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I
do not own my home. I’m a renter, but not by choice.
About a year ago, I was downsized and decided to sell
my house and an investment property. I can remember
the day I bought my first house. It was so amazing--I
had a place that really, really was my own and it was
the largest asset that I had. Finally, I was going
to stop throwing away my rent money and instead put
it into something that would be working for me.
Or so I thought.
No,
I’m not going to retell the story that was comedically
portrayed in The Money Pit. This story
isn’t quite as funny. You see, I was always taught
that owning your own home was a great thing--one of
the things that poor people couldn’t do. Having grown
up poor, you can imagine what being able to buy my home
must have felt like. But I wasn’t told the whole
story.
You
see, I went hiking in Malibu a few months ago with some
friends. One friend and I got into a discussion about
home ownership. As you already know, I’m a big fan.
I expound on the virtues of home ownership: investing
in something that will (or at least should) appreciate,
taking advantage of the tax benefits, and most importantly,
taking money that you would already be spending on rent,
and putting it into something that will, in the end,
benefit you.
She
was not of the same opinion. While I viewed my home
as an asset, she insisted that it was a liability. She
said that people sink money into their homes, and this
made them a liability. I argued that putting your money
into your own home is much better than buying someone
else’s home for them by renting. Plus, your house is
something of value, and that makes it an asset. We were
at an impasse, neither willing to yield our respective
positions.
Fast
forward to yesterday. I took my car in for an
oil change and to have the tires balanced and rotated,
so I had some time to kill. Remembering that I
wanted to buy a book for my girlfriend, I spent some
time browsing the shelves of Barnes & Noble. I made
the rounds through my usual sections: SciFi/Fantasy,
Philosophy, and Business/Management. When I reached
this final section, I picked, and ended up buying, a
book that I had considered buying many times before,
Rich Dad Poor Dad, by Robert T. Kiyosaki.
This
book was first recommended to me by a woman who tried
to get me to buy into some multilevel marketing company.
Having already made that mistake (MLM) as a young adult,
I politely declined, and figured that the book was complete
crap. However, this title seemed to creep into conversations
over the next several years, most recently with a friend
of a friend who made it the practice of supplementing
his income by buying undervalued properties, fixing
them up, and selling them at a profit. He was well respected
by my friend, and he was a big fan of the book. So I
finally decided to give it a go. I figured, “What’s
twenty bucks and a few hours of my time?”
The
time and money was worth the investment. I’m not going
to give a complete review of the book, though I nearly
finished it yesterday evening. I do, however, want to
shed some light on the subject of home ownership as
an investment.
First
off, Kiyosaki admits that owning a home is better than
nothing, when it comes to growing wealth. However, he
presents evidence that suggests that developing an investment
portfolio is much better than buying a house. His argument
begins with the definition of an “asset,” which, in
short, is “something that generates income.” This is
very different than my notion of it being “something
that has value.” He then launches his main argument,
which I have paraphrased here, and can be found on pages
73-74 of his book.
1.
Most people never end up owning their homes. They either
trade-up into more expensive homes, refinance their
loans, or take second mortgages, which all (usually)
return the term of the loan to thirty years. They pay
their mortgage each month, making their home a liability,
not an asset.
2.
Homes are bought with dollars that have already had
income taxes and other payroll taxes taken out. Yes,
interest might be a tax deduction, but does it build
your equity? No. You don’t get anything for the interest.
People spend nearly half the year working to pay their
greedy Uncle Sam before they actually get to see the
fruits of their labor.
3.
Property taxes further increase homeowners’ liabilities.
An unexpected increase in property tax could prove disastrous
to the average American, who lives from paycheck to
paycheck. Have you ever heard of property taxes actually
decreasing? I haven’t.
4.
Houses do not always appreciate in value. Though this
may be difficult to imagine for a Californian who bought
a house a few years ago (as I did), but a quick look
at home values over the past twenty years will show
this to be true. In fact, some analysts have declared
that the real estate boom is over, and have noticed
a decline in over-inflated home prices as of late.
5.
The greatest loss is from missed opportunities. Having
all of one’s income tied up with the obligation to pay
the expenses of owning a home, there is often nothing
left to purchase assets, which increase income. This
factor is even more compelling in the argument for saving
to purchase a car with cash instead of on credit. If
you invest saved money, it will grow. Plus, you won’t
pay interest to buy the car, so it ends up costing roughly
half the price. Why everyone (including myself) doesn’t
do this is just crazy. It’s likely a result of our addiction
to instant gratification.
Kiyosaki
explains several other factors in growing one’s wealth
and becoming rich, and most of his advice, unlike this
section on owning one’s primary residence, is intuitive.
I can’t say that I’ve bought into it completely, but
at least I understand that owning a home is not the
sweet money-making opportunity I once thought it was.
Oliver
Butterick can be reached at oliver@babblog.com.
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