The real estate market is picking up steam. In some places such as San Francisco and New York City, the recovery has turned into a frenzy where rents are surging and multi-bidding situations are now the norm. As a prodigious wealth builder, it’s important to assess your local real estate environment.
I’m down in the Sunday open house trenches to get a first hand view of what’s going on. I talk to Realtors about their property listing durations, understand why the sellers are selling, and get opinions on the market. You can never fully trust a Realtor because to them, it’s “always a good time to buy or sell property.” By going to open houses yourself, you can at least observe the amount of foot traffic and listen to the enthusiasm or lack thereof.
It should be obvious I’m an advocate of homeownership by now for the following reasons:
1) You have to live somewhere.
2) The homeownership stock is better quality than the rental stock to live.
3) Most people can’t save for poop, so paying down principle is better than poop.
4) Tax shield on income, which is especially helpful for those in higher brackets.
5) The long term trend is always up so long as there is limited land and population growth.
6) You can potentially make a lot of money over time.
7) More control over your lifestyle e.g. never have to move, remodel as you will.
8) Build real assets that can be passed along to your children.
9) Inflation hedge as your mortgage becomes cheaper in real dollars.
10) Inflation play as your asset inflates.
11) The first $250,000 in profits is tax free for singles, $500,000 for couples.
There’s nothing wrong with renting if you don’t have the money, don’t know what to do with your life, have a lot of debt, or are not sure whether you want to live in one place for more than five years. The mobility of being a renter is wonderful, so is the lack of responsibility for property taxes and maintenance. Just know the return on rent is always -100% every month. At least with homeownership, you have a chance of making some money.
This post isn’t about the merits of homeownership. This post discusses how to think about your current living situation and whether it gels with your investment outlook. Remember, the name of the game is passive income, increasing assets, and creating financial freedom.
A RENTER IS NEGATIVE REAL ESTATE Read more…