Tag Archives: real estate

The Advantages of Real Estate over Stocks

I’n the past, I’ve defended real estate ownership as a way to create long-term wealth, versus renting, which gradually destroys your wealth (but more specifically, prevents you from ever creating wealth, because you’re constantly bleeding cash every month).

James Altucher staunchly opposes home ownership, in which I disagree. Another critic of home ownership is Robert Shiller, who is often wrong too.

Usually, the same people who advocate the conspiracy that the government is under-reporting inflation are also opposed to home ownership, but if the rate of rent exceeds inflation (which it obviously does), wouldn’t a 30-year fixed rate home mortgage be a good hedge against rent inflation, especially considering that rents are increasing at a faster rate than mortgage interest?

Regarding the stock market vs. real estate debate, a common argument is that stocks outperform real estate, and this is true over the long-run, but there are major advantages of real estate that stocks do not offer:

1. Cheap, significant leverage. A fixed 30-year mortgage on a $200k mortgage with $20k-down and a 740 credit score is 4% (10-1 leverage). Stock brokers will charge clients 6% a year to get maximum 2-1 leverage leverage. So that means, a 1% gain in the $200k home = $2k profit, vs. $400 profit from a 1% gain in your 2-1 stock account. (I’m excluding interest in both instances.)

2. Stability. Stocks are much more volatile than real estate. Only once in the past 100 years did the US housing market make a significant correction (2007-2011), but the S&P 500 has fallen 20% or more during multiple occasions: 1973,1987,1998,1999-2002,2008. On a risk-adjusted basis (returns vs. variance), real estate is better, even if the absolute returns are less than stocks.

3. Tangible value. Stocks can go to zero (which is why indexing is such a good idea). A home can’t just vanish.

4. More negotiating power. If you use leverage in a stock account, you have virtually no negotiating power if the trade goes badly…the broker will simply close your positions, usually at the worst possible time, to protect their own capital (because you’re using the broker’s funds when buying stocks on leverage). With real estate, however, there are is often generous financing and assistance if you are unable to pay. This is because banks lose money when homeowners default, so they generally want to work with the homeowner. Whereas stocks can be sold in seconds, eviction and then resale of the home can take years.

5. Shelter. Rent is very expensive, and it adds up over many years. If you put all your money in stocks, you will still need somewhere to live. $2,000/month in rent adds up to $240,000 after a decade.

Using the example above, if you purchase a home for $240,000 outright instead of renting, after a decade, you will have indirectly ( in terms of opportunity cost) made 2x your money on the home in terms of not paying rent, even if the home didn’t appreciate.

6. Income. Real estate can be rented out, boosting returns, although stocks can pay dividends.

From James Altucher : What are the most useful money investment and saving tricks?

A) Don’t buy a house.

Lets say you buy a $500,000 house.

You put $150,000 down (30%). You pay another $30,000 real estate commissions.

You put another $50,000 into maintenance (I’m making it up but that seems very conservative).

That’s $230,000 GONE.

The down payment is equity…it doesn’t just vanish, as astute readers in the comments noted. The typical maintenance rate is about 1% a year…buying a $450k home that immediately requires $50k in maintenance seems exaggerated. $30,000 in commission is also exaggerated.

In the ownership case, you might gain money if the house gains. But from 1890 – 2004, housing prices gained 0.4% a year over inflation. There are much better investments. And your investment is tied up in an asset that is 100% illiquid (i.e. you can’t get your money out).

This .4% figure is cited a lot, and it’s wrong. Here is Case Shiller home index over the past 40 years, including the housing bubble:

It doubled, representing a compounded return of 1.7% a year, more than triple the .4% figure.

What we have is a failure to do math.

Homes in many regions of California and New York have increased 3-4x since 1996, for an annual compound return of 7%. Unless you bought at a really bad time (2005-2007), almost anyone who holds real estate comes out ahead after a decade, versus renting. Of course, there is no guarantee these gains are sustainable, but there are also a lot of fundamentals behind the enduring resiliency of the Bay Area housing market.

Also, the major purported advantages of renting–inexpensiveness and flexibility–may also be oversold because you very often need a very large deposit and a credit check in order to rent.

What if you wait 20 years and pay off your mortgage? Then good for you. But average house turnover in the United States is four years.

But it doesn’t matter…some people sell their home for a profit before they pay off the entire mortgage…that’s how ‘house flipping’ works.

Why Foreign Real Estate is a Bad Investment

There is some advice that is so bad, as an act of public service it is necessary to debunk it. In this post, it’s about foreign real estate, or more specifically, why you should never buy foreign real estate.

Five reasons not to buy US real estate

12 Reasons to Buy Real Estate Overseas

Despite all the doom and gloom about US real estate bubbles, foreign real estate–with the possible exception of a handful of countries–is an awful investment, and much worse than US real estate both in terms of greater volatility and more risk.

Real estate crashes are not unique to America. Foreign real estate markets crash all the time, and they are often much longer, deeper, and more protracted than US real estate crashes. In the earlier post Advice to Ignore, real estate in the Bay Area and America, overall, has not only recovered from its 2006-07 peak, but has made new highs in many regions:

10 years is a long time to wait to break even, but it sure beats Japan, which 25 years later is still far from its 1989-1991 bubble highs:

During the final stages of Japan’s post-WW2 ‘miracle’, there was the belief that Japan would eventually ‘buy out the world’, having in 1989 bought out Rockefeller Center for $846 million, and in 1990, the Pebble Beach golf course. Many American business leaders emulated Japanese business management, culture, and mannerisms, such as by bowing, taking off one’s shoes at at home, long work hours, and fostering a culture of subservience and loyalty to the corporate hierarchy. All of that came crashing down in the early to mid 90′s when Japan’s bubble economy and buying binge finally burst. America has long since pulled ahead of Japan, which decades later has yet to recover. Buyers of Japanese real estate will likely die before ever seeing a positive return on their investment.

A major risks of foreign real estate investing is currency fluctuations. If you use your US dollars to buy property in Euros or Pounds, and the Euro or Pound loses 20% of its value against the dollar, you lose 20%, which is what happened in 2008 (financial crisis), 2011 (Greece and Spain crisis), 2014, and 2016 (Brexit). The Euro may also make gains against the dollar, but the trend for a long time has been for foreign currencies to lose their value against the US dollar. Since 2014, the US dollar has been very strong, which I predict will continue:

In the unlikely event the US dollar falls a lot, with US real estate it doesn’t matter, because the US dollar is still the world benchmark for wealth, and a store of wealth. The US dollar is not only a reserve currency, but everything (such has oil, gold, etc.) is denominated in US dollars, not Euros, Francs, Pounds, or Yen. Consequentially, the US can print as many dollars as it needs to prop up its assets, as it did in 2008-2014, and buyers of asset classes such as US stocks and US real estate benefit. Some call it fiscally reckless, but the US has the power to do this without suffering from the consequences of ‘wealth destruction’ and hyperinflation, that no other country in the world has. The central bank of Europe can print money to try to boost its economy, but such efforts may destroy wealth by weakening the Euro against the US dollar. America does not have that problem, because of dollar denomination. As an added bonus, when the US dollar falls, it makes America’s exports more competitive.

Especially since 2009, The US economy is pulling ahead of the rest of the world, with the possible exception of China. Since 2009, America has the strongest real GDP growth of all major developed nations (except for perhaps China). Why would the Euro, Aussie (Australian Dollar), Jpy (Japan), Pound, Kiwi (New Zealand), or Cad (Canadian dollar) become a reserve currency when their economies are much weaker. Rising interest rates under an inflationary, stimulus-laden Trump administration will strengthen the US dollar even more.

If Japan wasn’t bad enough, as recently as early 2014, Moscow was in the top-10 list of ‘most expensive cities’. Then came the late-2014 oil implosion, which saw oil prices fall from $100 in 2014, to $45 in late 2015. As a result, the Russian Ruble lost 70% of its value against the dollar in the span of a year, destroying the wealth of anyone who held Russian assets, because Rubles suddenly became much cheaper. Now Moscow is somewhere in the top 100-150, far from top 10.

And then in 1997-1998 there was Asian financial crisis, which saw the currencies of Indonesia, Philippines, and Thailand lose 30-70% of their value against the dollar in just a singe year. Poof–wealth gone.

Other notable examples:

Greece real estate lost over 50% of its value from 2008-2016 and is nowhere near coming back:

Ireland real estate…another train wreck, down 30-40% since 2007:

Romania…down 50% since 2008:

If you look at these charts, it’s immediately obvious that these declines are much longer and deeper than the US housing market crash, yet everyone thinks that the US housing market is the worst world in the world, due to biased media coverage. After accounting for weakness in the Pound and Euro relative to the US dollar, it gets even worse.

Yes, sometimes foreign real estate does well (Norway, Sweden, Hong Kong, Canada), but when things go south, it tends to be much worse than in the US. This is due to currency weakness, bubbles and fads, and smaller economies being more vulnerable to weakness. America is such a big and important economy, that it’s immune to these three things. With US real real estate investing, the returns may not be as great compared to some countries, but they are more consistent and smoother, and there is no currency risk.

A major reason why US real estate is so resilient–in addition to central banks having the power to prop up American assets, is because of huge private equity and foreign demand. Smart, rich Chinese buyers are flocking to the safety of US real estate and the stability of the US dollar. The Chinese know that $1 billion of US dollars is always $1 billion, but a billion US dollars worth of Yen or Euro may be something different tomorrow. With the exception of maybe Monaco, Cayman Islands, and parts of Northern Europe, wealthy Americans seldom buy foreign real estate (Warren Buffett will never touch foreign real estate), but wealthy foreigners love to buy American real estate, so it makes sense to own real estate in the country where all the rich people are buying.

Yes, foreign real estate may have higher yields and maybe you will save some money because the cost of living is lower, but what good does that do when your principal is destroyed in a bubble or currency crash. Also, when prices fall, so too will the rent, so the yields are often unchanged.

Other benefits of US real estate include the overall geopolitical stability of America and its government. As heated as the Trump vs. Clinton campaign was, it pales in comparison to the politics of much else of the world, where the stakes are much higher. In 2013, the government of Greece took 10 percent off the top of each bank account holder. That would be unheard of in America, but such occurrences are not too uncommon in smaller countries.

There are no shortcuts. High yield almost always comes with hidden risk that isn’t manifested until it’s too late, as the investors of Madoff’s fund learned the hard way. US real estate offers solid, consistent returns going back over a century, and with much less risk than foreign countries.

Economics Misconceptions, Part 2


It’s going to be a shitstorm and I hope I have my umbrella.

For the financial elite, it’s the best of times. For everyone else, maybe not so much, but by many metrics, living standards have improved. Never before has there been a better time to be smart and rich than in America today. Elon Musk, for example, who embodies both wealth and intellect, is part today’s new ‘ruling caste’, or as some in NRx call the ‘Mandarins’ or ‘Brahmins’. Silicon Valley and Manhattan are the centers of the world right now, where America’s best and brightest tend to converge, forming insular enclaves of prosperity.

However, James’ essay is rife with misconceptions, or at least things that should be clarified or put into context.

Incomes are getting lower every year. This will never stop.
Since 1993. Income for people ages 18-35 have gone from $36,000 to $33,000. This seems like a small amount.
It’s not. It’s the first time ever that income has gone down over such a long period (more than a year).
This means: relying on a college, job, promotion, security, stability, retirement pension, retirement income == thing of the past.

Despite a bunch of searching, I was unable to verify the veracity these findings. I suspect he cherry-picked the worst age bracket (18-35) and ignored the others.

The data suggests that although real wages are flat, nominal wages are rising:

There is also evidence that purchasing power has actually doubled since 1950:

According to this (publicly available) data, the price-level (CPI) has increased by about a factor of 10 since 1948. But the average nominal wage rate has increased by a factor of 25. (There is, of course, considerable disparity in wage rates across members of the population. But I am aware of no study that attributes significant wage or income heterogeneity to monetary policy. Of course, if readers know of any such studies, I would be grateful to have them sent to me.)

The figure above implies that the real wage (the nominal wage divided by the price-level) has increased by a factor of 2.5 since 1948. This is undoubtedly a good thing because it implies that labor (the factor we are all endowed with) can produce/purchase more goods and services. More output means an increase in our material living standards (Though again, I emphasize that this additional output is not shared equally. But surely a laissez-faire world advocated by some is not one that would generate income equality either.)

Purported median real household income growth is also dependent on the choice of ‘deflator’ used. The most optimistic deflator shows 35% growth; the worst shows just 5%, which is the one most commonly cited:

Although it’s often cited that the ‘US dollar has lost 95% of its value in the past 100 years’, it’s worth noting that purchasing power as measured by ‘utility’ has surged, meaning cheaper goods and higher living standards. And second, wages have also gone up. Generations ago, it took months of saving to buy a TV; now it only requires a week’s worth of wages to buy one, and the TV is of a much better quality, as I explain in Malls, Marxism, and the Future:

According to this price guide, a typical TV set cost $500 between 1950-1960. Average hourly wages were about $2/hour, give or take. Thus, you had to work 250 hours to buy a TV. A high-quality TV set today still costs about $500, but median hourly wages are $25, so you have to work far fewer hours to buy it, and the TV is obviously of a much better quality. Even if real wages are stagnant, utility is always improving, which is really what matters.

But it’s not just TVs – this surge in utility and purchasing power is also observed for a wide variety of goods – computers, clothing, and food:

Source: Carpe Diem by Mark Perry

However, there are caveats. Although tangibles (computers, TVs, clothes, etc.) have gotten cheaper, both nominally and relative to wages, many services (healthcare, tuition, concert and sporting event tickets, daycare, insurance, rent, phone bill, internet bill, cable, etc.) have become more expensive, or so-called ‘bifurcated inflation‘, which I have discussed numerous times on this blog.

From The Great Debate: Automation, Jobs, Wealth Inequality, Basic Income, Post Scarcity:

However, while automation is lowering prices for some goods, on the other hand, despite recent trends in automation, prices for other goods & services like healthcare, education, phone bill, day care, cable & internet, have risen when adjusted for inflation, a phenomena called bifurcated inflation. So while a computer is very cheap, the electricity, software, and internet required to make the computer functional will negate the inflation adjusted savings. The same for TV – the hardware is very inexpensive and the picture of good quality, but the cable bill is very high. The quality may be better, and there may be more features, but it won’t be cheaper, as illustrated by the crudely-drawn graph below:

Microsoft Office is still expensive, 20 years later.

Firms are not going to let their earnings fall due to automation and will make up the difference elsewhere, and that will come from ancillary services. Look at how much entitlement spending has surged in recent decades, despite the promise of lower prices through automation. Automation and robots will make some stuff cheaper, not not nearly enough to create the ‘post-scarcity’ economy many hope for.

Ancillary services such as internet, as well as planned-obsolescence and increased purchasing quantity are ways around hardware-based deflation:

Due to technology, competition, and mass production, certain goods like TVs, clothes, appliances and computers become cheap relative to inflation adjusted wages. The difference has to be made elsewhere for economic growth to not fall. We hypothesize this causes the price of intangible services to surge, resulting in the so-called bifurcated inflation, to counteract the deflation of falling prices of tangible goods. An example is why you can buy a new computer for $300 today instead of $3000 in 1984, but the internet subscription fees have not gotten cheaper on a real basis. If internet costs $50 a month you’ll pay roughly the same $3000 for the lifetime of the new computer. Another way to get around this is to make the new computers less reliable, if the new computer becomes obsolete faster than the old one, or the consumer substitutes computers for other goods . So instead of buying one $3000 computer, they may buy five $300 computers – one for each member of the family and one air $1500 hockey table. But if this does not happen, there will be a shortfall.

Although – as James mentions – tuition has surged, so too has financial aid. Healthcare prices have surged, but so has government expenditures such as Medicare, Medicaid, Obamacare, and emergency room treatment for the uninsured. The result is that although prices are surging, Americans almost never pay the full sticker price out-of-pocket.

There are other improvements: improved medical care, for all socioeconomic levels. George Washington, despite his high social status and access to the ‘best’ care possible, literally bled to death at the hands of doctors in an effort to ‘cure’ a throat infection, a notable example of iatrogenesis or iatrogenic effect. Nowadays, infections can be treated with antibiotics, to give an idea of how far medicine has progressed.

However, I disagree with James in his opposition to college and home ownership. Give the abundance of financial aid and that college graduates earn more money, those with high IQs stand to benefit by going to college. If, according to James, everything is becoming more expensive, going to college seems like a good hedge against inflation, since college graduates have seen their real wages fare much better than those without college degrees:

Even worse: asset values have gone up (houses, stocks, educations, etc). So prices for things you want to buy have gone up but incomes and job satisfaction have gone down.

Of course a key to survival that I’ve written about many times is: don’t buy a house, don’t go to college, don’t contribute to 401Ks that rob your money, and either don’t get credit cards OR stop paying back your debt.

That seems contradictory – if assets such as real estate are rising, wouldn’t it be prudent to buy instead of rent? For many regions, rent has out-paced inflation and wages:

Real estate in sought-after regions have produced significant inflation-adjusted returns since the 80′s. Home prices in the Bay Area are up 5-fold since the mid-90′s, and some regions of Palo Alto have doubled in price just since 2011. Even less desirable regions have produced real gains. With renting, however, you’re constantly pissing away money every month that could otherwise be invested appreciating assets like real estate or index funds. $2000 in rent every month, compounded at 7%/year in the S&P 500, over many years is a lot of money. The landlord is getting rich, and he will keep raising your prices, not you. If you’re renting into your 30′s and beyond, you’re almost never going to be able to amass significant wealth by retirement age. An excellent article by riskology, The Absolute Insanity of Not Buying a Home When You’re Young, shows the math behind why buying is better than renting. If you’re like James – someone who is exceptionally talented and a member of the ‘creative class’ – maybe you can rent all the time and still have a lot of money, but investments in real estate and stocks are how ordinary, average-intelligence people, over a period of many decades through many small contributions that are compounded, amass wealth.

Because of outsourcing and automation, the basic equation of all economics throughout history has been reversed.
Supply is almost infinite (it costs nothing now to make an iPhone in China.)
Demand has gone down. I haven’t upgraded a computer or phone in years. They’ve stopped improving for 99% of the features I used to buy for.
For me, personally, I’ve thrown out everything I own.
Many people are, correctly (I have to admit), not going to that extreme but they are realizing the basic equation:

Hmmm…I guess Google, Disney, Microsoft, Facebook and Nike didn’t get the memo, and are reporting growing profits and earnings quarter after quarter, to no end. The consumer staples and discretionary indexes are at near 52-week highs. Evidently, people are still buying stuff. He’s using an anecdotal example (himself) to generalize for the whole economy.

Banks got bailed out. Bonuses went up. And a rich person puts the extra dollar in the bank and a poor person pays the rent.
So the money went into the banks, which then stopped lending money out to “high-risk” people because the Federal Reserve also started paying interest to banks on any excess reserves.
In other words, the Fed gave banks money, then gave incentives not to lend to avoid any lending catastrophes. But it backfired.

Ummm…but that’s what caused the crisis…by lending to ‘high risk’ groups. 4,000-square-ft McMansions for people earning less than $60,000 a year, with zero-down financing. Also, home ownership mandates under Clinton and Cisneros under HUD. Tighter lending standards should be praised, by lessening the risk of another meltdown.

1600 words…that’s enough…maybe I’ll review the rest later.

Robert Shiller…Wrong About Real Estate

Whether it’s Joseph Stiglitz, Paul Krugman, Daniel Kahneman, or Obama (the Nobel committee took a huge dent in credibility after that), even Nobel laureates are not beyond reproach. Now it’s Robert Shiller, another liberal Noble Prize recipient who has been wrong about wealth inequality and other matters, writing in the New York Times: Why Land and Homes Actually Tend to Be Disappointing Investments.

As to be expected, this is a vague article with sparse evidence and is easily refuted.

Here is the crux of Shiller’s argument, to save you the effort of having to read through hundreds of words of filler, ‘For home prices, a good part of the answer comes from supply and demand. As prices rise, companies build more houses and the supply floods the market, keeping prices down.’

Hmmm…let’s see….Bay Area real estate has doubled since 2011, and has outpaced the S&P 500, even going back 30 years. So I guess all those people should feel like fools.

Although prices fell briefly in 2006-08 before rocketing higher in 2011-2015, there are many factors that bode well for Silicon Valley real estate: scarcity, huge demand by rich foreigners, private equity, and millionaire techies, and floods of capital – both cognitive and financial – into the region.

As they say, ‘location location location’ , which Shiller ignores, in favor of the quote that fits his thesis, ‘they can’t make more land’. A lot of people buy land or property in the hope of renting it and or developing it, neither of which are accounted for by Shiller’s index. It’s not like buyers are just throwing darts at a map.

Shiller (what an appropriate name because he shills for the left) also ignores the role of leverage. If someone buyers a home worth $100k, putting $30k down, and the price rises by 10%, he makes $10k or about 33% off his initial $30K – a very good return. I’m ignoring the interest on the mortgage for this example, but leverage is how people get rich (and sometimes ruined) with real estate. Also, there are more options for homeowners who use leverage vs. stock traders who use leverage and are at the mercy of the awful brokers. For mortgages, payments can be deferred.

How about renting? Home ownership is about creating wealth for yourself instead of making the landlord rich. There are many millennials who are living with their parents instead of pissing away money every month for rent, and then using the saved money from their job to buy a home, achieving financial independence. With renting, you’re never are able to achieve independence, since you’re constantly draining money, and the rate of rent, especially since 2011, for most locations has far, far exceeded inflation. Over the long run (>5 years), the data suggests buying is better than renting

So tired of the generalizations and lazy thinking that passes for journalism these days, and even NYT writers and Nobel Prize laureates are not immune.

Some on the left argue that home prices are too high and that there is a conspiracy to keep prices too high, ignoring the role of supply and demand and other contravening evidence, just like how the left wants to believe police are systematically targeting blacks, that wealth inequality is bad for the economy, or that institutional racism is to blame for certain groups falling behind.

Some favor a ‘land value tax‘ (LVT), because real estate speculation encourages rent seeking activities rather than other, more productive investments. The tax, in theory, reduces the speculative element in land pricing, thereby leaving more money for productive capital investment:

The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging him/her to put the land to use in order to cover the tax. LVT removes financial incentives to hold unused land solely for price appreciation, making more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.

There are several problems with the LVT:

Proponents of LVT argue that there are better investments than real estate, because real estate is an ‘unproductive’ use of capital. If entrepreneurship is so productive, why is the failure rate so high? Entrepreneurship has a 90-95% chance of failure…Bay Area homes have doubled since 2011…the choice seems obvious to me. It’s rational to not gamble on entrepreneurship.

Renting and building is often fraught with difficulties and expenses such as building and ordinance codes, dealing with potential disability and discrimination lawsuits, damage to property by renters, insurance, cost of upkeep and repair, and processing evictions. If landlords, already burdened by costs and regulation, cannot collect on the underling appreciation of the land, there may be no incentive to offer housing. Also, businesses often lease real estate. A LVT would probably cause a major supply shortages and distribution as landlords close shop and renters, both tenets and businesses, are forced to pay higher prices or have nowhere to go. This hurts the very people that the left wants to helps.

Also, where is the incentive to invest in urban development if there is no return. If private equity wants to buy a bunch of blighted homes in a bad neighborhood and improve them, why should these investors not profit from the appreciation in land value?

It’s theft, not much different than the Soviet Decree issued between 1917 and 1924 as a consequence of the October Revolution, as private property (businesses, bank accounts, land) was sized and nationalized. Homes owners would lose significant equity from a LVT.

Bay Area Rent Is Surging

Despite tame CPI-based inflation, rent, particularly in the Bay Area, has really exploded since 2011:

The Bay Area real estate market is white hot, defying all predictions of its collapse.

According to Zillow, San Jose, San Francisco, Palo Alto, and Berkeley rent has gained 40-70% since 2011, vs. only modest national gain in wages and CPI.

However, new renters pay more than established renters. Due to the difficulty of evicting deadbeat renters and to account for turnover, landlords need to charge enough at once to cover multiple months (typically up to a year) and to adjust for future inflation.

This is also an example of how the ‘middle class’ may be getting squeezed, with high rents, high student loan debt, and lousy job prospects.

Given these sobering statistics for renters, is it any surprise millennials are living with their parents longer, refusing to move out?

Or why home ownership may still be the best path to long-term wealth creation (or even short-term given that homes in some regions have surged 30-100% since 2012), versus lining the pockets of landlords month after month to no end? I would rather put that money into a home in San Jose, where prices are rising 15-20% YOY, than make the landlord rich.

From The Washington Post, Where it’s cheaper to buy than rent:

As you can see from the map above, there are very few regions where it’s better to rent than buy, yet many on the left (and some on the right) insist buying is bad. There are many (here is one, there are dozens others on Reddit) instances of people in their 20-30′s who have made big money in recent years buying and flipping properties, but that won’t dissuade the chants from the left that ‘all home buying is bad, you must rent’. Gets irritating after awhile. The left wants people to rent instead of buy, as part of the left’s war on the ‘ownership society’.

On a related note, this insistence that you ‘must move out of your parent’s house’ has also become repetitive in recent years, and is possibly wrong.

There are many millennials who believe financial independence is more important than location independence, if it means living with your parents longer so you can keep more of the money you earn instead of pissing it away every month to a landlord. But this requires that you have amicable relations with your parents, some millennials don’t.

$1,000 a month for rent could be better spent making yourself rich through stocks or on a down-payment on your own home. The stock market is up over 200% since 2009, and I predict that, like the Bay Area housing market, it has higher to go. Those who invested that $1,000 every month in the S&P 500 starting in 2009 would have A LOT (about $120-150k, depending on the calculation), versus a loss of $72,000 through rent (and this is not including rent hikes). Even if you started investing in 2007 at the peak of the last bull market, you would still come out way ahead. An investment in the S&P 500 in 2005 would be up 75% as of today, despite a bear market in 2007-2008.

$1,000 a month is the poverty line, yet wealth can be amassed if you aren’t pissing it away money every month for various expenses, and, secondly, if you invest it wisely, such as in the S&P 500.

How the left spreads misinformation, fear, and bad advice to ‘save/protect’ people

In their war on the ownership society, the left wants people to rent instead of owning homes. Because so much wealth is held in real estate, one way for the left to accomplish their goal of making society poorer is to get people out of homes and into rentals by spreading misinformation about real estate either being a scam and or a bubble. Yet at the same time, the left also wants deadbeats to keep their homes. People who can afford to buy a home should never own one, but those who can’t should never be evicted, according to the left’s ‘logic’. It’s contradictory, but liberalism is a mental disorder.

Same goes for liberals who call traditional publishing evil and exploitative, oblivious or ignoring the fact that traditional book publishing houses are flooded with manuscripts, so apparently, I guess, despite thousands and thousands of articles slamming traditional publishing, word still hasn’t gotten out about how ‘evil’ traditional publishers are. Just another example of the paternalist left acting like they know what is best for everyone else, giving bad advice to ‘save’ people. According to the left, it’s not your fault your precious manuscript was rejected, it’s those greedy corporations and rich people who are to blame.

The average Amazon self-publisher makes a couple hundred dollars a year and that doesn’t include costs such as covers and editing, whereas 6-figure or 7-figure book publishing deals are not all that uncommon. For example, memory champion Joshua Foer received a jaw-dropping $1.3 million advance from Penguin to write his critically acclaimed debut book Moonwalking with Einstein. Poor guy. But of course, we can’t let obvious counter-examples stand in the way of the well-worn leftist narratives that ‘traditional publishing is dead’, ‘traditional pubishing gatekeepers are suppressing talent’, or ‘traditional publishing exploits authors’.

Bloggers like Mike, Aaron, Vox, and James are successful with self-publishing because they already have huge audiences. They wrote books only after becoming well-known through blogging and other mediums; they didn’t self-publish to build the audience – the audience was already there. Traditional publishing, on the other hand, puts the books in front of people’s eyes at the bookstores and on Amazon through professional promotions, which helps authors who have the talent to write quality work but have little or no pre-established audience. The audience is what matters – no audience, no sales. Period. The left doesn’t understand this fundamental rule.

Or the left spreading FUD about stocks being a bubble or about the fed inflating the market – nevermind that companies like Amazon, Facebook, Google and Apple, which have nothing to do with the fed, keep posting blow-out earnings year after year. The welfare left thinks that the fed was evil to bailout Wall St. and should have just let everything crash and burn to save people from ‘moral hazard’. The only conspiracy is not from the fed or the government, but from the libs who are making you poor by making you sell your stocks too soon or piss money every month to the landlord, all under the pretense of trying protect people from imagined fears. Fear of publishing houses, fear of stock market bubbles, fear of the fed, fear of China, fear of rich people, fear of housing…and the list goes on and on.

Related: Is James Altucher Right About Never Buying a Home?

Is James Altucher Right About Never Buying a Home?

James Altucher really doesn’t like home ownership, but repeating an argument ad nauseam doesn’t make it good advice.

James had a negative experience with real estate due to bad dotcom investments, in addition to 911, which forced him to sell his newly purchased expensive New York apartment at a loss, not because of New York real estate being a bad investment. Had he not been forced to sell the apartment, he would have done well. Losing all his money and his home made him jaded, understandably, about home ownership, but it doesn’t have to be this way for everyone.

People fail at real estate because of buying too much house at once and or buying in undesirable locations.

Rent in many locations far exceeds inflation. According to Zillow, San Jose rent, for example, is over $3,000 a month, a gain of 50% since 2011 vs. negligible CPI. I would rather put that money into a home in San Jose, where prices are rising 15-20% YOY, than make the landlord rich.

Of course, if you are in a situation where you are constantly moving, real estate may be harder. But home ownership is how you build wealth and eventual financial independence. If you’re always renting, 30 years later what will you have to show for it? Nothing.

Many people make money with real estate, maybe even people you know – neighbors, friends, colleagues – but it’s harder to find stock market success stories. They exist, but the data suggests the vast majority of people are terrible at stock picking and market timing. But with a mortgage, you get to use much more leverage than with stocks.

James writes:

Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004. And that’s just housing prices. It forgets all the other stuff I’m going to mention below.

Location is key.

Anyone who bought a home in the Bay Area in the 90′s, and held, is up at least 100% as of today, and many regions like Berkeley and San Jose are up 200% or more, which is a compounded return of 5.5% a year from 1995-2015 – 14 times the .4% figure given by James. And that includes the entire 2005-2011 housing bubble.

Buying a home in the Bay Area, although expensive, has proven to be a worthwhile investment, and prices are rising a couple percent a month which for a $2 million home is about $20-30k a month while you sit on your butt and watch TV. For all the ‘evils’ of home ownership, its hard to beat that.

Buy Stocks or Real Estate Instead of Paying Down Student Loan Debt

From Mike ‘the lawyer’ Cernovich:

I currently have a relatively large mount of unpaid student loans. My student loan interest rate on the outstanding balance of the two loans is at 2.2% and 3.65%, respectively. I pay the interest only, as the difference between my student loan interest rate and market returns are substantial. (Why pay a 3% loan off when market returns have been crazy high? Every dollar you use to pay off a student loan is a dollar you can’t invest in the market.)

This is brilliant advice. All these talking heads say, ‘pay down your student loans first!’ without even thinking of the alternatives. Put the money in the stock market and make 10-30% a year, which is much higher than the 3-6% interest on student loans. Even the dividends on the S&P 500, which are 3% a year, is good enough. Or put the money in Bay Area real estate and make 15-20% a year doing nothing on a 4% 30-yr mortgage. The obvious downside is if the market crashes and does not recover, but the odds are that won’t happen. The left has been predicting a crash since 2009, and they keep being wrong. Interest rates will remain low, which is good for borrowers, and real estate and stock prices.

This is the mindset or strategy that separates the rich from the poor; smart people use debt to their advantage to build wealth through leverage; the poor and middle class are scared of debt and will do anything to avoid it, even if it means being poorer as a result. The more leverage you can control, the more you can skim off the top. If you control a $1,500,000 home in the Bay Area, you can skim off $20,000 a month just from the appreciation alone using a home equity line of credit. If the mortgage is $6,000 a month, you are keeping $14,000 every month doing nothing.

Why Millennials Are Still Living With Their Parents

From the American Interest: Why Millennials Are Still Living with Their Parents

Pew’s analysis of U.S. Census Bureau data finds that in spite of an improved labor market, “the nation’s 18- to 34-year-olds are less likely to be living independently of their families and establishing their own households today than they were in the depths of the Great Recession.”

The unemployment rate for 18- to 34-year-olds has decreased from its 2010 peak, while median weekly earnings for workers in that age group have risen marginally from a 2012 nadir. Yet the share of young adults living independently — that is, “in a household headed by the adult, his or her spouse or unmarried partner, or some other person not related to the adult” — was 67 percent in the first four months of 2015, down from 69 percent in 2010 and 71 percent in 2007. Likewise, 26 percent of young adults were living in a parent’s home in the first third of this year, up from 24 percent in 2010 and 22 percent in 2007.

Falling incomes:

But more specifically, since 2011 income has been falling relative to rent and home prices:

Despite the bond market alluding to low inflation, the same can’t be said for rents, especially in the Bay Area, Seattle, and New York:

That’s why it’s smart that millennials are living with their parents longer, using the saved $ to eventually buy a home instead of making the landlord rich. It’s not immaturity – it’s adaptation.

Over the long-run, buying is better than renting…this especially true in regions where homes prices are rapidly appreciating, such as in the Bay Area.

Source: When Buying Is Better Than Renting. . .

A generation ago, all too many people were caught up in the idea of independence as in location independence, but millennials care more about financial independence, even if that means living with parents longer to secure a better financial future by using the saved money & time to buy a home, invest in stocks, or learn high-paying skills. Stock and home prices have risen markedly since 2011, and will continue to do so; why make other people rich when you can be doing so yourself?

In regard to MGTOW, since MGTOW is both a philosophy and a lifestyle, you can be MGTOW and live with your parents. If you’re 20 and have a crappy job making $1500 a month after taxes, if that money goes in your pocket instead of to a landlord or a needy girlfriend, after 5 years you will have $90,000 – enough to put a down-payment on a decent home, or even buy one outright. Thus in exchange for the temporary inconvenience of living with your parents, later you will have the financial means to ‘go your own way’ physically, too. Millennials know that the way your achieve financial independence in an increasingly competitive economy is to look out for number one – yourself – before all others.

Related: Why Personal Finance Has Become So Important To Millennials