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Rick Fishman
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I am a 'baby-boomer' accountant in the manufacturing sector in Cleveland Ohio. In earlier years, I purchased mainly mutual funds. More recently, I've been looking at individual company stocks. Recently, I took time off for a three-year 'adventure' as a high school math teacher. I am married and... More
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  • Why Buying A House Is A Terrific Investment 4 comments
    Aug 4, 2014 12:22 PM | about stocks: DIA, VTI, SPY

    Recently, a colleague directed me to an article published on Seeking Alpha titled "Why Buying a House is a Terrible Investment." Since the author of this article, Kyle Fishman, happens to be my son, I was flummoxed to discover that he had managed to 'un-learn' everything I had taught him about the merits of home ownership. So before he continues on his mission to spread wrong-headed thinking across the internet, I believe that a rebuttal is in order.

    After carefully reviewing Kyle's arguments, I could find only one point in which renting offers a practical advantage over owning, and that is in mobility. If one feels that career opportunities or other issues may present a high probability of requiring a change of residence, then yes, renting would be the better choice.

    Granted, a lack of money may leave renting as the only choice. But on the remainder of his points, readers should take caution to note that my son lives in a bachelor-centric fantasyland, blissfully unaware of the day-to-day struggles of working families.

    Kyle needs to realize that most people cannot devote the greater portion of their free time to watching Suze Orman and Jim Cramer … and therein lies the reason for why all his other arguments fall apart. An overwhelming majority of the population does not have the financial discipline to invest in stocks as their principal method of saving.

    Even when only considering basic index funds such as (NYSEARCA:DIA), (NYSEARCA:VTI), or (NYSEARCA:SPY), most people do not have a high tolerance for risk. How often do you hear a person say, "I like owing the government on April 15th. That way I can make money by investing my taxes for a year myself, instead of giving it to Uncle Sam and getting a refund later."

    Most people, especially families, if able to come up with a down payment, would prefer to own rather than rent. If you've got kids or pets, that patch of green grass is very meaningful. So is that basketball hoop in the driveway. Will those stocks in your portfolio give you as warm a feeling as inviting friends over for a backyard barbecue? Kyle, haven't you seen the end of the Zillow ad where they say "It's not just a house. It's a place to make your life happen."?

    No, I think Kyle would rather be awakened at four in the morning by a herd of elephants playing loud music through the paper-thin walls of his apartment. And he hopes that his landlord actually cares enough to send someone over to fix the broken toilet in less than two weeks. Oh, and not to mention how understanding his boss will be when he misses work because the parking lot wasn't plowed after a snowstorm.

    Ok, back to finances. A mortgage is a steady 'forced' investment (and savings) which more people are able to handle as opposed to nervously watching the daily ups and downs in the market. My philosophy is to buy 'less' house than you can afford, not more. That way you're not house-poor. You can save for kids' college, for cars, for dining out, and maybe for a vacation here and there. I was laid off several times and we were able to avoid being foreclosed upon because our monthly payment was low.

    I also recommend if at all possible, a 15 year mortgage over a 30 year … especially with today's still historically low interest rates. In the 1980's, mortgage rates were in the stratosphere-around 17 percent. When the government briefly offered a 10 percent rate, potential home buyers stormed those banks and camped out in tents for three days. Today's rates of 3 and 4 percent are a good bargain.

    When you get to age 50 or 60, that's when things really get interesting. I'll just use some ballpark figures here for our area of the country. The homeowner with the paid-off mortgage is now paying about $500 a month for property tax and insurance and that's not likely to change much. The renter is paying about $1,000 a month. And the renter is hoping that he won't have a greedy landlord who gouges him with annual increases greater than the rate of inflation (because that's exactly what they often do). The renter is paying an extra $6,000 a year now more than the homeowner. What will it be if he lives to age 90 as so much of the population is doing?

    At retirement, the homeowner has a valuable asset that can continue to be lived in or converted into some other financial vehicle that can supplement social security and pensions. A reverse mortgage is becoming a more popular way to draw out the value of your home while you still live in it during your 'golden years'. The only downside is that your children will inherit less of your money (as if that were actually a downside).

    But, Kyle, you needn't worry about that. After reading your article, your mother and I have decided to rewrite our wills leaving our entire 'terrible investment' to your sister.

    Disclosure: The author is long DIA, VTI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

    Themes: real-estate Stocks: DIA, VTI, SPY
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Comments (4)
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  • buyandhold???
    , contributor
    Comments (907) | Send Message
     
    Exactly. Look I hate real estate, Im a former trader and I know I can make huge gains annually selling puts and calls, but I still have 3 homes because well I can't rent forever. I would never touch real estate in the suburbs as those aren't "good investments" but I own a place in NYC,Miami, and another condo here in Miami. It's like stocks, you buy prime real estate, you'll always have a good return, you buy mediocre real estate, you get mediocre returns. I'm up 200% on the condo i bought in miami in 2009, can't complain. What is a 4.5% mortgage going to look like in 30 years? Dirt cheap.

     

    I personally got a 2.75% 7/1 ARM on my recent purchase and I'm laughing all the way to the bank, I can make that almost monthly trading, these rates are a gift
    10 Aug 2014, 06:58 PM Reply Like
  • YellowJoe
    , contributor
    Comments (159) | Send Message
     
    Hi Rick,
    your son is MORE correct than you are and it sounds like you are jealous of his FREEDOM-type lifestyle ;)

     

    You described "ownership of the home a person lives in". I think it can be debated intelligently if its better to own the home you live in or rent the home you live in. But if you put aside all the 'warm fuzzy' feelings of MORTGAGING your own home, renting always comes out ahead FINANCIALLY.

     

    So besides your own home, going to invest in 2, 3, 4 other properties for investment purposes only is nowhere near as good as putting your money into the stock/bond market.

     

    you said it clearly here: "An overwhelming majority of the population does not have the financial discipline to invest in stocks as their principal method of saving."

     

    Its just MOST people lack the basic understanding to do something as easy as a Vanguard life-fund and call it a day...
    11 Aug 2014, 07:40 AM Reply Like
  • pim69
    , contributor
    Comments (311) | Send Message
     
    Rick,
    Thanks for the article, I appreciate a counter-argument, though I believe everything you mentioned was also in the comments (and more) from your son's VERY popular article.

     

    I think the key phrase from your article is right here:
    "An overwhelming majority of the population does not have the financial discipline to invest in stocks as their principal method of saving."

     

    The whole discussion centres around investing and wealth building and if buying a house is a good method to achieve that aim. Pointing out that most people are terrible at investing and wealth building does not really counter the discussion, it says the discussion is pointless. Seeking Alpha is full of readers who do NOT fit this "typical" person who makes bad financial decisions for their whole life, so I don't think that phrase is relevant personally.

     

    You also mentioned buying a house as an investment, but in my opinion an investment is buying an asset that PAYS you. Paying levered interest for 15 or 25 years is the opposite of paying you. Home ownership only STARTS benefiting you after this time, but you have spent half your working life with less money to invest in equities, greatly increasing your risk of greater exposure to a stagnant or declining market with the money you could have saved renting (especially since renters are more likely to choose a more modest home) and investing the difference.

     

    As I mentioned in one of my comments on the original article, a home owner is also much more likely to spend more money than necessary on the home in renovations, decorations, landscaping, and choosing more expensive options when doing these things and in general maintenance. From a purely financial investing benefit perspective, home ownership is NOT as attractive as most people think.

     

    If it gives you rosy emotional happy family feelings (I would argue it's unhealthy to attach your family memories to a specific place or "stuff" instead of being about the people), that's a good reason to consider. But it has nothing to do with the value of primary home ownership as an INVESTMENT (which is in the title of the article).
    11 Aug 2014, 09:32 AM Reply Like
  • YellowJoe
    , contributor
    Comments (159) | Send Message
     
    Pim69,

     

    100% agreed!

     

    we both quoted: "An overwhelming majority of the population does not have the financial discipline to invest in stocks as their principal method of saving."
    11 Aug 2014, 10:51 PM Reply Like
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