I have been reading on the website Patrick.net for a while now and I really like the message there.
Basically Patrick’s message is that home ownership can be a huge trap, 30 years of mortgage debt can lead to wage slavery, and that most of the misconceptions that people have about paying rent are completely false.
For example, Patrick is the one who taught me (using math, not just theory) that renting is not, in fact, just “throwing money away.” It depends on current interest rates and what it costs for you to borrow money. In my opinion it also has to do with local property taxes compared to local rents.
For example, if you can rent a house for $1,000/month or you have the option of buying the same house for $200,000, which should you choose? The answer depends on current interest rates, and also what kind of return you can get on your money if you invest it instead.
Most people do not think about it like this, because they tend to not have substantial savings and investments. Since they have no savings, it makes no difference to most people what kind of return they can get on their money.
My situation is favorable in that my investment income made up roughly 40 to 45 percent of my total income for the past year, yet I still have a full time day job. Obviously I have substantial money that is “working for me” and I could have just easily taken that money and invested it into a home instead.
The bottom line for me is that because I can rent in my area for $425/month it is not cost effective for me to own a home at this time.
However, Patrick’s book is what finally gave me permission to feel OK about this decision.
Everyone you talk with seems to have a one track mind when it comes to the buy or rent debate: “If you rent you are throwing money away!”
No. Not true. If you own a home then you are “investing” capital into something that is actually a depreciating asset (houses depreciate over time, it is a box that sits in the rain and rots).
If you rent then you can take your savings and put your money to work for you.
Everyone who bought over the last decade or so got burned. Their “investment” went bad on them. People who were renting “won” over that time frame.
Patrick does a good job of warning you about all of the people, groups, and companies that want for housing to get more expensive (inflate). For some reason, we equate housing inflation as being a good thing, and we call that “a healthy housing market.” And when home prices deflate (as they have done in recent years) we call that “bad” even though housing is becoming more affordable for people.
Why is affordable housing a bad thing? One of the reasons (as Patrick points out in his book) is that so many people have used their housing “investment” as a piggy bank for their retirement savings. Their plan was to get old, sell the house, and use the money to fund their retirement to live out their remaining years. Not working so well during times of housing deflation.
Furthermore, it is the elderly population who is getting hurt by this, while young people tend to benefit from housing deflation and cheaper home prices. But guess who gets out there and actually votes for the politicians? That’s right…..the people who want to see housing go up. Many retirement plans are just begging for housing recovery.
And of course there are all sorts of other traps when it comes to home sales and the big push for a housing “recovery” (inflation). Realtors want prices to go up (so they make bigger commissions). Banks want prices to go up (so they make more on loans). And so on. About the only one who wants prices to go down are current or future home buyers.
Anyway this is a killer book about housing if you are in the market to buy any time soon. A must read for future buyers. Check it out on Amazon: