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.
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 supposed ills of home ownership, it’s hard to beat that.