Reasons Not To Buy A House From A Millionaire Investor, is a guest post by Kristy from Millennial-Revolution.com. Kristy and her husband have been all over the Canadian news recently for denouncing homeownership.
They considered buying a Toronto property in their late 20s when they realized they couldn’t get anything nice for ~$500,000. Instead of buying, they saved as much as they could, rode the bull market, amassed a $1M investment portfolio, and quit their jobs to travel the world by age 31.
Given I’m pro homeownership because I’d rather be a price dictator than a price taker, I thought it’d be great to get the other perspective. Their blog is written with an irreverent flair that I enjoy.
It’s one of those things that happens when you become financially independent and don’t give a damn what other people think. So for those of you who are pissed off about ridiculous home prices in places like San Francisco, Honolulu, London, Sydney, Mumbai, Hong Kong, Vancouver, Toronto, and New York City, know that homeownership isn’t the end all be all!
This post was originally published in 2016. I’ve since updated the post with charts on how the real estate market has done since. – Sam
Why I Still Won’t Buy A House
When I first told my mother I was a millionaire, her response was:
“So what? You don’t even have a house.”
Didn’t matter if the houses in Toronto were unaffordable. Didn’t matter if I didn’t want to work a stressful job I hated just to pay off a massive mortgage. Didn’t matter if I have enough money to live the rest of my life with complete freedom, never having to set foot in a corporate prison again.
Without a house, I was a loser.
My parents and I barely speak anymore. Other than the occasional e-mail or phone call, we haven’t seen each other in a year. What’s the point? It’d just be the same fight every time.
My friends think I’m nuts. They think I’m anti-house for the sake of being anti-house. They think I’m having SO much fun being a contrarian.
But what they don’t see is that, as the child of Chinese immigrants, it’s sacrilegious to not buy a house. Home ownership is part of our culture. It’s part of our DNA. Financial Samurai can back me up here. In Asian cultures, paper assets aren’t real. Only things you can touch with your hands are.
So even though I knew that logic and statistics and cold hard MATH told me I was right, because of my culture I had to get disowned for believing that the purpose of money wasn’t to buy granite countertops, hardwood floors, or soaker tubs.
The purpose of money is to buy…
Time.
Time is our most precious resource. We can always make more money, but we can’t make more time.
So I decided to buy back my time. Instead of paying off a mortgage for 30 years, waiting until I was 65, only to get too sick and too bedridden to travel, I decided to build a 7-figure portfolio, live off the passive income, travel the world, volunteer for non-profits, and be an author/blogger instead.
And here’s what I’ve learned about the benefits of not owning a house and why I was willing to get disowned for it. Here are the reasons not to buy a house.
Reasons Not To Buy A House #1: You are NOBODY’s bitch
When you own a property, all your money is stuck in the house and because you can’t sell a brick or window to pay off your house, you have to continue being a bitch to your boss in order to pay the mortgage, insurance, and property taxes.
And if you decide to rent your place out, you become a bitch to your tenants. Because of rental laws that somehow heavily favor deadbeat tenants who refuse to pay their rent over the property’s rightful owners, you somehow live in fear of them! After all they could take a claw hammer and destroy your life savings in an instant.
When you rent, if you don’t like your job and find a better one somewhere else, you can leave. Even if it’s in a different city. Without the house tying you down, you’re free to move anywhere for better career opportunities.
And sure, you can argue that as a renter, I can get kicked out whenever a homeowner wants to sell. BUT, as a renter, I can also take advantage of moving to “renters market” areas and take advantage of the high vacancy rates. I can also rent an apartment building, where the chances of the landlord kicking out the entire building to capitalize on the housing market is next to nil. As a renter, my choices are endless.
The last three times I’ve left my rentals, all three landlords begged me to stay. They kept throwing irresistible offers at me, like lowering my rent, and when that didn’t work, they even offered a special deal to a friend if I could recommend someone trustworthy. Guess they’ve been burned more than once.
Reason Not To Buy A House #2: You won’t be hit with a wealth tax
When you are a homeowner, you have to pay property taxes. And if the value of your home goes up? Even HIGHER property taxes. Oh and if out of the blue, the government decides to slap on an additional “land transfer tax” or “15% foreign ownership tax” like they did in Vancouver? Too bad, you’re paying for it.
Houses are the perfect vehicle for the government to screw you, because they know you’re landlocked and have no choice.
But when you’re an investor, you can shelter your dividend income BIG TIME! You can make up to $37k each in qualified dividend income, and pay NO taxes in retirement (since your earned income drops to 0). When you’re working, you can take advantage of the lower qualified dividend tax rate.
And even if they pull a Cyprus-style wealth tax, they might get you once but after that you’re going to pack up your money and ditch the country. With your house, you have no choice but get screwed year after year.
The system is designed to reward investors, and punish homeowners.
There is no wealth tax in America. But perhaps, under a Joe Biden presidency where taxes are going up, there eventually will be one.
Reasons Not To Buy A House #3: You have ALL the TIME in the world to do WHATEVER you want
When you’re a homeowner, there is always a lawn to mow, a porch to fix, a roof to re-shingle, a driveway to clear. Because let’s face it, unlike a portfolio, a house deteriorates over time and parts need to be replaced.
And hey, if you’re handy like Financial Samurai and love fixing things, great! But I’d rather use my time to travel, spend time with my family, and write the next bestseller (HA! Yeah right). Sure, I could pay a property manager and hire contractors to do all those things, but that still involves oodles and oodles of time and effort to find, vet, and manage contractors, and that is not my idea of fun.
My time is too precious to waste on home maintenance and babysitting contractors/property managers.
Reasons Not To Buy A House #4: Your assets are liquid
Stocks are easy to buy and easy to sell. Within seconds, you could be out of the market.
Not so with a house. You have no control over who moves in next-door (ever seen the movie “Neighbors?” Would YOU want frat boys moving in next to you?). If they start making your life miserable and you want out? Your house could be sitting on the market for months.
What if you bought the house at the peak and now you’re in a down market? Well, guess what? All your friends and neighbors are also trying to unload their houses, so good luck trying to get out.
Your house will be sitting on the market, while it continues to lose value, and you continue tearing your hair out. And when you do finally sell? You get slapped with another 5% in closing costs.
Reasons Not To Buy A House #5: You are diversified
With a diversified portfolio, you are hedging your risk. As stocks plummet, inversely correlated assets like bonds will rise. And if you own REITS, you can even take advantage of a rising real-estate market, without having to put everything into 1 asset.
With a house, all your wealth is stuck in 1 asset. If that falls, you’re screwed.
Reasons Not To Buy A House #6: You have no maintenance costs
It costs next to nothing to own and maintain a portfolio of low-cost Index ETFs. Maybe a $5 transaction fee here and there, and a rock-bottom 0.1% MER. But for a house the costs just never end: property taxes, insurances, maintenance, lawyer fees, and closing costs when you sell.
On the contrary, a portfolio pays YOU, not the other way around.
Reasons Not To Buy A House #7: You don’t need to time the market
If you’re doing long term investing like me, you don’t have to time the market. Simply buy low cost index ETFs, and rebalance periodically. This ensures that you buy low and sell high. And with the portfolio structured to pay me enough dividends to cover my living expenses, I never have to touch the principal. This means I never have to figure out when to buy or sell. It’s a no brainer and very passive.
With housing, however, you need to time the market. You need to know when to get in, and when to get out.
Is it EVER a good idea to buy a house?
Now, before you all get out your torches and pitch-forks, let me explain. I’m not saying all houses are a bad investment…I’m just saying they’re a bad investment for MOST people.
Take Financial Samurai, for instance. If we ever opened up his laptop, I guarantee we’d find reams and reams of spreadsheets and analysis on every house he’s ever invested in. To put it mildly, the guy does his homework.
Here’s an article detailing his insanely rigorous method of finding good tenants.
Here’s another article on how to properly analyze and value an investment property.
He knows what he’s doing because he puts a ton of thought into any financial decision before pulling the trigger. Someone like him SHOULD be investing in real estate.
The average real estate “investor”? Not so much. Armed with the knowledge that “houses always go up” and that “rent is throwing money away,” they just put in a bid after a 10-minute inspection. That can get you into a lot of trouble, as a reader on my blog recently learned when they bought a luxury condo in Edmonton, Alberta right before oil crashed 70% in value.
Buy A House If You Carefully Run The Numbers
So if you live and breathe numbers, know how to read a US Treasury yield curve, and like spending your time doing house maintenance, I’d say housing is a good bet for you.
But if you’re dumb and lazy like me and would rather spend your time traveling and doing what you love, renting and index investing is a better way to go.
Even if you get disowned for it.
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Update 2021: Looking Back On Real Estate Over The Past Five Years
Since publishing this post in 2016, housing prices have soared in Canada, especially during the global pandemic. Big city real estate is heating up and people are also buying rental properties for income.
Thankfully, the stock market has also done great since 2016 as well. Therefore, Kristy is doing well too. However, in retrospect, it Kristy would have built more wealth if she had bought real estate in 2016 thanks to leverage.
Being a millionaire requires saving and long-term investing. I think people should get neutral real estate by buying their primary residence at the very least.
Because Kristy and Bryce are still so against owning real estate, I thought I’d do a good thought experiment in my latest post: What If The U.S. Housing Market Got As Hot As The Canadian Housing Market
Great article! I had come across Kristy’s story once before on the news but couldn’t recall her name but now I can check out her blog. I think personal finances are just that: personal. If Kristy and her husband can afford live in a way that’s different than how you or I want to live, that’s perfectly fine. No need to cram homeownership down on someone who doesn’t want it and has the ability to generate wealth in their own way. We’re not all the same underneath it all…and that’s ok! Doesn’t mean we don’t have the right to exist for not having the same life goals or that only your life is valid. I myself have moved about 7 times in the last 10 years and am planning another move after the pandemic. I also don’t want to have kids. My finances and what I want out of life are going to be very different than what a married couple with 2 kids and a dog is going to be like.
Thanks. I think in retrospect though, it would have been great if they bought Vancouver or Toronto property back then as prices have done extremely well since.
That said, they still don’t have kids. So living lightly is nice!
If they end up choosing not to have kids in the end, well then there’s less of a need to create generational wealth haha. Buying a house due to societal pressure and hating every minute of it still counts as a regret in my book so I’m glad they are able to live life on their own terms and it inspires me to do the same
One thing that was not mentioned about renting….Lock and leave. I never had such luxury living in my lakefront home. Instead, I was met with thousands upon thousands of maintenance costs and nightmare experiences that never ended with contractors. And yes, cheap appliances and whatnot can be a downside of renting, though it depends on what you’re renting. Renting in a posh high rise will give you the same quality appliances as if you owned one of the units, and you get all of the amenities as owning. Traveling is a breeze too; especially to five star hotels at the top suites that you can enjoy from all the savings of not spending on home maintenance. Sure, you’re paying for the taxes in renting, though what the closers for a home don’t tell you is all you will be spending on replacing appliances, hvacs, roofs, windows, water heaters, floors, painting, and that’s if you don’t do any renovating! How about sidewalk repair, lawn irrigation and gardeners and aborists? How about a $500 bill to clean your home (and that was 2006). I wish I was making all this up…Just a sample of one year of my home ownership in Dallas, TX.
True, there are a lot of hidden costs to homeownership that no one tells you up front. Realtors will never go into them with you and other people just hand wave them away. But they do eat into your appreciation and because they are unexpected, they are always a nasty surprise compared to a straightforward rise in rent that you can account and adjust for (or move to a new place). Not to mention all the time you spend constantly fixing the thing or looking for a decent contractor that will do it for you. A managed apartment on the other hand can send in maintenance within 24 hours and you don’t even have to at home for them to come in and fix your issues.
The blogger kid is conflating LBYM lifestyle with home ownership. Thinks he’s no one’s bitch? Wrong. What the blogger kid gets wrong is that he’s still paying rent. He is his landlord’s bitch unless he lives at home with parents.
Further, if you’re ever f’d (laid off, injured, etc) you will be evicted in 2 months, as a renter
With a mortgage, it can take YEARS to get evicted. I know people who defaulted on their mortgage, and lived for free for about 5 years (and banked all the cash) Owning is MUCH safer.
Blogger kid gets this totally wrong.
What family? they disowned you didn’t they? Having a home let’s you live another dream. Sometimes people want to settle down and create something like a family. At least you volunteer and don’t live completely selfishly though.
We don’t rent or own. We found living inside walls to be suffocating to life. They completely shelter and take one away from the beauty of the world. Amazing that for a lot of people the only time they are outside is to walk to their front door of work, they live completely disengaged from nature, getting only artificial light.
So, we dont own or rent, we got a van! We don’t even have to try to save money, it’s just too easy to save. We take on meaningfull contract work that we decide to do when we want to and do whatever else we want the rest of the time.
We don’t wait for ‘vacation time’, we give it to ourselves when we want, whenever we want. It is so liberating.
Society is under a spell that you need walls to live in, a shower every single day with toxic chemical water, and using gallons of water just to empty ones bowels. Its amazing how little water one needs to brush teeth, yet so many people waste tons out of a faucet.
I’ve found I can comfortably eat on $5 a day (natural foods) and we found it liberated ourselves from over eating like most of America. We live in places humans are supposed to inhabit with comfortable temperatures, no need for Air conditioning or heat constantly. Best shape of my life, run everyday, cut up abs, good stuff!
If you think about it, most stuff people do is just a waste of time. There are important jobs but they truly are far and few in between and don’t pay their true worth to society.
In America hard work doesn’t pay. Wealth is accumulated by taking advantage of others, doesn’t sound nice but think about it, it’s the truth. Besides the government printing presses, one cannot create wealth but rather take it away from others. Why do you think the 1% keep getting richer?…
So do yourself a favor, reject society ‘norms’ reject everything you “think” you need to live. All you need is water and a little food (a lot less than you think) and your life will continue on regardless of your finances, fancy cars and fancy houses.
Philosophical tid bit *
Everything you see around you is imagination of the human mind, even the words on this electronic page are just squiggles, it’s a conspiracy between you and me that I created these words from my mind and you are reading the words and creating their meaning.
Search for Sadhguru *warning: life altering events may occur once you see the matrix from the outside*
Remember, You’ll be DEAD a LONG TIME, so live it up folks!! Don’t let the worms have all the fun!!!!
Good stuff! Maybe you want to share your own guest post on Financial Samurai one day. I enjoy reading about unusual lifestyles.
This is exactly the kind of post I’ve been looking for. I’m thinking of selling my 2-bedroom condo in downtown Toronto so I can be free to travel around interviewing people for my YouTube channel. So many people keep telling me I should never sell the property. I would love to interview you about your lifestyle to help confirm my desire for freedom.
Oh you your so wise. Blessed with the wisdom too see through the illusion cast on the rest of society…..bit do tell me, how do you raise children in a van?
Agreed that buying a home can be a very tricky decision that is easily rigged in favor of everybody else. And I always loved the idea of stocks over a house mortgage. In fact, I too ditched my home and did the rental thing. Sounded great, loved my 18 months at it.
Except you can’t live in a stock portfolio.
That became very clear to me when my landlord went bait and switch on me — rent prices went up 10% at renewal time! The front office staff said “this place is owned by a big corporation, there is no negotiating. They like to get people in here on low prices, then figure you don’ want to move again — so they jack it up a renewal time.”
Being someone’s bitch? = being forced out of your home by higher rents or even just because someone wants their property back.
So I went the middle ground and bought a home — but the smallest one I could shoehorn myself into in order to reduce maintenance and financial risk. And a monthly mortgage that will never increase.
Good move too. Even though it was a very tricky purchase, it finally worked out. Just a year later, there was a flood in my area that took out 40,000 homes for a year — https://weather.com/news/weather/news/historic-august-louisiana-flooding-billion-dollar-disaster.)
Now people are begging for rentals. I was able to move in with a friend for awhile and rent out my condo for 9 months to a flood victim family who lost almost everything.
In other words, my property is easily converted to a cash-producing asset. And here is little hassle. I can ask the condo staff here to do the rental management for me, if I don’t mind paying a small fee.
And I can still travel around. I can sell my property if I want to. Nothing sits on the market forever, most homes in my price range ($100-$150) sell within 30 days.
Also, there are protections in the law in the US re: home ownership. Home value isn’t figured into things like assets counted toward nursing home medicaid eligibility. No one can kick you out of your home unless you don’t pay your taxes of course. My taxes each year are around $450. I think I’m good.
You might want to rethink your home ownership strategy — renting is great, and I loved it. But it came with a very high price tag.
Can someone explain this part from Benefit #2 a little bit more clearly? How can you pay NO taxes on your dividends?
Re: Benefit #2
“But when you’re an investor, you can shelter your dividend income BIG TIME! You can make up to $37k each in qualified dividend income, and pay NO taxes in retirement (since your earned income drops to 0).”
Qualified dividends are taxed at the capital gains tax rate, not as income tax. You can read more by googling “qualified dividends” for more. The lowest tax bracket for capital gains is 0%.
Good question. I didn’t know until I looked up the answer.
I am a homeowner and I don’t think renting is a big deal. We only bought a house because we wanted a family, and raising a family in a house helps keep the peace. I suppose we could have rented a house where we live instead, but rents are high where we live, and the price to buy a house in the Nashville, TN area seems to go up, incessantly and without reason.
When I met my now wife, I advised her not to bother buying a house in 2005. I had no magic lens, logic just told me that housing prices could not go past wage increases forever. The math didn’t work and homes weren’t historically fast rising assets. I also heard the same stories everyone else heard, anybody could buy a house with an interest only ARM. Ummm, why would anyone think this wouldn’t lead to a crash? Hello, that wasn’t rocket science.
Congrats on your lack of home-ownership, I always enjoyed the apartments I rented.
You’re absolutely right that having a home makes you a target for the government to take some of your money. Of course, if you rent you end up in the same issue since as a renter you’ll pay property taxes too – they’re just included in the rent. I guess the best thing would be to just travel in a motor home or something, or move to a place with low property taxes and move if they raise them.
Jusy because you are paying a 30 year mortgage doesn’t mean you have to be enslaved for 30 years to a home. Average time in a house is about 5 years. I know people who sell their house in two years and move on. Put enough principal and equity into it and you can maybe profit in a short time. Buying a home doesn’t have to stop you from traveling either. If you bought a piece of crap home that needs tons of repairs and renovations or maybe decided to go with a huge yard or even buy too big of a house… yeah you wont have time for much. If you go more on yhe new side or find something that at least has been taken well care of by the previous owners, then going out and doing what you love shouldn’t be a problem. Homeownership comes with work no matter what. As rent keeps going up, think about it: you could be putting that money towards something and be making an investment. You don’t want to live there anymore and can’t sell or dont want to do away, then rent it out to really good tenants you trust. You can actually rent out the house a little higher than you mortgage in most cases. All their money takes care of the mortgage and you can live your life somewhere else. Homeownership isn’t a bad deal. It’s more of are you willing to make the commitment towards what can be a good investment, rather than throwing your money away.
Great fricken article. I’m currently in finance and I’ve been using my commission based job as a means to accumulate wealth at a rapid pace. Once I hit that 7 figure net worth, I’m going to seriously consider getting out of the mortgage business. I do like making tons of money, so we’ll see how I feel when I get there.
People always ask me why I don’t want to buy a house or why I haven’t purchased one yet. This article sums up my feelings exactly. People seem to be really offended when you disregard homeownership in a such a manner.
I’m all about that liquid wealth.
A close friend of mine, who is a very important part of the company I work at, once said to me that he himself hates mortgages, but loves people who have them. That way he can keep them working for him forever!
Home ownership can be a great investment if you live in an area where there are boom and bust cycles like you find in the stock market, as long as you get the timing fairly close to being right. A friend of mine has timed the market well a couple times out in San Francisco.
But, in areas where the rate of appreciation is basically tied to inflation, if that, then you may actually be losing money due to the amount of maintenance a home requires.
On the other hand, those tax deductions are a huge enticement to purchasing a home just about anywhere.
Ultimately, this article makes some good points. I am more aligned with the authors because I like the stock market as a vehicle for building wealth better than real estate. Real estate is just a lot more work.
A family income of $43,000 in the USA would put them into the 40th percentile of income.
That means that they would have an income higher than 40% of the families in the country without doing a lick of work at all.
A stock portfolio of $1,000,000 should be able to reasonably safely toss out an income of $40,000 a year based on historical averages. An ultra-save withdrawal rate of 3.5% instead of 4% would still bring in an income of $35,000.
That’s pretty awesome.
If they stay in an income producing activity for a few more years, they could easily grow that $1,000,000 into a much larger number very quickly. If they never saved another penny and just let that money grow it should compound to around $2,000,000 in about 10 years. That would produce an income of $70,000 to $80,000 at the 3.5 to 4% safe withdrawal rates.
This couple is only a few years away from being set for life. Or, if they live very frugally, they already are.
Bravo to them!
And, if they decided to buy a house in a low cost of living area, they could probably pay cash for it in a year or two, depending on what their income is. At that point, their income would be plenty.
I’d just like to say that I saw your original article on CBC and I completely agree with your life decisions! I am a bit jealous, I have to admit. ;)
I currently live in Toronto, never intend to buy a home anywhere, and I am saving up for Financial Independence. I’m not in a huge rush, but I’m aiming for retiring before 45 (which is still another 18 years). Location independence and travelling are huge for me as my partner especially as our families are far away. I would be surprised if we stay in Toronto until we reach Financial Independence, but never say never!
Keep it up, and I will be following your blog from now on.