David Bach, co-founder of AE Wealth Management, is a self-made millionaire who is estimated to be worth around $12 million at the moment. He's a financial author and financial adviser; having written numerous books including Live Rich, Go Green, and Fight For Your Money.
He says that those who are just renting today and who aren't opting to purchase their first home, are making possibly the biggest mistake they could and that their chances then of having any wealth long-term are severely limited.
And it's unfortunate that Bach is still peddling out this outdated advice.
Bach himself admits that he's made real-estate purchases in both San Francisco and New York and has since seen the value go through the roof, thus re-confirming his belief that home ownership is the way to go.
However, today there are bubbles all over the place and many real estate markets are said to be highly inflated. Millions of millennials today have been priced out of the market and couldn't dream of where they might ever come up with the $10-20k down payment for a condo, or a $100k down payment for a detached home.
Why would it be a smart move for someone to get into what's considered an incredibly overvalued market, especially if they cannot afford it?
In the US, it's suggested that roughly 48 percent of the nation's top 50 housing markets are currently overvalued.
There are many reasons why someone might want to rent instead of getting into home ownership, one being that home ownership reduces mobility. If you are offered a job somewhere else or need to move to take care of a sick family member etc, when you rent it's easy to make those changes and to move to somewhere new. Trying to sell your home would be much more difficult.
It also can drastically reduce someone's standard of living.
With renting they might be able to put a little extra money away for savings, and afford to take a vacation every now and again and have a nice dinner out etc. Getting into home-ownership and all of the underlying costs that come with that could mean that they won't be taking those vacations for a long time and that they will have to cut back in a variety of ways which reduces their standard of living.
If you simply cannot afford to be a home-owner right now then you aren't making any costly mistake. Because putting yourself into an even deeper hole of debt is what seems like it would be the foolish thing to do.
According to a report from Florida Atlantic University, there are numerous US cities where renting works out to be a better deal than owning; cities like Oregon, Seattle, Portland, Miami, and Pittsburgh. It's also been frequently suggested that the housing market is long overdue for a correction. Some investors have said that perhaps these overpriced markets might not fall sometime soon, but they warn that they are something of concern for investors. Some still maintain that there isn't any bubble to be concerned about.
Home prices are expected to continue going up for 2018 and many credit an inventory shortage as being the major driving factor.
Pics:
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via asturconsulting.com
This is Not Financial Advice.
Source:
https://www.cnbc.com/2018/01/04/self-made-millionaire-tells-millennials-buy-dont-rent-a-home.html
https://www.cnbc.com/2015/06/02/buying-a-home-dont-make-these-costly-mistakes.html
https://www.cnbc.com/2016/12/30/self-made-millionaire-buy-a-home.html
https://www.forbes.com/sites/omribarzilay/2017/12/13/planning-to-buy-a-home-5-things-to-know-about-the-2018-housing-market/#23bd92ff48fd
https://www.cnbc.com/2017/11/07/more-housing-markets-are-overvalued-and-consumers-feel-the-pain.html
https://www.cnbc.com/2017/11/27/chance-of-us-stock-market-correction-now-at-70-percent-vanguard.html
https://www.forbes.com/sites/ingowinzer/2017/12/14/overpriced-markets-on-the-horizon-could-prove-dangerous-for-investors/#7eba2a262a72
http://www.businessinsider.com/here-are-the-most-valuable-housing-markets-in-the-us-2017-12
https://www.thestreet.com/story/14421476/1/5-predictions-for-2018-u-s-housing-market.html
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There are certain areas where owning a home will almost always go up in value, but you will pay a hefty premium for that property and often taxes on top of it. I personally think we have a while before the housing market gets inflated and pops again. 2008 reset the risk meter in many ways and especially at the rates banks are lending at, they want to make sure the mortgages arent toxic.
I agree that you pay a premium for owning than renting. Maybe the markets are inflated, or maybe we just have too much cash following too few assets (i.e., inflation). As a landlord, I understand why people rent and there are lots of good reasons. Most people never use their house as an asset, anyway -- they live there, borrow against it, and then sell when they're ready. They're not really acquiring wealth.
But real estate is one of the few ways to acquire wealth, if you choose to use it that way. Leveraging a house as an asset brings tax benefits and lower borrowing costs, which you can use to acquire other assets, which pay you back more than the cost of borrowing. For the average person, they have no other asset to leverage this way. Also, if you hold your house for a while, you gain from building equity and also limit the damage of inflation. Even if the house is overpriced, you can find different ways to manage the value in your favor -- convert to rental, use it to run a business, refinance, etc.
Unfortunately most people don't see it that way. So, yea, I guess owning a home is "bad" advice in one sense, but it doesn't have to be.
Oh, forgot to mention -- good point! (Sorry for my bad manners)
In the past you could mortgage a house and the rent will cover the mortgage payments and inflation will raise the house price and reduce your mortgage. But i guess that's old, we need to keep finding new ways to earn money
Everybody needs to read The Big Short or at least watch the movie that was made from it.
Being an owner does not ensure a successful life, what makes a house of your own is to give you emotional security, fulfill a dream among so many others that human beings have in our lives. I do not know now, but a few years ago in Argentina it was more convenient to rent, than to take out a loan to buy a house of your own.
excellent work dear friend @ doitvoluntarily, thank you very much for sharing the information
I wish you a wonderful day
I am renting right now and the only thing I don't like about it, is I feel like I shouldn't have a mortgage or rent payment when I retire. But who knows where and when I will retire anyway, it's so far in the future. I really like renting right now though. No insurance or property tax payment and if something breaks, I call the landlord!
I think as well that sometimes it is the better decision to rent instead of buying. Depends on your financial situation and your future plans
I personally think buying property is a great idea... but it all depends WHERE. Renting is burning money in my opinion. In the end you're left with nothing.
having a place to sleep isn't nothing!:)
Having a place to sleep while paying rent is something yes... but in the end when you're done paying, you're left with nothing and it's time to leave.
if you buy in a bubble, you likely won't have a happy ending lol
I guess with annual property taxes in the US there really is no ending...
was just going to say! lol we know who REALLY owns the house ;)
I think limiting yourself towards a belief that you can only achieve wealth by owning a house, is quite bad, because there are definitely more ways in this world to become a wealthy person without owning a house. And getting into debt only pulls you down. Obviously, you can own a house when you alreade are wealthy, but before that, I think you shouldn't risk too much.
Yeah, I'll take advice from someone who made their fortune off of real estate appreciation alone with a grain of salt.
I will say real estate is a great investment, it's why I own rental properties. However, making money off appreciation is just icing on the cake. It should not be the sole avenue.
That's very high risk high reward. Buying 5 years ago was great. Buying now in many markets, including mine in South Florida I don't think is the best idea.
well, home ownership is a path to great wealth....if and only if you can offset the cost of homeownership. What I really meant is that you should never purchase a home solely for your own consumption. If you are buying a home, make sure you rent out your unused spare rooms to generate income through Airbnb. Homeownership is one of the largest expense that hits your paycheck every month. One should always always always weigh the financial pros and cons between renting or buying a home.
there is a rent to owned housing, I think that 1 will do
The escalator to wealth is having your home paid off not buying a home. The big problem I see is that people feel they have to buy their "dream home" and spend large amounts of money on a house. A $100,000 home will take a LONG time to pay off so you will have mortgage debt for a long time. If people would buy homes with a reasonable price they could pay it off in a shorter time frame and could be done with a house payment sooner in life. For me having a home paid off so you get rid of debt is the biggest difference.
I've owned two homes. I rent a condo now. I keep thinking of buying a condo at some point. But it's true, it's freeing to not worry about upkeep that comes with being a homeowner.
And I agree, renting does give you a roof over your head, so renters do have something to "show" for it!
Thanks for the article. I enjoyed it :))
Awesome post @doitvoluntarily
If you invest in real estate and the market crashes, at least you have a dry place to live!
not good if you still owe tens of thousands or hundreds of thousands of dollars on that dry place though, as many do
Very True, but they'd have to find you and evict you first lol!
Either he cares about us or he has an interest in people buying houses. I do not know what to think...
Nice work
We are buying our house, The main reason I wanted to but was all we would hopefully have something to leave our children.
My dream is to own an eight apartment rental, renting to people is very profitable many people can't afford their own homes
Damn. If you afford it, over value and under value is no difference. Much of the younger folks I know have no perception of savings. They won't be able to cone out with the first payment.
We can also take in account that we are seeing a lot more millenials living nomadic, remote lifestyles.
Nic post
!! 🏡🏠🏡🏠🏡🏠🏡🏠🏡
Great post @doitvoluntarily ! There are definitely other ways to build wealth besides home ownership ! I have owned and sold manufactured homes a couple times , and am now renting , BUT I have decided to purchase a piece of property 1 and a half acres / an hour in the country two years ago that is almost paid off . We did get the power shack built there this past summer , and plan to build a small house this summer , hopefully with STEEM !! At least get a good start on it ! then all we need to do is pay off the property and thats it , no more rent , no more mortgage payments !! also it will be worth much more money once its done !! we paid 50,000.00 for the property , once the power is put in , the water is all ready there , and we have the house done it can be sold for over 200,000.00 Thousand dollars ! we will at least double our money and more , this is the way to make money , or live rent free happily ever after steeming on my friends !! Upped and resteemed
Owning your own home is an investment and if you keep it your whole life it should be paid off or at least it should have a lot of equity. This would assist you in living costs later on in life, live in your home for free or sell it and use the money to rent some thing when you are older. I think buying is a good thing and will help with your overall wealth, however we all know what happens when people can’t afford what they buy! 2008 😣
I know a few people with multi million dollar property portfolios that consist of houses & units valued between $350,000 to $500,000 yet they stll rent the house they live in.
Why?
Well, they tell me it's cheaper to rent a 2.5 million dollar home than to buy it.
I think the real value of owning your own home is not realized until you pay the home off. Once your home is paid off you no longer have a mortgage payment to make. All that money you were spending on mortgage payments can now go towards savings, investing or whatever else you wish. You would also have an asset that you could sell for cash if you wanted. This is why I see a house as a long term investment towards your future.