| Hey Trader, Owning your primary residence is one of the worst investments a person can make.
Most people will disagree with me on this.
I don't blame them.
See, we've been conditioned to believe that owning a home is a key component of the American dream.
Buying a house is an investment.
Renting is just "throwing away money."
That's what you've been told.
It's not true.
Below are two lists of common expenses. One for buyers, one for renters.
Buying
Home Inspection
Mortgage Principal & Interest
Property Taxes
Homeowner's Insurance
Renting
Rent
Mortgage Insurance (if <20% down)
Routine Maintenance
Repairs
Pest Control
A/C Servicing
HOA fees
Lawn Care
6% Realtor Commission when selling
Most homeowner's fail to take all of these into account.
Read on to avoid learning this very expensive lesson the hard way…
Instead they compare their mortgage payment to the cost to rent a similar house and then throw in some measure of expected price appreciation.
I remember feeling a huge loss of freedom when I bought my first home.
I immediately regretted my decision.
After some quick math I realized the house needed to appreciate by 15% just to break even.
Home inspections, closing costs, realtor commissions and what seemed like two months of being nickel-and-dimed to death left my credit card smoking.
If I had instead "thrown away" money by renting, I would have been in a far better position.
Here's why…
First, a rental can often be had at a monthly price less than what one would pay on a 30-year mortgage for a similar property.
But mortgage payments, at least in early years, are mostly interest.
The "investment" homeowners are making in their house is a small fraction of what they are paying each month.
It is often possible to rent a similar property for the amount being paid in interest alone.
Routine maintenance and repairs will eat up another chunk of the homeowner's budget.
Freddie Mac estimates the cost to be 1 to 4 percent of a home's value annually.
On a $500,000 house, that's up to 20 grand a year just to keep up the joint.
Homeowners insurance for the same home will likely come in around $2,500 a year.
Unless you live on the water or in a designated flood zone, that is.
Then it's going to cost a lot more.
And you know that A/C system that keeps you cool year-round?
Guess what…
It's eventually going to need to be replaced.
So will your appliances.
So will the roof.
It's not a question of if, but when.
Toss in a few small renovation projects and the usual odds and ends and your "asset" starts looking like a big liability.
Got a new job in a different city? Ready to upgrade? Or just tired of the hassle of home ownership?
Well that's going to cost you another 6% of the home's value in the form of a realtor's commission ($30,000 on our $500k house).
And yes, they still charge that much even though buyers do their own research online now.
Even if you sold the house just five years later, you will have likely spent about $233,000 in those five short years between the mortgage, taxes, and upkeep.
Of that $233,000, only $48,780 went toward paying down the loan principal.
The remaining $184,220?
The American economy thanks you for your contribution.
If Joe Housebuyer had rented instead, he might have been a lot happier.
Five years of renting a $2,000/month property adds up to $120,000 over the same time period - a savings of $83,000.
That $83k invested in this raging bull market over the last five years?
You don't even want to know what it would be worth today.
Click here to see how you could yield explosive triple-digit gains with those rental savings.
Not to mention the headaches he could have avoided.
Garbage disposal stopped working? Call the landlord.
HOA bill arrived? Send it to the landlord.
Pest control, insurance, property taxes, declining home value? The renter concerns himself with none of it.
But what about the pride of home ownership?
Pride?
Who is proud to lose money?
If your ego is so fragile that you're willing to flush an extra 15 to 20 grand a year down the toilet just to call yourself a homeowner, there's nothing I can do to help you.
Now before you get upset with me, there is an exception.
A scenario where home ownership does make sense.
And it depends completely on where you live.
The only viable argument for homeownership… the only thing that makes it financially beneficial… is appreciation.
I live in Mobile, Alabama.
We haven't seen home prices appreciate since W was in office.
So for me, that's not something I can count on.
Houses purchased in 2016 often sell for the same price or even less today.
In small towns across the country, especially those experiencing economic shrinkage, homes have not appreciated much in the last decade.
Maybe a couple percent to keep pace with inflation if they're lucky.
If you're buying in Austin, Texas or another booming metropolis – your situation is very different.
In fact, the real estate market is so hot in Austin right now, my brother just offered 20% OVER ASKING PRICE for a used house and did not get it.
That's right.
$369,000 list price. He offered $450,000 the first week it went on the market and was outbid.
So like I said… there are exceptions.
If the housing market in your area is booming like that, disregard everything you just read.
But for a lot of people, renting often makes more sense.
Some people make a lot of money in the real estate market. I won't argue that.
If shrewdly purchased and properly timed, real estate investments can yield huge returns to savvy investors who know how to use the leverage of borrowed money.
But the vast majority of Americans are not sophisticated real estate speculators.
If they were, they'd probably be looking overseas.
Stay tuned, because later this week I'll be breaking down the surprisingly lucrative reasons you should purchase your residence overseas.
Investing in the stock market historically yields higher ROI than real estate, without the associated fees I previously mentioned.
Click here to learn more about booking massive returns in the market without the expensive real estate headaches!
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Until next time,
Ross Givens
Precision Volume Alerts |
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