flit around the world probably do NOT want to rent. My 70 year old mother had something similar happen to her about three years ago. She is retired and is on a fixed income. She was renting one half of a duplex. The landlord was very elderly and sold the duplex. The new owner raised the rent $150 a month, so she HAD to move. At 70 years old. Yeah, renting is crap.

    • jlcollinsnh says

      Well Angela, I never had the sense you were asking a question or seeking a different perspective. Mostly you seemed to want to vent and by publishing your comments I have given you that opportunity. You are welcome. 😉

      Since you are now asking me to respond, here are my thoughts:

      –In your first comment further up you said: “My husband and I had been living in a nice rental home with a great yard for over 12 years.” This tells me you were happy with your choice and found it a good value for the money. You got what you paid for. If you were dissatisfied you should have looked at other options. Perhaps even owning.

      –No one has the obligation to rent or keep renting you a place they own. Did they break the lease in asking you to move? If not, they fulfilled their obligation to you.

      –If your needs and desires had changed, had you decided to buy or had you found a better/cheaper place, at the lease’s end would you have kept renting the place if the landlord said it would be better for him/her?

      –Landlords have the right to sell their property on terms and timing that serve their needs and desires.

      –The agreement between landlord and tenant is laid out in the lease. Why would you expect your landlord cater to your needs and desires beyond that?

      –If an owner is able to raise the rent by $150 a month, that simply means the old rent was below market rates. The old landlord was providing a screaming bargain. I would send them a thank you card, maybe even a gift.

      –When considering rent vs. buying I suggest everyone run the numbers. This is certainly not the only factor to consider, but it is important to understand the fiscal decision you are making. It is easy to do. Here’s how:

      Finally, you are falling into the “grass is greener” trap and assuming had you bought all would be roses.
      Could be, with your long term and the difficulty of moving, owning might have been the better choice. Or you might be here sharing your ownership horror stories like many in the comments above. Here, for your entertainment, is my own:

      I sincerely wish you the best and hope that you find a place that suits your needs and for however long you need it. Maybe even with room for Mom.

      • Angela says

        Yeah and all of that business is just to “prove yourself right”. My mom lives in my prior county; the one I grew up in and lived in for 40 years until we were told to move. The economy there is in the toilet; it went downhill after the logging industry failed and has been going down ever since. Grays Harbor, Washington State. Look it up. No way was the “old rent below market value” in that county as people are not able to afford the sorts of rent they can afford in places like Seattle and even here in my new city, Olympia. The rents here in Olympia are about two and a half TIMES the rent in my old county.

        And for all your talk about how the landlord “satisfied their obligation to us” that STILL doesn’t say anything about the fact that you can be told to move or have your rent raised significantly at any point in time and if you don’t own your own home, you’re screwed. No one said that the landlord HAD to do anything different and that is NOT THE POINT. The point is that if you rent, you can be put out on the street at ANY time and except for the required amount of time you must be given to move (in my state, it’s 20 days) you don’t get to say crap about it. No one said ANYTHING about requiring anything different of the landlord so stop acting as if I did. No, renting is NOT better. In fact, it’s crap.

        P.S. Do you deliberately give out people’s email addresses on this blog and if so, why? Because you did that to me and I don’t appreciate it.

        • Nick says

          As Jim states, if you need a place where you don’t have to move frequently then owning a house would probably be best in your situation. I don’t understand why you think he said renting is better for you. Just because renting may not have worked out for your situation doesn’t mean it is “crap” for everyone.

          I don’t know how how many different ways it can be spelled out from the article and the comments is that the decision is situational. Buying is best for some. Renting is best for others. The point is that everyone should run their own numbers and analysis before blindly following the religious advice that buying is always best.

          • Angela says

            Probably because he puts up articles like this as well as YouTube videos and tons of other things titled:

            Why your house is a terrible investment
            Why You Shouldn’t Buy a Home
            Rent, don’t buy

            And on and on and on. So now you’re going to say that it’s “situational” and no one is trying to tell us not to buy? Please. That’s not even CLOSE to being true.

          • jlcollinsnh says

            “The point is that everyone should run their own numbers and analysis before blindly following the religious advice that buying is always best.” Yes. Exactly.

        • Greg says

          As someone from Seattle that feels owning is a terrible investment, I bought anyways because of the pressures described. If the current pattern keeps going and I sell, I’ll make out like a bandit.

          I feel the pain around crazy rents in the area, but I also agree wholeheartedly with jlcollinsnh objective points because it’s how our society works …

          • Angela says

            I disagree that this is “how our society works”. If a young couple of 25 buys a home and gets a 30-year mortgage, that will be paid off by the time they’re 55. At that point, they will own their home free and clear and have nothing but maintenance costs and taxes left to pay AS OPPOSED to the full rent every month for the rest of their lives. If they get a 15 year mortgage, they can be “free and clear” at age 40.

            Now, let’s take a look at this:

            Young couple aged 25 buys a home. They spend the next 30 years paying the mortgage. After 30 years, the mortgage is paid for and the next 30 years of their lives (up to age 85) they owe nothing but taxes and upkeep. So it’s 30/30 for this couple as opposed to 60 YEARS OF PAYING A LARGE MONTHLY FEE.

            The idea that “I don’t want the burden of paying taxes and interest and maintenance and all the other costs of ownership” is ridiculous because renters ARE paying these fees. They’re simply all wrapped up into a cost called “rent”. No way is any landlord going to keep the rent BELOW what all of these costs take from them.

          • Marcus says

            I have both rented and owned. Rented allowed us mobility when we were younger to move for education and work. We were often able to rent in locations we could not otherwise have afforded to buy in, which meant we didn’t need to own a car and could walk to work (saving money, getting exercise, and reducing commutes). Everyone’s specific situations are obviously unique, which I think is the point. Not to dismiss renting out of hand, nor buying.

            As for the owners of property who choose to rent (allowing us to rent), the ecomnomics for them make sense for them to rent out (for example they purchased a log time ago or they are downsizing and are using their former residence as an income property). Again, landlords situations allow for us to rent – we have been lucky with our landlords, but we also did our due diligence on them (as they do in us).

            Having choice has been a net benefit for us and saved us thousands of dollars in realtor fees and caring costs when we were moving every 12 months. Now as owners, we appreciate the stability. Both have their place in my opinion.

            I believe the point of the original article was to show that renting was a real option for many people. I highly suggest that everyone read Mr. Collins full blog and even his book – both are extremely useful tools.

            Please keep learning and be open minded.


  88. FIRECracker says

    Angela, you seem a tad deranged. Maybe all that home-boning and constantly fixing shit around the house is causing all the stress? Too bad you didn’t stay a renter–12 years of happy renting bliss. You threw it all away to become a home-boner and now you’re a psycho. Clearly, ownership doesn’t make you happy. Thanks for proving JLCollin’s article.

    “P.S. Do you deliberately give out people’s email addresses on this blog and if so, why? Because you did that to me and I don’t appreciate it.” –> Wow. Please put away your tin foil hat. Apparently, homeownership also causes paranoia. Who knew?

    • Angela says

      Really? So insulting someone else is “discussion”? You can’t be serious. If J Collins leaves your post up, it will tell me everything I need to know about the “don’t buy, rent” crowd.

      It is appalling to me that MY experience and MY opinion is treated so poorly. So I can’t say how things have gone in my situation? I HAVE to agree with yours? Wow. That is horrific.

      • FIRECracker says

        Psychopath commenter who’s done nothing but bitch and accuses JLCollins of giving out people’s emails with zero evidence, calls someone else “insulting”. Hilarious.

        You need to be on a list so that other home owners don’t end up with a psycho neighbour like you.

        Yet, another point for renting. Wow, sure you don’t want to be the poster child for renting? You are doing a great job proving why a perfectly level-headed landlord would evict someone like you. I’m SO glad I rent so I can immediately move away if I end up with with a psycho neighbour like you.

        • Angela says

          No, the only thing you’ve done here is to insult me and I’m the psychopath? I don’t think so; not one time have I waged a personal insult toward anyone. I’ve never been evicted in my life. I thought you were so knowledgeable about renting? Asking a tenant to move because you’re going to sell is not the same as an eviction. I’m a “psycho” because I disagree with you about renting? I’m pretty sure you have shown the world who the real psycho is because you can’t debate respectfully.

          • Angela says

            P.S. J Collins actually DID have a portion of my email address posted. He removed it from his post after I complained so you have no idea what you’re talking about.

  89. Angela says

    Also, all of you “rent, don’t buy” people can do what you’re doing BECAUSE somebody owns the property!! If every single person in the United States believed they should never buy a home or invest in any sort of real estate, there would be nothing to rent. You’re only able to live this way BECAUSE someone else bought. So insulting me and calling me a psycho is a bit short sighted as you are only able to be renters because someone else invested in the property. It’s amazing that you can’t see that.

  90. Suzanne says

    I bought my house when I was young and it is paid for now. I lived in it for a few years until I could rent it out for more than my house payment & expenses. Then I traveled around. Now it is a nice source of income for me. Buying it was one of the best financial decisions I made at that age.

    • Angela says

      And if you are in need of a house now, you’ve got one that you can live in rent-free. I am not sure how that is not as good as renting for one’s entire life.

  91. Steve in Chi says

    Okay I really tried not wade in here but I couldn’t help myself. I think Jim’s right and Angela, you are just wrong. As an Attorney who evicts folks – I can tell you that you have no RIGHT to live somewhere until the day you decide not to. That’s the purpose of a lease which embodies a finite time for which you and the Owner have agreed to this arrangement. The fact that you (or anyone) rented 1 space from 1 owner for so long speaks to both the quality of your landlord and you being a quality tenant. However, YOU ARE RIGHT, she who owns gets to call the shots; you want to pay the ownership premium to be queen of your own domain so be it. Just remember that even the gov’t makes you pay taxes yearly to live somewhere (even if you own it free and clear).

    Now what you are clearly missing is the optional portion of ownership. I OWN MY HOUSE and I really like it. However, as Jim has said, its a lifestyle decision – not the best use of my money. I think it only makes sense to buy property if you can afford to buy it outright or can pay it off in less than 5 years and want to live there there with full ownership (no mortgage) for at least 5+ years. In my case, its makes a hell of a lot sense b/c Chicago is expensive and my yearly taxes and maintenance are less than it would cost me to rent an equivalent house. BUT THAT IS BECAUSE I OWN IT. It would not make sense to own it if I was paying 4% yearly interest on $300k+.

    I think your missing the whole point; you can’t have it both ways. Jim didn’t say everyone shouldn’t own, he said run the numbers. Hell, he owns a place in Michigan (I think) on a lake and has said it was a terrible financial (but emotionally fulfilling) purchase that he was happy to take on. But don’t mistake a lifestyle choice which has been espoused as traditional wisdom to be an absolute truth. For numerous people in numerous situations, renting is a superior lifestyle and economic choice.

    Lastly, YOU ARE IN CONTROL of your destiny. You chose to rent forever versus owning. The Landlord gave you a place to live and you paid rent – that’s what we lawyers like to call a “bargained for exchange.” Then good ole Landlord finally decided to cut you loose and now you’re salty. This could have been avoided had you bought your own house to start with or moved after a few years.

    Home ownership can be great or terrible, depends on your preferences. Here, it sounds like you made a decision and now regret it. I’m sorry – seriously – that sucks. But worry not, you can remedy this buying a place now. You can use a house as a terrible investment vehicle if you wish or choose (like I and many others have ) to ignore the opportunity costs of our $ – we want some roots. Either way, the choice is yours. Be empowered, not regretful.

    • Angela says

      No one said that the landlords were required to do ANYTHING different from what they did. But you’re going to try to convince me that renting for my entire life (60+ years) is BETTER than buying a home? Yes, people who buy a home DO have to pay interest and insurance and those sorts of things BUT people who are paying rent are ALSO paying those things!! Unless the landlord owns the property outright, the cost of rent has those costs tied up in it. To believe it doesn’t is ridiculous.

      And again, like I said: if a young couple begins to purchase a home at age 25, they can have that home paid off by age 55. 30 years of paying for their home. The next 30 years…up to age 85 (rough life expectancy), the couple owes NOTHING on the home except property taxes and maintenance. Had they been paying rent, they’d be paying those high monthly fees for 60 YEARS INSTEAD OF 30!! To believe that rent does NOT contain the cost of a mortgage and insurance and taxes is the FIRST mistake the “rent don’t own” crowd makes. The second mistake is not paying attention to “the numbers” when WE give them. You want to tell me how a young couple paying rent for 60 years is BETTER than that same couple paying for a mortgage for 30 and getting the next 30 years “off”???

      • Nick says

        To answer your questions as to why renters may be better off Angela is because only 37% of Americans live in their home for more than 10 years. The median length is just 6 years. With such excessive buying and selling costs, owning for such a short timeframe does not make much financial sense. On top of that, most people when they sell upgrade their house. They move up the ladder. So they end up no better off than when they started apart from the forced savings they have made on the mortgage. Meanwhile the renter is getting further and further ahead assuming they are good with their money.

        Renters can find properties at a lower cost than what the landlord pays in many areas. It is quite common for a landlord to rent at a loss, hoping for capital gains. Especially in high cost of living areas. A landlord may have paid off the mortgage and offering a friendly rate to the tenant. They may want the loss on their books for tax reasons. The supply for rentals may be higher than the demand. Some landlords don’t like to increase rents on long term tenants for convenience reasons. These reasons and more all contribute to the chance of finding rentals at good rates.

        Your scenario of living in the same house for 60 years is very rare. But of course it would be better owning in that situation. The problem is that significantly more than half of US citizens live in the same house for less than 10 years. I would imaging the crossover point for owning over renting would come somewhere between the 10 and 20 year mark.

        There are also many non financial reasons for and against owning and renting. There is no one size fits all. You are saying that ownership is better than renting. It isn’t. Neither is renting better than owning. It depends on EACH INDIVIDUAL PERSON’S SITUATION (I thought I would join in on your caps lock party).

        There is no clear winner here. Do the math. Owning is best for you then great. It isn’t best for everyone

        • Angela says

          And in those situations, Nick, renting would absolutely be better. I’m not against people renting if that’s what they choose to do. But lately, apparently there’s been a big push to tell people that “owning your home is terrible” and it’s much better to rent when that may not be the case for everyone. Young people who don’t plan to stay in one place for long SHOULD rent. It would be silly to buy. Our own nephew is in the army and he and his wife bought a house in Texas. A few years later, they were moved by the army. To me, it doesn’t make sense to purchase a home in those conditions. But in other cases, buying a house makes a ton of sense. Some couples “settle down” not too terribly far from their families (usually in the same area they grew up in) and that is where they remain. I know quite a few young couples like this in my old county. They buy homes early on and then when they reach middle age, years before retirement, they no longer have much in the way of housing expenses OR they buy a smaller house once the kids are grown and gone and can just pay for the new house outright and have the difference to put into the bank. That works out well.

          But yes, the choice is different for different people to be sure. I just don’t like to be told that one is good and the other is awful.

        • Daniel Born says

          OMFG. This guy. LOLOL> “It is quite common for a landlord to rent at a loss, hoping for capital gains. Especially in high cost of living areas. A landlord may have paid off the mortgage and offering a friendly rate to the tenant. They may want the loss on their books for tax reasons.”

          • Angela says

            No one said it DIDN’T happen, Nick but no way is this the norm. It’s the exception and you can’t base your entire argument on an exception.

          • Nick says

            Angela I was actually asking for Daniel for examples, not you. Him laughing is basically saying it doesn’t happen. I am saying it is common. In no way did I say it was the norm. I said it was “quite common”. I can easily find a rental property below market value in almost any region. All I am saying is it isn’t hard and happens a lot. I have had lived in a rental for 7 years before buying. We were good tenants and the landlord didn’t want to lose us so never increased rents. That is not an isolated case either.

            I’m beginning to think you aren’t reading my comments before speaking. My entire argument is not based on this. Read the whole 27 lines of my comment instead of isolating 8 lines and taking it out of context.

            Please stop twisting my words and if you are going to reply to me again please read all of what I am saying first. I think you have made your argument over and over again for not renting clear. As I said I am happy for you. My comments are just based around the fact that the decision can’t be made blindly. Renting can be cheaper than buying. Buying can be cheaper than renting. Don’t be blind

          • Steve in Chi says

            I had the same experience. I lived in hot real estate area before buying my house and our landlords never raised the rent on us or the other 2 tenants (it was 3 unit) b/c they loved having drama free tenants. They could have easily raised the rent 10% a year and been flooded with applications for new tenants if we’d left. When we wanted to break our lease a few months early to move they were helpful and told us as long as we would help them secure new tenants they would cut us loose early. It happens often.

          • Daniel Born says

            Yeah, those aren’t landlords or even business people. They’re just speculators or complete asshats. In my entire history of landlording and real estate investing in 4 different markets, I’ve never once encountered this rare bird you speak of. To say it’s common because you saw some guy on million dollar listing doing it is a hell of an overstatement. Landlording is a pain in the ass. We do it to make money. Just because you met one once who was lazy or a complete speculator doesn’t mean that it’s common. Far from it. Especially in high cost areas. And literally nobody invests to lose money. I don’t know what that’s called but it ain’t investing.

          • jlcollinsnh says

            Hey Dan…

            ..from Chautauqua, right? Good to see you back and joining in here!

            That said, I’m with Nick on this.

            Agreed they are not good at the RE business, but I’ve seen a ton of landlords engaging in what he describes. I’ve benefited as a renter from some who chose to keep my rent low because I was a great tenant for them.

            Back in the day when I was fooling around with RE investing I even bought properties from owners who had let the rents fall far below market rates. You’ve done a lot more of this than I have and I’d be surprised if you haven’t pick up some properties like this yourself.

            Very few I’ve seen are as on top of their RE business as you are. 🙂

            Anyway, are you and/or your brother going to join us in Greece this year? Gonna be a blast!

          • Daniel Born says

            Hey Jim. Yeah, it’s me. How are you!? We should skype some time. I don’t know if we’ll make Greece or not. I’m def going to meet up with the others I think at the reunion though. I have a wedding to pay for this year so I’m keeping the other expenses fairly low even though I capped wedding expenses at 10k much to the chagrin of my fiance.

            As to Nick’s point, yeah it happens but it’s pretty rare especially in pricier markets where the carrying costs balloon. Landlords WILL rent to quality, existing tenants at below market rates but they’re basically buying a good tenant from the market. They’re calculating the vacancy, turnover costs, and unknowns of a new tenant, and passing part of that savings on to longer term tenants. I do this b/c it doesn’t make sense to raise to market if you have someone good in there already; however, make no mistake, they’re still basically at market. I’ve just done the math correctly and they’ve benefited — the amount of money to me is the same if not more by giving them “lower than market” rent.

            Yeah, and for the other ones. I mean people buying to lose money aren’t investors. I don’t know what they area. They’re investors like bitcoin investors are investors. Maybe a little better but not much.

            Anyway, if as a renter, you can angle your way through a market and get below market rents, I mean great. That’s a great skill to have. But the idea that it’s common doesn’t work even on its face. By definition, a market is a bunch of buyers and sellers constantly negotiation supply and demand and that sets prices (the ole invisible hand as you know). If it were common for people to offer below market rents, the market price would be different and would reflect the lower rates being offered by these people who are supposedly all over the place. I mean if it’s common, they’d be making the market!

            So yeah, I call BS on that and just from my extensive experience I know it’s not that common and it’s becoming even less common as big companies move into the single family market and consolidate any and all undermarket or repositionable assets.

            I guess I’ve only lived in pretty hot markets, so I don’t know what happens in the middle of like Idaho or something, but a market is market is a market. The idea that it’s common is incorrect.

          • jlcollinsnh says

            Definitely we should Skype and catch up. I’ll shoot you a PM.

            As for Greece, last I checked there are only about six tickets left, so if you are going to come…

            As to the inefficiencies in rents, my guess is they are more common than you allow. You are really on top of your RE game and very likely hang out with other RE investors who are. But I remember it was so common we even had a term for properties unwary “investors” bought that couldn’t cover the costs with the market rents: Alligators. As in owning one will eat you alive. 🙂

          • Nick says

            Daniel the renter doesn’t care whether these landlords are speculators, business people or whatever. All they care about is the lower rent and it is easy to find these inefficiencies. Ive never seen million dollar listing. I live in real life, not TV. As for high cost of living areas such as San Francisco I could so easily find places to rent at lower than the cost of ownership.

            The first house I found on Zillow was 449 Chenery St, San Fransisco. It is valued at $2.4 million. The rent estimate is $9000 per month. The annual cash outlay on a $2.4 million property (20% down) is approximately $138,000. That is $11,500 a month to own vs $9000 a month to rent in HCOL San Fransisco. And that is only the first house I looked at. There will be thousands more examples. Not all landlords are able to rent out at market price. Maybe you hang out with landlords that buy very good properties with good rental demand and well done to you. The reality is many landlords are not as business focused as you may be and there are inefficiencies like this everywhere.

          • Daniel Born says

            Sorry Nick. You must’ve misunderstood. I at no point said it was cheaper to own than rent. It obviously depends on the market. And I obviously would advise people to rent if it’s cheaper than owning.

            There are inefficiencies in most markets but they aren’t “common.” That’s why they’re called inefficiencies.

          • Nick says

            Your first comment of “OMFG. This guy. Lolol.” was in response to my comment that you can easily find place to rent cheaper than owning so yes you did say it was always cheaper to own than rent.

            “Ineffeciencies” and “common” do not have to be opposites. Something can be both common and inefficient. For example, I commonly see people wasting money even though it is inefficient. I commonly see people running in a inefficient style. Common doesn’t necesarily have o mean the majority either. Something common could be as low as 5%. If there are 50 million rentals in America, 2.5 million (5%) rented at lower than market rates I would consider common. 2.5 million is no small number.

            We have obviously had different life experiences where you interact with shrewd landlords that buy good properties, whereas I have interacted with many landlords renting below market rate and tenants who are living at below market rate.

          • Daniel Born says

            OK point take regarding inefficiency and common. But no, I never said it was cheaper to own than rent. I reacted to your specific comments that I found laughable. And they still really are. If these lower rents were common, they would move the markets towards those rents. They aren’t common. They’re outliers.

            You may also be construing properties as “below market” that aren’t but there’s no way of telling. For instance if something is “below market” here, you’d have a line around the corner — that’s how rare it is. Same thing in New York and Columbus, Ohio.

            Or, maybe the market is actually lower than asking prices for rent in the market you’re in or it’s shifting lower and the landlords aren’t reacting and you’re finding one that is actually at market. Who knows. But the argument you’ve made doesn’t work with even a basic understanding of what a market is.

          • Nick says

            Regardless of how you interpret common, I mentioned you can find rents at lower than market easily. My advice still stands. I think a lot more landlords don’t do the math than you give them credit for. If someone chooses to ignore this fact in their buy vs rent calculation then so be it. I just think it is wise to look into this in your area before making the decision that is all.

          • Angela says

            JCollins: If you were talking about a boat, I’d agree with you. A boat is a hole in the water that you throw money into. A house is different (but can be bad if one is not careful) but boats are almost ALWAYS terrible investments. I don’t know what they are on the “top end” as I have never owned a yacht. But I suspect those are similar.

  92. Angela says

    P.S. I’m not “salty” at the landlord. But the idea that a renter CAN be asked to move out (and given exactly 20 days to do so) can happen at ANY POINT IN TIME if one chooses the “rent not own” route. THAT is my point.

    So far, I’ve been given all sorts of lectures about how the landlord had the right to do what they did and how we got what we signed up for and blah, blah, blah. Did I say ANYTHING about that? No, I did not. My point is that if you rent, your life can be turned UPSIDE DOWN at the whim of someone else at ANY POINT IN TIME so you’d better plan for it and have half your stuff packed up every second of every day.

    • Steve in Chi says

      We first must deal with a fallacy in your argument about being thrown out on a whim. It sounds like you live in a state which I believe has a 20-day notice akin to a 30-day notice here in Illinois. To the best of my knowledge (again, I only practice in Illinois) those notices terminate month-to-month tenancies which means typically, you had a lease, let it lapse and then it converted to month-to-month. A tenant can alleviate the whimsical and periodic nature of tenancy by having a lease with a defined lease term. Then your landlord (at least in Illinois) can’t just decide she’s done with you and give a 30-day termination notice.

      Now to your first point; I own my house. I love my house generally. I have paid to have all kinds of work done to it but I think it’s saved me some dough cause rents in Chicago always are going up. You’re response to Nick seems to show movement in your position which is good; we are all in agreement that home ownership is not for everyone. What I think you are missing is that as a purely economic choice, home ownership isn’t a great investment. I’ll show you using myself…..

      Bought my house in 2011 in cash for $324k. Had I invested that money in VTSAX or VBIAX I’d have stock valued now @ $827k or $626k respectively. My house now probably has a market value of (generously) $540k. If I’d continued to rent my old place without any rent increases ($1,600 monthly), my rental expense would have been $134.4k. Thus the difference in owning vs. renting over this 7 year period is $692.6 or -$48k (that’s if I put the money in VBIAX). So buying has saved me money cause I would have gone the VBIAX route. However, lets look at property taxes, insurance and maintenance (“Carrying Costs”). We’ve been lucky, maintenance on our place has been about $5k a year (which includes some infrastructural improvements) so our annual Carrying Cost is about $12k a year.

      Now take the Carrying Cost out and yet again, renting would have saved us more money cause now we are in the hole by $36k. But guess what, I wanted to buy a house cause my house is WAY nicer than the one I was renting and I don’t have a landlord anymore. It’s a win for me.

      But lets do this your way… Take those same base numbers and run them back to 2001 (17 years – when VTSAX started) – if you invested the $324k you’d have $1.062 million or $946k (in VBIAX). For the same period you’d have a $326.4k in rent expense vs. a $528k home ownership expense. Also, compared to your market return on your $324k-house cost your still looking at having a minimum an extra $620k in your pocket after deducting your rent expense if you had just rented. That is versus whatever your home would be worth after adding in appreciation and then reducing it by the Carrying Costs and then paying the 5% sales commission. Thus renting as an economic decision wins hands down; especially if you’d have to take a mortgage. If you’d payed 20% down of the $324k on a 30 year fixed @ 4% your total home purchase cost jumps to $445.5k.

      You would have the asset of a house which you could sell but you would have also had all those expenses along the way. So for the same marginal utility (of living some place) home ownership would have likely have just been a push. Zero sum gain but yes, you wouldn’t have to move but you wouldn’t have that pesky $620k to spend either (which you could of course spend on buying a house if you so chose).

      Renting long term makes a hell of a lot of sense. Home ownership is a lifestyle choice and not necessarily the best use of your money. Guess what, neither is dog ownership but ask anyone who has a dog and they will tell you that they don’t care – they love having a dog. The money be damned. I know from experience – I own a dog and a house. 🙂

      So did you buy a place after being forced to move or are you still renting?

      • Angela says

        Did you look at my old county? Grays Harbor County, Washington State. Take a look; MOST people don’t lease in that county. Just about ALL the rents are month-to-month. No, we didn’t let ANYTHING lapse. I find it amazing that this crowd says “rent, don’t buy” and then when someone gives you a reason why that can be bad, you come up with all sorts of things I supposedly did wrong. No, we didn’t do ANYTHING wrong. We had a monthly rent, paid that rent for 12 years and paid just about the entire value of that house. Actually we paid MORE than the value of that house for part of the time we were there.

        Many states have the 20 days to move law. Not only do you have to be GONE in 20 days, but you have to find another house, pay whatever required expenses, and THEN move. All in less than three weeks. Just because your state is longer doesn’t mean everyone’s is. Most renters have that law hanging over their heads if they choose to rent.

        Yes, we did buy now. But that’s not the point at all. The point is that there are some HUGE DISADVANTAGES to you if you choose to rent for your entire life.

          • Angela says

            It isn’t only about the math; it’s also about the security of having a place to live like I pointed out. And I did show the math: A young couple of 25 can have their 30-year mortgage paid off by age 55. The next 30 years of their life, they pay NO mortgage and NO rent. You’re just here to insult so this will be my last response to you. Go ahead and insult away. J Collins must think that’s okay to do. Niiiiiiiiiice.

        • Angela says

          P.S. If everybody gets a lease as opposed to month-to-month then you’re NOT free to travel and do whatever, are you? Because you’d have to break your lease every time you wanted to go. So that’s not an option, either.

          • FIRECracker says

            “A young couple of 25 can have their 30-year mortgage paid off by age 55. The next 30 years of their life, they pay NO mortgage and NO rent.”

            That is NOT math. Apparently, in the magical world you invented, property taxes, maintenance, and insurance don’t exist. Refer to Steve’s comment above. Ask him for a math lesson.

          • Daniel Born says

            Yeah but FIRECracker, you’re missing the point. You should never really pay off your mortgage unless the rates are above 6%. When I’m 90, I will be taking out 30 year mortgages if the banks are handing me tax-advantaged money at 5%.

        • Steve in Chi says

          Did you even read my post? Whether it’s a 20-day or 30-day notice doesn’t matter – if you’d had a lease with a defined lease term then you wouldn’t have had to move based on the termination of month-to-month tenancy. Did you ever think to ask your Landlord for a lease? Apparently not, because whether it was common local custom or not it just makes good sense to protect yourself. But guess what, you didn’t and so you had to move. Welcome to the wonderful land of a nation of laws… Also, it is axiomatic that if you move out of your home that you will have to live somewhere else or just be homeless.

          There is nothing intrinsically wrong with owning or renting. However, what is wrong is the ridiculousness of your premise which is: “Jim – How could you hold this well thought-out opinion which you say people should consider and decide if the math and other trade offs work for them?” He did it to help folks make informed decisions so they wouldn’t find themselves in situations like you apparently did.

          Since you like to keep overlooking this point, I’ll make it one last time: I own my house. I decided I didn’t like renting so I bought something. You could have done the same but you were complacent and comfortable so you didn’t. I said in my first post that you must have been a good tenant and they must have been good landlords but for Pete’s sake stop playing the victim.

          It does make good economic sense to rent instead of own sometimes regardless of whether you want to admit it or not (you did already admit it with your military example). Sometimes, owning is a better option. But stop harping on folks who are trying to tell the masses not to be sheepeople and to make well thought out decisions on how they spend their money. No harm no foul but I think you need to relax a bit and forgive yourself for “wasting” all those rental dollars when you should have bought a place because you never wanted to have to move against your own wishes. Good luck and God Bless.

          • FIRECracker says

            Daniel, if you end up getting a mortgage for 30-years from a bank at age 90, please let me know the name of the bank, so I can short them, because they do not know how mortgages work. 🙂 If you can find banks that stupid, I would totally take advantage of them. Hear! Hear!

          • Daniel Born says

            Every single bank in the country will lend to you without an upper age limit if you have the income and equity position to support the loan. It’s literally illegal for them to discriminate against you based on your age. No bank expects you to hold a mortgage for 30 years. On average people cycle through every 5-6 years depending on market conditions. With rates likely moving up, that might stretch out a bit, but it’s pretty rare to hold a mortgage to term.

          • Angela says

            No one is “playing the victim”. For the tenth time, if you rent you can be asked to move by the landlord and you have nothing to say about it. That was my point and that was a real-life example of why renting might not be the best choice for everyone. I don’t see anyone calling J Collins or any of the other “rent is better than buying” people victims. I am being insulted left and right on this blog because you don’t agree with me. That is immature; that is what you would expect from a grade school child. If you’re an adult, perhaps you should start behaving like an adult.

            Not every “rental agreement” is a lease. In my old county, leases were difficult if not impossible to get. And the types of homes available for “lease” were not the type my family needed. Most people rent month-to-month there. So because people in Chicago can lease, I have to, even though leases were not available to me? Again, if you lease then you’re NOT actually “free” to travel the world or whatever. You would have to break your lease to do that.

            All of the “interest, mortgage, insurance” expenses ARE wrapped up in your rent payment. To believe they’re not is foolish. And you don’t get the tax credit for any of that stuff.

  93. Daniel Born says

    You need to learn how to use a mortgage man. You wasted a ton of cash by sticking it all in that house. Even in your example, had you put 20% down and invested the rest, you would’ve come with like a 332% ROIC in the house and then had all the gains from the market on the rest, plus the tax write off from interest. It was WAY better for you to buy. You just did it wrong.

    The real fallacy here is acting like interest expense matters. If you weren’t paying that interest, you would have been paying rent in close to that amount which is a complete sunk cost where as interest is obviously tax advantaged and you’re paying down principal as well.

    It’s this simple guys/gals. Do your homework on real estate and home buying. Approach it like an investor. If you’re in a decent market with good demos/growth and you’re going to stay there for more than 4 years, and you can buy for about what you’d rent for, you’re WAY better off buying generally. It’s not even that close.

    The only thing you should be calculating is what return you would’ve got on the money you stuck into the house. All this other stuff is just theoretical crap. At the end of the day, rent goes into the toilet. Your PITI expenses, you get to keep P, part of I, and then you throw T and I in the toilet.

    Nobody is ever going to offer you another investment where you can borrow against it at that leverage level, at that low of an interest rate, and then also let you enjoy a bunch of tax breaks for good measure.

    I’ve made millions doing it and I started with 15k in 2002 and then retired at 35. I’m 42 now. And I didn’t have to live like Mr. Money Mustache while I did it. I lived well and I never made more than $50k / year in salary. So, I could’ve done that or I could’ve rented. Hmmmm… Man, wish I would’ve traded those millions to have rented all those years.

    • Jacob Bauer says

      Finally someone who gets it. Leverage here is what makes the house way better. If the house appreciates at inflation, you are almost always better buying and using that leverage to your benefit.

  94. Angela says

    So we’ve got a group of people who say:

    1. They can move walls, paint, do whatever they want and the landlord is just fine with it, and

    2. They can find rent below market rates.

    All of these things are the EXCEPTION, not the rule!! You may be able to find a landlord or two in your area who will rent at a low rate and who will let you do whatever you want but MOST PEOPLE cannot do those things. Like Daniel pointed out, if finding rent rates below market value was common, that would be the new “market value” and would drive the prices down EVERYWHERE. The fact that they don’t means it’s the EXCEPTION. So is the landlord who lets you do whatever you want to his or her house. Those are also the exception.

    You cannot “prove your point” by pointing out exceptions. If you are going to convince the general public that “renting is better” you are going to have to go with how things actually are; not the few exceptions you might be able to find.

    • Nick says

      Angela that’s the whole point you seem to keep missing over and over and over again! The decision to buy or rent is made up of a whole bunch of exceptions specific to one’s circumstances. You are way over complicating this. Just do the maths for your situation. Don’t worry about anyone else!

      The answer to your equation will be different to the answer to my equation which will be different to the answer to Jim’s equation which will be different to Firecrackers situation which will different to Sally, Mary, Bill, Ben, and whoever else’s situation. I don’t know why you are so upset about the fact that buying is not always the right answer to someone’s equation. It is what it is

      • Angela says

        I already said all of that; did you not see my post about our nephew who is in the army who bought a house and then was moved by the army? In his situation, buying is stupid. But you cannot say that we’re all talking about the exceptions to the rule when we are addressing the ENTIRE POINT that one’s house is a terrible investment. The blog post doesn’t say: Buying a house might not be for you at this point in your life. It says “Your house is a terrible investment”. Add to that all of James Altucher’s stuff about how awful it is to buy a house and then you’ll understand why some of us take exception to this entire idea.

        Once again, here it is:

        The Absolute Insanity of Not Buying a Home When You’re Young


  95. Angela says

    And once again, if you’re “highly mobile because of your lifestyle” then you CANNOT LEASE a place to live, either. Because you’d have to break your lease in order to move. So those who have been giving me crap because my previous house wasn’t “leased” cannot lease either or your idea of being “highly mobile” goes right out the window!!!

    • Jake says

      You actually can get out of leases. Most landlords will let you out if you pay a month of rent for penalty. Sure beats the transaction costs that come with selling a house.

      • Angela says

        Yeah, I just LOVE how everyone knows what “most landlords” will do. “Most landlords” will let you break your lease, “most landlords” are too stupid or too nice (take your pick) to put their housing costs into your rent, “most landlords” rent BELOW what the markets will support, blah, blah, blah. It’s all just blather to try to make some crazy point. I said that people who are highly mobile would be foolish to buy; our own niece and nephew did that while he was in the army and I never did understand that. But “your house is a terrible investment”?? I don’t THINK so.

  96. Nick says

    Did you actually read this article? Why your house is a terrible investment is obviously clickbait to get people reading it. It obviously worked! But if you actually read the article you will find out how and why. Just like Jim’s article, the link to the article you have just sent is also clickbait – the absolute insanity of not buying a home. I thank Jim Collins and James Altucher for publishing these kinds of articles to add a bit of balance to the debate. I should also mention Millenial Revolution and Paula Pant. Because before these contrarian views it was always home ownership is 100% best all the time. These gents are here to tell us that it is not always the best financial decision one can make which I think is refreshing. It allows us to pause and think and run the numbers before making the biggest financial decision of our lives. It is not something to jump straight into because everyone and their uncle said so. That’s it from me – I have said all I wanted to say on this several times over.

    Thanks Jim for opening people’s minds a bit more on this issue and I really enjoy your storytelling writing style. Long time reader.

    • Angela says

      Did you actually read what I posted? No, you didn’t. Because if you did, you’d have seen:

      1. If you lease, you cannot do the “total mobility” thing as you’d have to break your lease to do that,

      2. If a young couple buys a home at age 25, they will be 55 when their house is paid for. If their life expectancy is 85 years, they get the next 30 years rent and mortgage free or can sell their house for something that is smaller and costs less and end up with money in the bank. How is that worse than renting for 60 years?

      3. I said several times that there are some people who buying a home is not the best thing for at this point in their lives. People in the military or people whose employment moves them frequently would be among these people.

      But you can’t convince me that paying rent for 60 years is BETTER than paying a mortgage for 30. And yes, renters ARE paying interest, insurance, and upkeep on the property: all of those things are INCLUDED in the rent. To think they’re not is foolishness.

      • afox says

        you’re “facts” are a little wrong. the problem is that people dont live in houses for 60 years. they dont live in them for 30 years, they live in them for 7-10 years on average. Included in the average are the large number that very wisely turn their primary residence into a rental and buy a new primary residence, those dont count as moving. The transaction fees on this buy and sell are enormous and have a huge affect of the equation. You cant blame people for not living in houses for 30 years or more, lives change. People leave jobs for new ones in different areas, get together and start families. They have changing needs and priorities. Is it really reasonable for a young couple to buy the house they need in their 50’s with a few kids in their 20’s? Who can afford to do that? A little common sense here goes a long way…

        • Angela says

          I addressed those very points in the post you responded to. Couples in the military or who don’t have stable employment of course should not buy houses. And I did not say that 20 year olds should buy the house they need in their 50s. Couples with children need larger homes than couples in their 50s; by the time the house is paid off they can DOWNSIZE and get the difference in price as cash in the bank. Win-win. If this whole thing is based on “people move around a lot” they should have said that. And again, if you’re leasing you can’t just up and go whenever you want as you would have to break the lease to do that.

          • afox says

            Depends on what your definition of “moving around a lot” is I guess. On average americans only own homes for 7 years. Humans “move around a lot”. “Downsizing” by buying and selling real estate is very expensive (just the transaction fees). Also, your point about tenant pays all costs are wrong. Most landlords are idiots and dont account for their expenses. Many are renting places for less than their expenses, because they are stupid and full of hope that one day the house will be worth millions 🙂

          • Angela says

            “Most landlords are idiots”? So a sweeping generalization of landlords is how you’re going to “prove your point”? That’s just plain ridiculous. Some landlords might be idiots but “most”? That’s just plain stupid. Quite a few people use rentals as a financial investment; I doubt those types of people are “idiots” and calling them that is showing ignorance.

            If the idea is that some people move around too often to buy a house, THEY SHOULD HAVE SAID THAT. This blog post is “Why your house is a terrible investment” implying that buying a house is terrible for EVERYBODY. When in actuality, buying a house is actually a GOOD investment for those who are able to do it. We all understand that not everyone stays put for decades. But using that to prove a point about what everybody should do is idiocy.

          • Angela says

            P.S. I never said that “downsizing by buying and selling real estate”. I SAID that a couple in their 20s can buy a house for their family. By the time they’re in their 50s, the house is PAID IN FULL. If the couple decides that’s “too much house” for them in their 50s, they can downsize and have another “paid off” house as well as money in the bank. If you aren’t actually reading what people are saying, you should refrain from responding.

  97. John S says


    The solution, in my case, is obvious.

    Gain as large a mortgage as possible towards purchasing your only property. Once you have made the purchase, rent the property out.

    Put the difference between the rental return and the mortgage costs, plus your salary, towards renting a smaller, less expensive place of your own.

    The tenant pays the mortgage on the more-expensive property, which includes a small profit margin.

    You rent a smaller place, offsetting your rental income against the rental you are paying.

    You have a large hedge against inflation (your mortgage), can move anywhere at any time (you’re renting), and a secondary source of income (your tenant), subsidising your rental costs.

    Give it 30 years – the tenant has paid your mortgage off (on the expensive property), you’ve paid your landlord’s mortgage (on a less expensive property), with cash towards your own rental costs each month.

    What’s not to love?

    Finally, remember to put all the spare money that you would have spent on paying down your large mortgage from your salary into stocks and shares.

    You are highly geared, and invested in a stock market with an annualised historical return approximately >5%, whilst borrowing money against your inflation-hedge at marginal mortgage borrowing rates of circa 2% in today’s market.

    Criticism welcome.

    • Steve says

      I like it, buttttttttt….you are
      a) assuming it will be rented 100% of the time
      b) not factoring cost of repairs and maintenance over 30 years
      c) assuming you can rent it for a significant margin over your mortgage, insurance, taxes, and other cash expenses
      d) both a & c are especially difficult if you are approved for an expensive house and therefore expensive rental
      e) piggybacking on b, much of this success also depends on the quality of the tenant
      f) you are assuming the property value will appreciate. Not a bad bet, but with a huge mortgage this is a factor.
      This is basically pure real estate speculation, since you are only buying as an investment. You are using opm (other people’s money), so that’s nice, but its still speculation and therefore has risk. And significant risk.

      I would think the profit is in the buy. Meaning you would need to get a great deal on a great house in a great neighborhood (not only now, but for the next 30 years too). Its still very interesting and creative though.

  98. Alan Hertherington says

    There’s a lot of pluses to owning your own home that haven’t been mentioned in these comments as far as I can see.

    Let’s say you find a great rental property. Landlord is a reasonable guy and gives it to you for market rent. Nice plot of land. Nice neighbours. Close to your work. Great local state school for your kids. Your wife loves the gardens. Life is going great.

    All of a sudden your landlord hands you a Section 21 Notice to Quit under the Assured Shorthold Tenancy agreement you signed. You have 2 months to vacate the premises. Legally!

    Now you’ve realised that the years you’ve spent living in your dream house have ended. And you’ve literally got 8 weeks to repair your world being turned upside down.

    -Pack up all your belongings
    -Find a storage unit to put stuff in.
    -Hire a (reputable) moving company
    -Insure all your worldy possessions whilst they are being transported/stored
    -Ring round all the lettings agents in your town to find out what they’ve got.
    -Tell work that you might have a longer commute.
    -Hope that the rental property you buy keeps your kids in the same school catchement area they were before.

    etc etc.

    Now does renting still seem as attractive as buying?

    For me buying does 3 things that renting can’t

    1) I am saving money into an asset. MY asset.
    2) I am under no danger of being turfed out on the whim of a landlord in 8 weeks.
    3) Once my kids have moved out and I’m retired, I can downsize to a smaller unit and be safe in the knowledge that historically house prices in the UK have doubled every 7 years and so any profits I’ve made can be be transferred into my pension pot. There’s no Capital Gains Tax on my primary residence either.

    Lots of plus sides, which I haven’t seen mentioned in any of the comments.

    I suspect a lot of the negative comments about home-ownership are coming from members of Generation Rent who are attempting to make themselves feel better about never owning. I feel sorry for them for the huge obstacles in their way of trying to get on the property ladder. But renting is NOT the only way and there are definitely plus sides to owning your own castle.

    • Angela says

      That’s pretty much EXACTLY what I have been saying, Alan and that exact thing happened to me and my husband in 2016. In the 12 1/2 years we lived in the rental, we paid almost the entire value of the house but when the landlord said to go, we had to go and had nothing to show for it. I don’t see that as a positive. A lot of couples rent for the very reason we rented: they are not in a position yet to qualify for a good enough loan. Those who can, I would recommend buying instead of renting for the very reasons you pointed out.

      Not only that but if a young couple who CAN qualify purchases a home in their 20s for their family, that home will be paid for when they are in their 50s and if they want to downsize they can sell and buy something smaller and have money in the bank. Win-win. Not sure how renting is better.

  99. Larry B. says

    Ok, in the interest of full disclosure, I did not read all of the comments so this may have already been stated. One extremely simplistic way of looking at it is this; all of the factors that are given in the article are legitimate, and by extension, all of them are factored into the cost of renting. Landlords are not putting a cost on each factor and deriving a rent amount from that, but they are turning a profit over long periods of time so all the downsides included in ownership are covered and they are making a margin on top of that. Obviously lifestyle choices are part of the equation, but from an investment standpoint, the fact that renting is profitable seems to be an indication, to a degree, that owning your primary residence is similarly profitable.
    Btw, just found you recently and love your work, the simplicity of the investment advice certainly reduces the anxiety level for us newbies to the field. Oh wait, I just admitted I don’t know squat, which invalidates my viewpoint above. Oh well.

  100. Torbjørn Enger says

    My thoughts on the numbers behind this that the rent is often higher than the mortgage, so interestingly, leaving repair costs out, you will have more free money every month to put into stocks if you own than if you rent. And when time has past and you need some repair ( I am not talking about stupid people ripping the kitchen out every 5-10 years because of fashion changes, but real repairs) you can borrow against the house to make it an monthly payment as well. I my country Norway, my interest rate would be like 3,5% for a 10 years locked rate ( I have mine at 1,9% variable interest but for calculation always use at least 10 years interest). Of those 3,5% I get 24% back on tax, that narrows the interest down to 2,66%. The central bank has set the goal of inflation to be 2-2,5% forwards, so that gets me down to 0,66% interest at maximum……….And this is the fixed interest rates……. I pay around 250$ a month for all the services of water and garbage and so. The interest you pay is fixed to the price of the house when you bought it, and will only rise whenever you borrow towards repairs. I bought for around 300000$ have repaired/upgraded a little for around 100000$ during the period, so lets say my total price is around 400000$.( the value is another story but it hovers maybe at 680000$ or so) For this I would have to pay around 470$ a month with the effect of inflation and tax rewards ( if we use todays value for calculation instead 800$ a month). I cannot rent anything for that around here, only one room in a basement. I would have to pay 1800-2500$ a month to rent a similar house around here……So I effectively have up to 2000$ a month more to put into stocks every month……….Ok some of it has to go to the bank as a downpayment, but that does not cost me anything. It is saving, if only with a terrible interest rate. The inflation part since housing prices on average equal out inflation, I will have available as further possible loans if I like. Like today. I have two houses, my own and one rental. If I sold all my equity I would be paid down on both, the car and have 120000$ in spare, but I have not paid down. Ofcourse I have a loan, and it is placed in stocks. Even if the stocks gave me just the same rate as the interest on the mortgage, I would at least have the tax part to my favor since the stocks is in an account which will not be taxed before I sell AND take all the money out on my cash account ( which will be never, do I need cash I will instead continue to raise my loan “agains” these stocks but through my house). I agree with the high rates for selling, stuck geographically and so, but I raise kids now. In my garden they can run around freely from a low age, that has big value. I cannot let them out in town while I cook food at an age of 3 years old. Kids does not normally want to move either, so we will stay put here for at least 18 years :-). But this is only my view on it :-).

  101. Bernard Paulsen says

    My wife and I live in the Ojai Valley, which is a very nice part of California. We couldn’t live anywhere else, as my business income depends on being right here (don’t ask).

    We’ve rented a cute Midtown home in Ventura. Built in 1930, only 930 square feet, but it was our part of paradise. Landlords NEVER wanted to sell. We made it our own, improved the home, planted a garden, made it beautiful.
    After 13-1/2 years, the landlords decided to sell, as they needed the money. We got 2 months to vacate.

    Looked everywhere for another place to live. We were desperate, debt free, with tens of thousands in saving, and both had a 800+ Fico score. After 6 weeks of searching desperately, we got super lucky in finding another house, 15 miles out of town, competing against about 15 other parties who would have offered their first-born to get it. Boy, were we lucky!

    Landlords never wanted to sell.
    We made it our own, did tons of landscaping, planted a garden . . . boy did we make that beautiful!
    Then the landlords decided to sell, as they had moved up north. Gave us 8 weeks to vacate. Problem was, there were NO rentals anhwhere. So we decided to buy a $555,000 starter home, and our mortgage $3,176.19 (all in) is about equal what we’d have to pay in renting such a place.

    Best decision we ever made. When we retire, we’ll cash out, and move to another more affordable area, most likely Asheville, NC, buy a $250K house there outright, and invest the rest.

    Now that you know our story, let me rephrase the question:

    1) Is it better to rent for $2,200 than to pay a $3,200 mortgage?
    2) Is it better to rent for $3,200 than to pay a $3,200 mortgage?
    3) Is it better to rent for $3,500 than to pay a $3,200 mortgage?

    I’d say, renting vs. buying really depends on the circumstances at hand.

    • Angela says

      You had the exact same situation as my husband and I had. We had two months to vacate. Rentals were few and far between and you had to race to be the first to respond. Like I pointed out, you now have something you can later sell and buy a house outright with no “outflow” coming from your pocket. Had you rented forever, you would still be paying a high monthly fee until you die. Is that what people REALLY want? I understand that people who don’t stay in one place for long may want to rent for now. But I don’t understand telling everybody not to buy a home.

  102. Tahoebum says

    I would agree that renting is financially wiser for many, especially if you are young and don’t have children. The worst investment we ever made was buying a lakefront condo in Lake Tahoe in 2008 for $800k. We sold it this year for $840k. For the number of nights we slept there, we could have rented for $1,500 per night and come out money ahead. On the other hand, we bought an 1930 home in Los Gatos a few years ago, spent only $15k on fixing it up, and sold it for a $450k net profit earlier this year.

  103. Molly O'Neill says

    I agree with everything but stating that owning a home can never be a good investment. Where I live in SW Colorado, housing prices double every 10 years and I have made as much income selling a house here as a wage earner for five years. It is also easy to buy and sell real estate here and can be done via a title company and a small fee to get onto the MLS without using an agent. Exorbitant rent prices here pay someone else’s mortgage instead.

  104. blogging says

    I would agree that renting is financially wiser for many but stating that owning a home can never be a good investment. Had you rented forever, you would still be paying a high monthly fee until you die.

  105. Meredith karter says

    I would agree that renting is financially wiser for many, especially if you are young and don’t have children. The worst investment we ever made was buying a lakefront condo in Lake Tahoe in 2008 for $800k. We sold it this year for $840k. For the number of nights we slept there, we could have rented for $1,500 per night and come out money ahead. On the other hand, we bought an 1930 home in Los Gatos a few years ago, spent only $15k on fixing it up, and sold it for a $450k net profit earlier this year.

  106. simplefit@icloud.com says

    As a Single Woman Owning? Has been a noose around my neck-When my parents were alive? My mom was thrilled for me to own-however when she died? (both parents actually) Did I want to move to Boulder CO-but with such a substantial financial investment-At the time my only real one? And little understanding of things like ‘index funds’-only understanding of the Risk of Stocks? Well-I felt trapped-I wish anyone-would have spoken to the rewards of ‘renting’ especially when you are single-The ongoing expense-never stops-I tell any newly single woman-Do Not buy-without considering…The costs of ‘owning’…I would not do it-however NOW??? Finding a place, I feel safe? Once again as a single woman in an age where everyone can know All about you???-well-I was Never a SUPER independent sort-and there is Precious little discussion out there for the single women who could avoid more than a debt to a bank-supporting a ‘We’ was a risk no one should be schooled to take-I am learning that NOW at 59-…Invest in Vanguard-not a house a man -as your advice here? Trust NO FINANCIAL ADVISOR??? Trust No Marriage to take care of you- …Well, I should qualify thei-This Blog is about the FREEDOM to not Have to ‘work for money’ and thus be able to share your gifts with the world freely-which truly brings joy-Most of the horrific stories of marriage? Are similar-people doing and being part of a barter system-When divorce occurs? Money is discussed because sweat equity cannot be-This is not a ‘Simple Problem’ If I was a young woman starting today?… I do see progress-however for those from times with less ‘support’ its a challenging starting place-I am still struggling to learn the whole internet thing-let alone-become financially savvy- I do not feel safe moving alone to CO-if I were a single man…? Not a single woman with a blonde ponytail ..maybe.

    • Angela says

      While I do not believe that “owning a home is a terrible investment” for all of the reasons I stated, a single woman might be better off renting for a time. For one thing, when you own a property, your information is publicly available on the internet. Single women living alone may not want the world to be able to look them up. (I’ve been watching all those “true scary story” videos on YouTube. There are some scary people out there, for sure.) A single woman may later marry or she may decide to change jobs and move. If she owns a home, she isn’t as free to leave the area as she would be if she rented. I do believe that renting is good for some types of people but a “sweeping generalization” that “owning a home is a terrible investment” is also not right for many reasons.

      • Kristine says

        I’ve lived alone for years in houses I’ve bought so far no boogy man has arrived at my house, I’m 57 by the way. Maybe cut out the tv and you’ll live happier and healthier without the fearmongers of news and Crime television. Just a thought.

  107. Brian Kehm says

    I’ve avoided real estate investing due to added hassle… management fees, bad tenants, taxes, etc. Rising rates is also an interesting point. It has been a nice ride for many investors as rates have fallen for 30 years. I’ll stick to a hands-free 7%+ annually in the stock market long-term.

  108. Robert Bell says

    This argument doesn’t stack up in the UK where mortgages are cheaper than rent. Without even taking into consideration of house prices. The lower cost of the monthly mortgage payment could be invested and would cover any cost of maintaining the property over a person’s lifetime. Once you’re paid no more monthly payments rent continues forever.

    • Mike says

      Yes but don’t forget that owning a house comes with the other payments. A house is a ongoing drain your finances not forgetting the other bills especially if you take a mortgage out for 25 years. I do think a house is not an investment whether you like in the Uk or USA. In my humble opinion an investment should make returns but a house doesn’t

      • Chris says

        I disagree. The “return” of owning a house is free rent. If you disagree, then I’ll argue whatever you have invested that covers your rent is not giving you a “return” either.

  109. Charlie says

    As has been mentioned; I’m not sure this argument holds so strong in the UK. Speaking from experience of owning London property: I have 1 flat that has increased by ~120% in 10 years and another by ~60% in 6 years. The positives of owning property as I see them are:
    > Leverage; banks lend on property but not stocks (this is a huge benefit).
    > With interest rates so low it’s cheaper than renting.
    > You can earn £7,500 in the UK tax-free from renting a spare room(s).
    > You can maximise rental returns using AirBnB.
    > Capital gains from your primary residence (the property you live in) are tax-free.

    And here are the negatives when looking at property as an investment:
    > Hassle; it’s not passive income when you rent out a property.
    > When I factor in all costs my rate of return for renting the flat I live in is 3.5%. This isn’t bad but not as good as 4%+ (that’s often advocated from holding an index fund).

    After decent property gains, what I am considering though is selling and investing in an index fund. I’d be interested to hear from anyone that has done similar and whether you invested 1 lump sum into a fund or averaged in over a few years.

  110. Audrey says

    This was an interesting and entertaining read, so thanks for that! I do have to say that I still really like to have bought my own house. I think it really depends on your character and personal wishes if a house is a good choice or not. Personally, I like to have my solid base and enjoy the little things in life around the place I know so well. I’m not a traveller or an adventurer, so having my own home is something I really value.

    And also, I really like to get/keep my fixed monthly costs low. At a certain point in time, I will be able to have zero costs on living, apart from some taxes. Considering the renting prices – and the idea that you’re depending on a landlord who can raise the prices whenever he likes too – this really is the way to go for me.

    • Giancarlo Capodanno says

      Hi Audrey, I am curious as to what you mean by soon you will have zero living costs? Are you referring to “costs” in terms of only mtg and interest payments. What about the costs of running a home in utilities and maintenance?

  111. Jim Wire says

    Not sure a house is a great “investment” but it is a great way to preserve wealth and you’re going to be spending money to live somewhere. You can also take on a few sweat equity projects around the house to improve it’s value while you are living there. Cool article and thinking outside the box.

  112. Angela says

    I suspect she means she will no longer have a mortgage payment. She’s not renting so she’ll also not have rent. Obviously, everyone has to pay a bit for taxes and maintenance on their property but removing a large monthly payment is a pretty good motivation for some people to get their houses paid off and not to run around for the rest of their lives, paying large amounts of money every month until they die.

  113. J Ludwig says

    Owning a home is foundational to long term stability and wealth-building. If you’re looking at just the next 10 years of your life, particularly if you’re single and want no children, then yeah, a house is a bad investment… but if that isn’t you then there are some major benefits to home ownership. After things are paid off then all you have is maintenance and updates, and if you hate those things a great deal then just pay a little extra and have someone else do them -it’ll still be cheaper than renting long term.
    I feel like posts such as this are written with the assumption that the individual in question will only live another 10 years. Not forty or fifty.

  114. Lars says

    If your house is a good investment is also largely depending of the world economy and what happens around the world. Like at the moment (May 2020), where Corona Virus has put it’s claws in the worlds economy, it can end up being a bad investment, if you are forced to sell now because of low cashflow. When the crises came in 2008 it was a bad investment to have a house if your bought just up to that time.

  115. matt c says

    I agree to an extent. Problem is rents will keep going up and up…eventually you can pay off a property and downsize..

  116. Mike says

    Investment? No, it’s not an investment. But owning a home is a good financial decision. Rent money is money you will never see again. Mortgage money you will see again when you sell or refinance. Rent expenses and mortgages expense are typically similar in value. Since land is a scarce resource, real estate typically appreciates enough to cover mortgage interest at the very least, while rent money disappears (unless you are the landlord). You need a place to live one way or another, so you should be paying for it with money you can get back at a later date, in my opinion.

  117. Matt says

    A great blog post, which inspired Andrei Jihk of Youtube to act out in a video he made; of which he referenced J L Collins as the inspiration. Hence, why I am new round here. Great site, with great content.

  118. Invester says

    I wish I never rented any place to live, had made me so much more money. Had realy liked a nice caravan as first place when I started to studie after 2 years of work or a first owned condo and rent out a rome, that had been alot wiser if I want alot of cash later on.

    Done with the univercity I bought my first small house, had about 1k$ and not a maxed studient loan (dumb, since the rent was so low, but I had not yet learned about investing and buying assets…). Took a loan with abit higher % for the downpayment, searched for about a year untill we found the first small house, also we could not build a hosue since that would cost so much more, but I didn’t want to since I seen how bad this was economical for my parents.
    Bought that house and stayied there for 3 years (made some improvements in the house that I thought would increase the price of the house with same or higher amount, sauna, fireplace, pool and so on all very well investigated and cost efficent alternatives) sold the house for a nice proffit after 3 years and that proffit was enough for the downpayment for a house that cost abit more then 2x the old one, now we didnt need the high % loan, (also saved some money to a bank count those first 3 years, but thas was dumb since I dint invest them..).
    We continue to make small improvements in this new house and kicked of our saving in the stockmarket, first house +saving was enough to make many improvments of the new house with simular approch as last house and got a 15k$ start to savings in stock.
    Now we have lived 3 years in this new house and we are saving alot of cash on just one sallery (we also have 3 small kids, and my wife has been studing for soon 3 years, half a year left and b4 that was home with the kids, 1,5years apart).
    I investigated how ppl get rich and setteled for one of the many ways, the stock market, I wanted something that will give me all the cash I need and more for only a few hours a month of work. First year I learned alot about the stock market and with the help of many formed strategys to beat the market (even tho I recomend index investing for all others). Beeing frugal and making good investments will make me meet my goal and stop working before the age of 40, I hope to stop in 3 years, then I’m 37.
    We just blew past 200k$ portfoilio in stock of wich half is an increase (50k is loan), it’s not even a year ago I started to take loans to invest in the stock market (10-30% of porftolio) to get even higher returns, but allways keeping it safe, I can not risk work, house since I got a family to think of, if all stock would get a value 0 we could live the same life style we do today and even increase the costs some what (we save alot and could lower that).
    Not taking a morgage is just plain dumb if you can make money grow at a higher rate then what you pay for the money you loan.

    I also did my homework on buying houses, what ppl lose money who doesnt? Who can live for free and how? Building a new house almost never give good returns from what I seen, building in a not attractive area means even after 20years you migh not get the cash back.
    Buying an existing house to a fair or a good price often leads to an increase when sold (how the area is progressign will affect alot, new schools work etc). Renting out a room, apartment (duplex) or a cabin can easly make you cash positive or neutral for the house.

    Even index funds generate about 7-8% per year, so right now a mortage @ 1.5% is very good to have, one should then lend as much as possible and invest in other things (stock market, houses, art or what ever you know) that generate above 4,5% (margin of stafety) if the % increases for the loan you can easly sell the investments and pay of the loan. These types of loans are not as most ppl think of loans, that they stick forever or untill you payied em of under 10+years, this loans you will pay of as full when they do not benefit you any more.
    Many ppl loan to buy a car and think that is normal and okay and then 3 years a head it lost 50% value and cost alot to drive, I loan a similar amout and invest instead, who do you think will come out a head in 3 years most often?

    • big bad wolf says

      Just some comments to what I read in these posts
      – You are not a “homeowner” until you pay off the mortgage. Until then, the bank owns your home.

      – Property values don’t always go up and up. They go down too. A property that drops in value does not preserve wealth. A house is not a liquid asset. Difficult and time consuming to buy or sell. Real estate is sensitive to market conditions and interest rates. You have very little control if you are forced to buy or sell

      – You have no real “equity” until you sell the house. Not really intended to generate ‘profit’. As an investment, a house is no different than a stock or bond. There is no guaranteed rate of return. You don’t get your mortgage payments back.

      – You are mostly paying interest at the beginning of the loan. If you get out early you haven’t paid much principal.

      – Real estate can be used to create an income stream from rental property. High risk unless you are a pro, even then its easy to get burnt.

      – Your monthly mortgage payment (what you agreed to pay the bank) is fixed throughout the life of the loan. If the prime rate goes up to 5% you are still locked into the mortgage rate when you signed. Everything else can change and usually goes up (property taxes, insurance, utilities, etc).

      – A low mortgage rate (2-3%) won’t generate a lot of interest to use as a tax deduction. The IRS can change the rules whenever they want, including eliminating the deduction altogether (they already capped it)

      – A landlord can evict you if you don’t pay the rent. So can the bank, and they can take their house back (foreclosure). You don’t get a free pass if you lose your job. Banks tend not to be very forgiving.

      – Cost of maintaining a home is way more than you think. During the course of a 30-yr mortgage you can expect to replace the water heater every 3 years, the heat/AC system at least once, the roof at least once, paint the house, repair the deck, replace kitchen appliances, etc., etc. Bath remodel $20k+, kitchen remodel $50k+

      – You will pay approx $800k for a $500k 30yr fixed mortgage @3.5% interest, excluding insurance, taxes, and expenses. That $800k is equivalent to 360 monthly rent payments of ~$22oo without expenses.

      – You won’t find a $250,000 house in a million dollar neighborhood.

      – “I will just rent my house and live in another” – You are asking someone to pay you more than your current mortgage payment. Why wouldn’t they just get their own mortgage? Even if they agree to rent, you might clear $50-100 over your mortgage payment. You will have to pay all the tax, insurance, etc on the rental plus your primary home. If your tenant decide to leave, you are stuck with mortgage payments and expenses on two houses. And remember these are not your houses, they belong to the bank (unless you paid cash).

      – If you want to become a landlord, live in the nice property and rent the lesser property

      – If you need the mobility to move around every 3-6 months, stay at a Holiday Inn, Airb&b or couch surf.

      – The banks are not obligated by law to give you a mortgage. They can turn you down if they don’t think you have the ability to make the monthly payments or have enough cash down payment or have a good credit score. Home equity loans are not automatic, especially if you barely qualify for the first mortgage.

      – taking out mortgages on multiple properties is extremely difficult unless you have a very high paying job or significant cash reserves. The housing crash in 2007 was caused by irresponsible lending practices.

      – there is no ‘get rich quick’ scheme. Flipping houses is risky (see 2007)

      – robbing your 401k or IRA to pay a mortgage defeats the purpose – not a good idea

      – If you want to raise a family, buy a house and give them a stable environment. Take a 15 or a 20yr mortgage if you can. You can decide whether to stay or downsize when they are gone, and you won’t have that pesky mortgage payment

  119. PBJ says

    While everyone else’s comments probably contribute to this discussion, I’m here to unfortunately only contribute this.

    That list was HILARIOUS, your sense of humor and brutal honesty really shine through in your writing style.

    Literally holding my sides!

  120. SL says

    What an informative and creating article. In reading some of the comments, I don’t think Mr. Collins is saying never buy a home; just don’t buy it and think it is an investment. That’s my take anyway. Housing is a cost just as transportation, health care, food, entertainment, etc. Buy the one that carries the lowest minimal overall costs and meets your reasonable needs. In the context of minimizing your housing costs and maximizing your utility, buying generally beats renting in my opinion in the long run. Sure taxes and insurance go up over time, but all-in rent goes up much more. In twenty years, would you rather have a paid off home albeit with taxes and insurance or be paying at least 2 times (likely much more) of your current rent.

  121. Financial Fred says

    Really funny article. I like how you finished with you own a house too and the reason why. As you are right who can beat borrowing at 3% and now with COVID-19 even less?

    One thing I really like about owning property is that I can drive by and see my properties. To your point there are many reasons to not own property but for some a house is a forced savings plan. For others, they can customize the house to exactly what they want and they couldn’t rent it for the price they paid.

    Also, depending on how you look at buying your house you could look at as an investment but for the average person that is not the case. As they bring their emotions into the buying experience, where as your list shows you should not be emotional and consider the facts for investments. I say you could look at it as an investment because if you look at developers and other real estate investors they will make a great return on properties.

  122. Jamie says

    Today the interest rates are very different and in the UK house prices rise at an enormous rate compared to what you state in your article. Like you say borrowing at 3% and investing is one way, so borrowing at 1% now and investing is even better, remembering of course that rates can go up and down. In the 80s my mortgage rate was 15% most home buyers have no memory of that or even believe it credible. JT, Bath UK

  123. Calvin says

    Over the years there are some things the FIRE blogger community has attempted to reduce to dollar and cents and home ownership is one that just doesn’t work reduced like that. The points brought up in this article seem like decent material for a policy makers’ meeting room, but not useful/misleading for personal finance.

    As much barriers and liabilities there are with home ownership, the reality is that there is either too much social/legal/cheap money/tax advantages to not do it or traditional renting actually sucks (or maybe bit of both). You can quantify some aspects (e.g. cheap interest rates) but others don’t easily translate into dollars and cents (access to certain schools, neighborhoods, family, sense of home base, place to have your crap set up your way, social requirements).

    While anecdotal evidence is just that, its notable in 2020 (7+ years after publishing) that alot of FIRE bloggers simply don’t rent in the traditional sense: jlcollinsnh bought his Kibanda beach cottage, FireCrackers airbnb/nomad approach (airbnb is not renting – its camping), a number of full time RVers (same thing, its camping), MMM and his house to be close to be his kid/community, Mr. 1500 in his live in flips, etc. In fact, it seems few who do rent are expats abroad or living in touristy locales.

    It doesn’t seem fair to say you can compare renting to home ownership side by side – home ownership just has so much more social legal financial constructs on top of it other than just shelter utility aspect that it’s not remotely the same thing. Maybe that’s the take away: Renting vs Home ownership just not a good comparison and maybe we should stop trying to put them side by side… its like comparing a SUV to a motorhome because they both have the utility to drive you down the street.

  124. Andrea says

    I’ve always felt this way about renting vs. owning. I’m sure the banks would tell me that I can afford a McMansion on my salary but instead I now rent a tiny studio apartment in downtown Denver that costs me about 10% of my take home pay per year and allows me to invest ~70%. My rent goes up about $10/mo each year. I think about how stressful a mortgage and ownership in general might be compared to my rent and there is no comparison for me.

    A tree fell over once in a big wind storm at my rental pulling down power lines, damaging the roof, window and my back door. I submitted a work order to my landlord online and it was all fixed the same day at no cost to me. I think I’ll always be a renter for this reason. I’d love to have a small house with a garden space but to me the ‘sacrifice’ of not having exactly what I want is worth it since it allows me to save so much and there are great free alternatives like getting a community garden plot. I suppose I’ve just prioritized saving over owning the perfect living space.

    I watch my co-workers and employees buying big houses and fancy new cars but they all have a level of stress that I don’t have to deal with and it doesn’t look worth it. Renting has been a big win for me and I don’t think I’ll ever own again.

  125. EJ says

    Back in 2010, the 1st year of my marriage to my wife, we had about $40k to put down as a downpayment for a single family. Living in the Bay Area, that amount wasn’t close enough for a 20% downpayment for a decent single family home. We wanted the American dream in our early 30’s but were also scared about the housing nightmare because of the ’09 Great recession. We were dismayed but instead concentrated on investing our small stash of $. We funneled our extra money that we weren’t ‘wasting’ on mortgage interest, taxes, HOA, maintenance cost, appliances, etc. into our brokerage and retirement accounts. After 11 years of NOT-so aggressively investing but living within our means we’re going to be crossing our 2ND million in net worth. All our net worth is tied up in paper assets and no real estate. We don’t have any debts of any kind except for the monthly credit card bills that’s paid off every month. We’re projecting to retire in 9 years and maybe buy a house in CASH but we’re used to renting so maybe not. But at least it gives us options.


  126. Kelly says

    You buy smart in the right area, and you can expect the property values to rise. You couple this with a steady rental income you make on renting the place (should you choose to rent).

    So it’s a investment asset which grows in value (depending on your purchase, some people buy in the wrong area), you can use that asset to also generate regular monthly income (rental), and it has value should you choose to live in it and actively use it yourself.

    I dunno, real estate seems like a better place to put my money than any other kind of investment, barring a business.

  127. Angel says

    As many of us have said: our home is commonly viewed by many as a place to raise a family, not an investment, so considering the emotional fulfilment and not solely the monetary value of things, it could be referred as an “investment”.

  128. Wallet Squirrel says

    I agree with the article, but also can see the arguments of the other commentators.

    The big thing for me is residence, a roof over your head. Yes, the value of your home can increase, but in order to really take advantage of that money, you’ll need to sell your house. Then you either need to rent (aka burning money) or buy another home (aka spend money). Any sort of home sale is going to have significant impacts on your life, unlike other investment sales.

  129. John Carter says

    Why you think that it is a terrible investment? Just because, you’re paying property taxes, maintenance, and insurance. But thinks that when you don’t have enough money to buy funds for you, but still you have a place where you can live as you want.

  130. Michael says

    > It should be something you can never really own.
    This doesn’t sound right. My understanding is that after you pay off your home, you own it, and you can sell it. As opposed to rent, where you never own anything and can’t sell anything.
    This is the one thing that confuses me about this in general. The alternative to owning a home, as I understand it, is renting. Owning a home may be a bad investment, but renting is straight loss, which seems worse to me. Is this post really saying to rent rather than own? If so, why?

    • Michael says

      A quick note: I say “you can sell it” but of course I also mean “your children can inherit it”

      • Vasile says

        If you are able to buy a wooden barrack (colloquially termed “house” here in North America – Canada included) with all cash, and no banksters, then the debate becomes more nuanced (I am actually prospecting to do the same thing i.e. no bankster).

        If the wooden barrack is “bought” with mortgage, then until the mortgage is paid of to the bankster, you will have to “service” such mortgage. Which is a cost in itself, possibly comparable to a monthly rent.

        If the wooden barrack is either purchased with fiat money in full, or mortgage paid off, I would personally argue that you MIGHT still have a cost attached to that barrack, even after being paid off. Regular maintenance costs, AND – not negligible at all, the damn PROPERTY TAXES (especially in states and residential area asking 10K+ in property taxes per year).

        To give a direct example, how those property taxes (money to be paid to the feudal lord who STILL OWNS the land beneath your house, if you research deeper) are becoming very comparable to rental costs:

        My cousin in Portland, Oregon, pays $20,000 in property taxes per annum. And me (the “poor” folk, with cash sitting on the sideline, and hoping to accumulate enough of it to buy a wooden barrack in full) living in Colorado, I am renting a 2-bedroom row / attached wooden barrack, for $1,600 / month. So you see, my annual rent costs are less than what my Oregon cousin is paying in “property taxes” to the feudal lord!

        In general, I see renting as NOT throwing away money. But as a regular cost of living, to have a roof above my head and to live my life.

        Now, getting to the wooden barracks and inheritors! GOOD LUCK with being able to pass a North-American wooden barrack from a generation to another! The whole system is PURPOSELY design in this way by the … feudal lords … to have a “house” that is perishable / continuously degrading its quality in time. It is done on purpose, and it is a MONEY PIT. The barrack is not even made of real wood, but of small recycled pieces of wood crap, glued together.

        The European H-O-U-S-E-S are a COMPLETELY DIFFERENT STORY though: Made of concrete, brick and mortar, they are made to LAST, without having too work too much around them on each year! Therefore, you can truly say that the European HOUSES (and possibly from other countries and continents) CAN be easily passed from a generation to the next…

        • Michael Farcasin says

          Very informative, thank you!
          You got my curiosity, so I looked into the property taxes. I’m lucky(-ish) enough to live in an area where property taxes would be much more lenient – 2000 per annum assuming a median-priced house of 240k.
          But in any case, I hear your point about ongoing expenses – and that helped me understand better the comparison in the rent vs own article he linked above. As a renter, one doesn’t pay property taxes, maintenance, house insurance – although we do have renter’s insurance.
          So basically, there’s ongoing costs either way. It’s not like you buy a house and then never have to pay any more money for it. Rather, there’s still property taxes and so on that go into it, and which can be compared to the cost of renting.
          And if I understand some of these other articles correctly, investing in a fund that tracks the market, like Vanguards’ do, ends up being so much better of an investment that one could leave the cost of a house to their children in liquid assets.

  131. Bec says

    Good one. I have always thought paying off a mortgage is counter intuitive. You end up paying double the price for the house once you have paid the bank their interest. All of the other points you made really drove home the insanity of paying off a home.

    Thanks for this series. I was bought to this blog through a link in your part one. I’m so exited to keep reading. Your writing is great and so easy to digest.

    Cheers Bec

  132. Michelle says

    I have been trying to read more on Financial Independence and came across this article. I have found it really intriguing how the things had changed ever since the pandemic began. Now, with the hybrid work-culture. it seems like having a home became even more important than ever before. What do you think about it? or do this article still holds the ground up?

    • Bobfrank says

      Largely yes, with one caveat: this article fails to make the essential distinction between home ownership and real estate investing. Housing is a terrible investment, for all the reasons listed here, but owning a home *as a home* is one of the best things you can do for your life.

  133. Nicholas Martinez says

    Instead of looking at a home as an investment, it could probably be seen more like insurance. Owning a home is insurance against rising rent costs that can never be recuperated. At least with owning a home, it wont make you rich but when you go and sell a home you hopefully kept up with inflation and came closer to “breaking even” with the money you put into it, versus paying rent. Paying rent for a short time frame, say 5 years or less is fine and probably little to no risk. If you pay rent over 30 years versus owning a home for 30 years. Your home should be paid for, with equity, versus rent where you are paying more and more each year with nothing more than a place to live. Either way, you are paying for a mortgage, either your own mortgage (unless you buy a house in cash) or likely the landlords mortgage (even if the landlord has no mortgage, he will charge rent that is like a mortgage).

    • Honest Lawyer says

      Home ownership is a lifestyle choice that I choose to do. Privacy, freedom to do what I want when I want. No apartment living for me hearing the toilet on the other side of the wall flushing. Mice coming up through the sink piping from the ground level apartments. Noisy neighbors smoking up a storm. Rent that is thrown down a rat hole. Nope, I fully paid home with freedom to remodel, relax, and enjoy. True that the equity is just sitting there but it’s insured.

      • Vasili says

        “freedom to remodel????” What you call freedom I call stupidity and throwing money down the drain, much more than paying rent !

  134. Bobfrank says

    This is an amazing article, but it makes one crucial mistake in conflating home ownership with investment. If it is a *home,* it is not an investment; it’s your home. Its purpose is not to go up in value or generate passive income; it’s to live in.

    Home ownership is an amazing, incredible thing that’s rightfully heralded as the fulfillment of a dream. Real estate investing is a perversion of that dream that’s rightfully condemned for all the reasons given in this article. But please don’t treat the two as if they are one and the same.

  135. Mark says

    I understand the argument. I get the logic. One thing is ignored: controlling housing costs. You have to live somewhere. My parents are on a fixed income. Their house is paid off. Their property taxes less than 10% of annual rent costs in their market. They haven’t put more than a couple of hundred dollars into home maintenance in years. They always ask me, “Shouldn’t we update in case you or we need to sell?” My answer is, “If it ain’t broke, don’t fix it,” or “you’ll pick something out (e.g. kitchen counter) and the next person might not like it, and you’ll only get back a % even if they do like it. So if you like what you have, don’t change it.” My points are that: (a) housing expenses are what you make of them; (b) when you are on a fixed income, not having to worry about how much your landlord will jack rent this year is a very good thing; and (c) oh yeah – a house is a protected class of property (i) if one of them goes on Medicaid the house is a protected asset for the surviving spouse’s lifetime – if they sell Medicaid might chew through that cash cushion and leave the surviving spouse with a rent payment, lower Social Security payments for the household and a diminished pool of investments; (ii) homestead act/protected in bankruptcy. So yeah, I wouldn’t tie up too much of my money in a house, but you have to look at where you are AND where you might be at age 75. Homeownership has some advantages.

      • Sarita says

        The certainty of controlling your housing costs is paying a 7% rate mortgage for 30 yrs now for a depreciating asset..that’s the only certainty currently.

  136. Steve in Chicago says

    If you are buying a house in cash or with a mortgage rate that less than the average market return, IT IS NOT A TERRIBLE investment. It’s foregoing investing that money in the market (which typically may out preform the growth in your home’s value) but you do get the benefits of ownership (ask anyone who’s been forced to move by a landlord or has their rent hiked every year if you don’t believe me). However, given your circumstance, you may decide that you don’t want to deal with uncertainty of not owning a place. For multiple reasons (family, schools, preference, climate, etc) people may decide that they don’t want to be nomads and are fine with buying something they WANT that serves a dual purpose as an investment (which may have questionable returns) and a place to lay their heads all at the same time. When you rent, you gain nothing but you are responsible for nothing so its a wash. If you buy a house in cash or even get a mortgage for less that the average rate of return of the market, it can be a GOOD investment (even if it’s not the best investment). As with most things, speaking of home ownership as bad or good thing as some type of absolute, is a falsity. While all these FIRE folks tell you home ownership is a bad proposition, MOST OF THEM-US OWN HOUSES. :-p (Even JLC likes his place on the lake)

    • Thomas says

      I wholeheartedly agree, except on your point of by renting “…you gain nothing but you are responsible for nothing…” Really, you lose EVERY cent you put into rent; you’ll never see that money again, much less, see a return on it. And, actually, you lose more than that, because for every $1.00 spent, it actually costs you more like $1.25, because of the income taxes you had to pay on that money. Rent is a blackhole into the pockets of others!

      • Vasile says

        I disagree with your reasoning.
        Look at renting from the point of view of “paying something, and getting some benefit in return”. It is a cost of living, in a way similar to paying utility bills. Yes, that money goes away, but you’re getting something in return.
        Yeah, paying for a good book, for food, for a movie, for a phone, appliance etc, is “wasted money”, but you’re expecting to get something good for that money.

        Buying a house (for REAL, not with help from the banksters) is also assuming some implicit or indirect costs. Property taxes, repairs, depreciation (all houses in north-America are a P.O.S. i.e. not being made to last, like the brick-and-mortar-and-concrete ones that you typically see in Europe).

        A guy who has the cash to buy a house and doesn’t wish so.

      • Sarah says

        Thomas, what a silly point of view. If you use this logic then you can say the same about the food you buy, any service that you have, everything. Rent is a service that you pay for to avoid the trap of owning a house and the expenses that comes with it. Pure and simple!
        Also, you reasoning on income tax is flawed. You also pay taxes on your mortgage payments, you don’t pay pre-tax for that…

  137. angie says

    I agree that you have to live somewhere. Except I will say condos are riskier than houses. You have to look beyond that newly updated/upgraded unit to examine the condition of the complex before buying. Don’t skip that step. Look at the conditions of the buildings, the landscaping, the parking lots, etc. You can get a lot of clues about the health of that complex and your potential for huge special assessments.

    Also, don’t over upgrade a condo unless you really want to enjoy those upgrades while you live there. Your sales value is tied to the sales value of the complex as a whole. Those upgrades may not pay off.

    That said I do live in a condo, and it is cheaper than renting an equivalent apartment at this point so I stay there. When I retire I will likely move someplace cheaper and buy a small house.

  138. Michael D. Johnson says

    Interesting article. I would agree housing is not a good investment. But there is a quality of life with a roof over your head where it makes sense to own a home. I would hate to think I would have quality of life living in an apartment complex. And to assume rents do not increase is a false narrative especially now that it appears there is a shortage of housing.

    And there is a return on paying a mortgage. When you pay a mortgage monthly principal payments are in effect savings and over time there is a return on that if you paid a reasonable price for the property.

    The real challenge is the financial industry has helped increase risk for lot of buyers. A well run bank will require you meet ability to pay as percent of income and give you best financing when 20% + is put down
    During the purchase. That limits everyone’s risk but what you still see after 2008 fiasco is lot of effort to increase borrower risk by only putting down 5%. Lot of young people I talk to are being sucked into this scenario. That makes the whole scenario risky to home owner and they justify it by requiring private mortgage insurance (increases cash flow out).

    Agree it does cost money to own a house. But we have a society that wants bigger and bigger homes. Trick is to right size and live within your means. No need for keep up with Jones. And that bigger results large property taxes etc. So in summary lot of good point about cost of home ownership but there is quality of life component to all this.

    And finally I know people invest for appreciation in home value and that is dangerous and risky. Not a reason to own a home. I know of a situation in Texas where year ago everyone was bidding up purchases justifying this Because home values were increasing. Now as interest rates normalize (nothing wrong with 7%) the situation I know about has a $7,000 mortgage payment and similar house across the street is being rented for $4,000 a month. That invest has high probability of never paying out.

  139. Batperson says

    I have the same feeling of owning a house as being FI. Reference JL’s video on FU money. The alternative to owning a house is to live in a rental property, at the mercy of a landlord. I own my dwelling because of the lifestyle benefits. The investment return, if any, is just a bonus.

  140. Jonathan J. says

    I recently sold my house for more than 2 million and called it quits, I’m FIRE!!! I’ll rent a downsized house in the same neighborhood, use passive income from the invested money to pay for the rent on it and I’ll still have a lot left to enjoy my retirement using the 4% rule.

    [ Life is good for us not trapped by the religion of home ownership ]

    • Steve in Chi says

      This re-enforces my point. You bought it, lived in it and have now sold it giving you a bunch of cash. If you had rented, that rent is gone. You MIGHT have put it any surplus money (after paying rent as compared to what you paid for your mortgage and home’s upkeep) in the market, but you couldn’t have lived in a market investment for all those years.

      • Jonathan J. says

        I get your point but I don’t share it. I probably spent more than that in the house along the years I lived there in maintenance and upgrades. I wasn’t worth 1 million 5 yrs ago and now (2021), for some crazy reason, doubled in value.
        Do you really think someone starting now will have the same luck? No way. House affordability is a huge issue and this trend has zero chances of continue or a civil war will breakout and I’d watch out if I had a house, because they’ll come for you.

  141. Lauri says

    If it only was as Brett Doyle wrote in Addendum #9 – “…if a bank is dumb enough to loan me several hundred grand a 3% for 30 years”

    Banks are not dumb – they are very smart and cruel, that’s why they give out those loans. Im not sure how it is in USA, but here in Europe in my country, when economy gets worse etc then banks just raise the monthly payment a lot (euribor) so in the end you probably pay 2x the price you bought the house/apartment in the first place. Half of it just goes to the bank

  142. S. says

    I’m sorry if somebody has already made this comment, but it is posts like these that (apart from the weird date format) make it clear that this is an (excellent) American blog. Rent prices in Germany have gone up so dramatically in the last couple of years that people are being priced into poverty, especially if they have a contract where rent is indexed to inflation. Rent can easily eat half of your income. Anybody who has a house with the mortgage paid off is on a sure, though maybe not simple, path to wealth because they can use that money to invest. I have no lack of friends who are kicking themselves because they didn’t buy a house when they had the chance.

  143. Satoshi says

    Until we have people that will consider primary residence an investment and an asset (it sure isn’t), like most commenting here, it will be seen as such. Offer/demand dictates it .
    We still need a place to live, until someone finds an alternative, houses and apartments are still needed unfortunately. There’s just too many people in the world and Covid wasn’t able to solve that very effectively

    • Vasile says

      In reply to @Satoshy, and more specifically to this part of his or her “comment”: “There’s just too many people in the world and Covid wasn’t able to solve that very effectively”

      F-you, Malthusian Globalist! I wish you will DIE of the fauci-19 farce called “virus”!
      You do know it was man-made, made by the Globalist Cabal, don’t you?
      A plandemic specifically made, and tailored, for the mRNA “technology” (an failed gene therapy technology).

  144. Andrew says

    I recently bought a house and I’m hating it. First year the hvac blew, recently the roof is leaking. It’s like I got another full time job apart from my regular job. I miss those days I would just call the landlord and make them fix it. But guess what, once you move to a house your wife won’t ever want to move back to a rental. Beware !

  145. Dan says

    Is now the best time to buy a house? Maybe not. But there will be a time when it is. You can always refinance over a 30 year loan. You may be able to get a nice deal. We’ve been in our house for 20 years now, and while I don’t look at it as an investment, it has appreciated. Even if I don’t look at the appreciation, I can look at it in cash flow purposes:

    – a similar house in our area (HCOL) would be $4500, if not more. $54k per year.
    – property tax is capped by prop 13 in CA, which becomes a major benefit over time. Still $12k per year.
    – every year kind of maintenance comes up, ~$5-10k is the range.
    – Insurance in our area is cheap comparatively, $1500 for a year with large umbrella policy.
    – we are fortunate not have a mortgage, but this was our first home and unlike many of our peers we didn’t upgrade and instead chose a more relatively frugal path

    So from a cash flow perspective, our house saves us $30k per year versus renting.

    It’s daunting at the beginning of home ownership. It’s a lot to take on. Over time it’s worth it IMO, especially if you plan on staying somewhere for a while. The incentives are just there to encourage it.

    • Dan says

      I’ll add we would have done better if we just bought the S&P 500. But the comfort of having your own home, especially during the harder economic times, is a giant value. having a place to call yours and do with as you please is of huge value. Having a stable mortgage (or none) in times of inflation is a huge value. No wrong answer in whether you take the plunge or not.

  146. Cline says

    Yes it’s a poor investment, as is a great steak with a fine bottle of wine. I reached FI to enjoy life, now to decide where I will most enjoy living that will suit my needs. If the is owning or renting it mAtters not. Enjoy life, dying with the most cash you can possibly have is foolish.

  147. Houseowner says

    I have lived in the same house for 30 years and don’t want to keep sinking money into it. If I had to do it over, I wouldn’t but I can’t convince my husband of the downsides. Because our mortgage is paid and he can “do whatever he wants”, doesn’t need to worry about being kicked out by a landlord etc, he only sees the upside. The problem is, we have so many unfinished projects, with very limited space that it isn’t a great place to live, no closets, no privacy. No space to have guests over and it doesn’t look nice anyways. Our kids won’t have friends over for the same reason. We could sell it, invest and the dividends would cover living in luxury but no amount of arguing will change things.

    I’m still working but really have reached FI. I’d sell and live somewhere so we could travel more extensively when I retire. But there’s no way he will sell. So it becomes a burden, locking us here. I can’t even house share or rent because no one would live in it given the current state.

  148. anon e mouse says

    Whether or not a house/condo is a good/bad investment comes down to personal preferences. Everything in life, including life itself, is a tradeoff.

    I don’t want to make that decision for you. You shouldn’t have to make that decision for me.

    We have rented, owned a condo and now own a house. Each has its own advantages and disadvantages.

    Lots of very good advice and opinions in this article and the responses since
    !!?! May 2013 up to today March 8 2023 !!?!

    Conclusion … it depends 🤪

  149. Jona. says

    Although investing in a house might not provide large monetary return, you do have to live somewhere. The other option is to rent, and in most cases paying for 30 years of rent will cost you more money than owning a house.
    Another way of looking at it is that it’s quite handy to survive in, and so it’s supposed to cost money. You benefit greatly from it, so why not pay for it?

  150. Kes says

    Reminder everyone: He’s not saying to never own a house, he’s just saying that houses aren’t the smartest investments. There are still valid reasons to own a house, but don’t kid yourself thinking that its always a wise investment.

  151. Michael D. Johnson says

    Good point. I have read most the posts here and very few people understand every time you pay on a mortgage you effective have a saving investment (principal reductions). The risk of loss is low. You do end up paying more for rent on average because this inherent saving rate builds over time.