Do We Really Own Any Of Our Wealth? Or Are We Just Custodians?

After a brutal sell-off in March 2020 and the correction in early 2022, we should really ask ourselves: Do we really own any of our wealth? When trillions of dollars of wealth can disappear in a matter of days, maybe not.

Now that the stock market has rebounded, it really is time to spend more money on a better life!

Personally, I'm really focused on revenge spending once my entire family is inoculated. With so much pent-up savings, I'm absolutely sure corporate earnings are going to rebound aggressively.

Wealth May Just Be An Illusion

You never actually own a Patek Philippe. You merely take care of it for the next generation.

The above quote is one of the best marketing lines today by a company that regularly produces $30,000+ timepieces. The line targets the aspirational generation. It also begs the question whether we really own anything in this world due to impositions by the government.

In 2021, if we accumulate more than $11.58 million per person upon death, the government will tax us 40% – 50% for every dollar over that amount. Hoarding much more than $11.58 million per person seems like a waste. We should have spent more time enjoying our wealth and conducting better estate planning.

If we don't pay ongoing income taxes, property taxes, sales taxes, business taxes, and/or FICA taxes, we may get fined, lose what's ours, or even go to prison. That doesn't sound like true ownership.

We Really Don't Own Any Of Our Wealth

Check out this fantastic killjoy comment from Joe after I paid off my mortgage for one of my rental properties. I was actually thrilled to pay off my mortgage.

“I find this site entertaining and have read every post. This is my first time commenting in a while because the idea of owning a home “Free and clear” is a bit of a pet peeve of mine.

You don’t own your home “free & clear” because if you stop paying your property taxes, you will lose your home. In a perfect world, we would all own our homes “free & clear.” But this is not possible. Unless you have an allodial title to your property (which is practically nonexistent in the US), you don’t really own your home, even if you don’t have a mortgage since you have to pay property taxes. Semantics & legal verbiage aside, do you truly own something if another entity will take that something away from you unless you pay an annual tax?

I believe the concept of mortgage freedom does not exist and is a false sense of security and ownership. I know this is an unconventional way to think about home ownership which is why I felt compelled to comment on here for the first time in a while. I’d be curious what other people think.

To me, ownership is something that you own outright, and you are indebted to nobody in order to maintain ownership of that something. So when you have a home, you are indebted. Call it a mortgage payment, call it taxes, but you owe money and if you don’t pay you lose your property. I don’t consider that ownership but maybe I’m missing something.

People have said to me, “Well, what about your car? You need to pay insurance, and have it registered, and in some states emission inspections.” But the difference between a car & a house is that a car can sit inert in your driveway, unregistered and without insurance. Sure, it can’t legally be driven but you still own it, could sell it, get it registered, inspected, etc. Most importantly, it won’t be confiscated. The same cannot be said for a home. So it’s not just semantics. This is a key difference.

Other “well-followed” personal finance bloggers have said to me, “That’s like saying, “You can never really own your home because you still have to buy food. If you stop buying food, you’ll die and dead people lose all their property. So really, in the face of the fact that humans require nutritional sustenance, home ownership is an illusion.”” (Yes, a well-respected blogger actually wrote that!)

Of course the educated and above average net worth readers of this blog I’m sure know that dead people (at least in the US) do not lose their property when they die! If they did, I (and many others) would be out of business.

Very wealthy people whose wealth will outlive them spend a lot of time and a lot of money planning with lawyers, accountants, and financial advisors to figure out where they want their property to go when they die. So if you own something, you own it even if you stop buying food and die. It is part of your estate.

So I’m going to stick to my guns and say you don’t really own your home. If you were to pass and leave your child a t-shirt, that t-shirt is your childs’. If you were to leave your child your house, the house is your child’s so long as he “rents” it from the city/state (i.e. property taxes).”

Joe has a good point. Ongoing property taxes is the biggest downside to owning property. But then again, taxes is the biggest ongoing expense for everyone. Although, roughly 47% of Americans don't pay any Federal income taxes.

The older I get, the more I enjoy investing in income producing stocks over real estate. But that's because I'm also just growing lazier. If I look at which asset class did the most to boost my net worth over the past 15 years, that asset class is real estate. Now I'm trying to outstrip my real estate returns by building an online business.

Owner Versus Renter

If we never truly own our home, how are homeowners different from renters? The answer lies in the ability to sell a home to someone else for potential profit.

After 30 years of paying either the landlord or the bank for the privilege of living in your home, the person with the title to the property has a call option to potentially make a return. Heck, the homeowner has the option to sell as soon as he takes title.

For example, according to RealtyTrac, in 2021, nationwide, home sellers on average sold their homes for 17% more than they paid for them. If the average home price is $380,000, we're talking about a $50,000 gain vs. $0 for the renter.

In San Francisco, the results are even more striking, with the average seller seeing a 58% higher selling price than purchase price. In 2022, big city real estate is heating up further as everyone rushes back now that Covid levels have plummeted.

The YOLO economy is back with a vengeance!

Home Seller Average Price Gains

Custodians Of Wealth After All

We don't really own anything. All we really have are our experiences, and even those can fade over time due to old age. I'm hopeful that by documenting my journey for as long as possible on Financial Samurai, I can look back when my fingers are too arthritic to type and remember all the funny things that happened.

In a box on the top shelf of my sanctuary is a bundle of pen-pal letters I received as a kid while living in Malaysia. I still revisit them from time to time. I still smile at all those little love notes I saved which were passed around during intermediate school class. Those mixed tapes made for high school girlfriends were great. Nostalgia is wonderful.

Perhaps it's really time to sell some property and convert the proceeds into something more hands off. Real estate crowdfunding and other passive income investments seem wise. A simpler life sounds good to me.

In fact, that's what I did in 2017. I sold one San Francisco rental property for 30X annual gross income. Then I reinvested $550,000 of the proceeds in real estate crowdfunding to take advantage of lower valuations and higher net rental yields in the heartland of America.

Fundrise is the leading real estate crowdfunding platform today. It's free to sign up and explore. It's great to earn income 100% passively and not have to deal with maintenance issues.

I've got $810,000 invested in real estate crowdfunding to diversify my investments and earn income 100% passively. If you are an accredited investor, I'd check out CrowdStreet as well. CrowdStreet focuses on cheaper, faster-growing, 18-hour cities.

Fundrise Heartland eREIT Investment Examples

Invest In Private Growth Companies

Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Wealth-Building Recommendation

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Is your retirement on track? Here's my personal results.

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. 

60 thoughts on “Do We Really Own Any Of Our Wealth? Or Are We Just Custodians?”

  1. Joe’s got a point. You don’t own your home. Really, you don’t own anything in this world.

    When you get down to it, might makes right. Liberals can fight with conservatives, libertarians can fight with fascists, and capitalists can fight with communists until we’re blue in the face, but in the end, all philosophies, morality, and legal systems fall to the barrel of a gun.

    We can talk about the Constitution and checks and balances and the Fourth and Fifth Amendments all we want, but in the end, the government can take your house from you at any time for any reason and there’s nothing you can do about it.

    Why? How? Because they have tanks and missiles and you don’t.

    Why are you still in your home then? Because they’re nice enough to not blow up everything for the hell of it. They find more value in your annual rent–or taxes, as it’s called–and they collect that instead of busting down your door and kicking you out.

    But let’s not pretend we truly “own” anything, in the strictest sense at least.

    I still use the terminology, though. Call me your Intellectually Dishonest Retail Banker.

    ARB–Angry Retail Banker

    1. Sorry, this is an utterly pointless view of the world. I think you need to check some internal issues before coming up with such dystopian ideas.

      The government is not made of aliens (well, some conspiracy theorists argue even that…go figure!) or machines, but it is made up of humans. The same human species that you and I belong to. A high minister in the government is probably married, the spouse has family, friends…they themselves have family and friends…so you see where it’s all leading to? Someone had once surmised that the whole humanity has only 6 degrees of separation.

      So you think this minister with a touch of a button can force someone out of the house…that someone, who might be the spouse’s family’s friends’s friend? Sure, the more the separation, the lesser the guilt (hence they send those drones to attack on some remote villages in Afghanistan), but the closer you are, the more difficult it becomes.

      Of course the government has the guns and barrels, but still, it is an entity made of people who are balancing competing objectives each day of their life. Blowing up people’s houses and forcing them out just doesn’t satisfy a single objective.

      Finally, money is serving as the greatest invention of the mankind and is acting as a stabilizing force in the society. As you correctly pointed out, by putting you in your house, the government gets something they value more – MONEY. What is capitalism? It’s acting directly to put more money in the hands of more people (despite the doom and gloom of falling wages and occupiers, the fact remains that capitalism has drastically cut down on world poverty), which is improving things for all of us. The government finds more value to even keep delinquent people in their homes than to force perfectly paying citizens out of their homes. We are all used to money and when we think of power, we think of money. As long as that equation doesn’t change, no, the government will not force you out of your home.

      The libertarian ideas do not ever work in a normal world and they fail to take into account human emotions and a basic decency most humans treat each other with. In most circumstances, their ideas fail…just be wary of them.

      1. I’m not arguing politics with you and I’m not talking about conspiracy theories. This is a mostly philosophical question posed by Sam after Joe’s post about the nature of ownership.

        My point is that when you get right down to it all–legal rights and morality and everything–it’s all determined by might makes right. Yes I hold the Constitution in the highest regard, and no I don’t think Obama/Trump/Hillary is planning to steal our homes/gold/guns/whatever.

        But the fact remains; all “ownership” is backed by might makes right. Don’t pay your property tax and the government takes your house. Can you truly say you “own” it then?

        And say the Supreme Court were to rule that unconstitutional. They control neither purse nor sword and presidents have ignored them before. So if they were to take your house anyway, what would you do? Debate ownership with them? Show them a piece of paper stating that they can ‘t do that? They’ll throw the paper out with you.

        Ultimately, the only way you truly “own” your home in this situation is if you can physically prevent them from doing so. If you can’t, then they are simply allowing you to live there until they don’t for whatever reason (didn’t pay property tax, you have a lien against your assets, whatever (not the point)).

        Sam’s post was about the nature of ownership; if the government can force you to pay them money or take your home/possessions, then do you truly “own” that item unless you can physically defend it from the government or anyone else who wishes to steal or damage it? My argument is that, in the end, might makes right and our concept of ownership ultimately boils down to who has the power to take it and who doesn’t.

        If you want to interpret that as a government made up of alien machines who are about to press a magic button to blow you up and take your home, then I think you need to check some internal issues before coming up with such dystopian ideas ;)

        ARB–Angry Retail Banker

        1. The fact that we are not “homeowners” even without a mortgage has been recognized by several people. I remember reading a blog that specifically stated homeownership was a suboptimal financial choice if you only cared to maximize your returns. However, this is only semantics. In Australia for example, there is no property tax but income (and maybe even sales) taxes are pretty high. So one way or another, we all have to pay a certain percentage of our income/wealth back to the community. If you really think about it, property taxes are progressive and income taxes are regressive. It makes sense to tax more wealth and less income, which will solve plenty of inequality problems in America today.

          Yes, of course you rent your home from the municipality in the hopes that you can use its appreciating equity. What’s more, I have actually paid taxes on my cars in the nice state of Virginia. Cars don’t appreciate like houses, but the state still taxes them.

          As a conscious voter, you actually have a voice and a right to go to the governor’s office and submit grievances if you think it’s unfair. You can organize town hall meetings. You can use the social media. There are ways. The government is usually slow but they can catch the wind.

          I do not submit to your belief that “might is right” holds in the complex technological world of today. If this were true, why haven’t we blown off all terrorism sponsoring countries with nukes (especially in light of the recent disturbing events)?

          It’s just not easy to use unchecked might in the world today, and thank goodness for that.

    2. Go to 73 1st. Cong.Doc.#43 – the coinage act pg.13 or 14 ; it state “ultimate owner ship of all property is in the state” if you can’t comprehend that then you need to give up your banking because Lincoln issued executive order 100 confiscating all the property from the North and the South and you have no more ownership that’s why you have a auto certificate of title not the title the title is belong to the state and you just have a certificate of that title it wake the f**k up

  2. Love the comments on here about being leveraged to the tits on SF or where ever in the US real estate. These kind of comments were also being had in 2008 on blogs in the US. LOL. Oh its no big deal I have 8 houses with 10 percent equity in each. Bla bla bla..A year after, REPO companies with that fat whale guy and Hollywood movies about ppl living in their vans was the “new cool.” I don’t really know, but I do enjoy this website. The real estate game is not rocket science and LUCK has everything to do with it….I am from Canada, Vancouver, and in 2006 a tear down could be bought for 700,000 with 200k down 500k debt. Today that house will sell in a day for 2.5 million. So lord knows. But conversely, in 2006 I know ppl who bought houses in LA in the Hills for 1.5 million and put down 700k. Today the house will sell for 1.3 to 1.4 at best after minor renos and massaging for a nice healthy return of fuck all. The US can not be compared with anywhere else in the world and is the most unsafe Cowboy re market in the world.

  3. Kind of related…. when I paid off two mortgages this year, my credit FICO score dropped 70 points! From an “Excellent” rating (over 820) to Very Good (around 780). See how we are so locked into “the system”?

    I really don’t care, because my debt is under control.

    We get penalized for not having “enough” debt, yet we shouldn’t have too much!

  4. Perhaps its true and we don’t really own anything outside of the laws that govern ownership, so why not leverage the hell out if it.

    I’m a UK national and property investor both here in the UK and the US. Only in the last 4 yrs or so are owners made to pay property taxes (council tax) for vacant homes. Previous to 2011, the tenant pays it or if its vacant then it’s not applicable. Owners now a get a 50% reduction for the first 6 months.

    We had it pretty good for a while….

  5. What motivates people is the desire to possess something…as their own…Something separate and unique that no one else has….basically power…the will to survive

    Currently money is what allows that to happen….money is not the villain……the caveman had the same desire…he just used a club to get what he wanted….

  6. michael lupo


    Not sure if someone had mentioned this in another comment but…

    I still think we can call it ‘home-ownership’ and come to terms with the fact that the services and amenities we enjoy as local citizens come from tax dollars. Nothing’s free.

    Property taxes pay for things like your local teachers’ salaries, the new roof and turf-field at the school, The police, local firefighters, the garbage men, recycling, street cleaners, new sidewalks, etc. — all the things that make somewhere a “nice place to live” – – are funded with taxpayers money.

    I live in Westchester County, New York. We have some of the highest property taxes in the country. It stings – and I do scrutinize our tax bills, but I do realize that we receive some pretty outstanding services as well.

    Just my two cents. I enjoy the blog; keep it up, Sam!

  7. Disclaimer: Per Circular 230, I’m not giving this tax advice to YOU and I don’t know your situation, so definitely talk to your own tax advisor.

    How to avoid property tax:
    There is a tax loophole if you REALLY want to avoid paying property tax… start a church and have it own your real estate! Churches are exempt from paying property tax AND they do not file tax returns so there’s no income tax as well. Rental income is tax-free as long as you don’t have a mortgage.

    How to avoid estate tax:
    As for the 40% estate tax, it doesn’t apply to 99.9% of Americans b/c most married couple don’t have over $10.8M in assets. However, if you’re “fortunate” enough to be over the threshold, there are ways to avoid the estate tax.
    1. Reduce the size of your estate by giving away assets.
    2. Set up a trust (ILIT, QPRT, GRAT, GRUT, etc.) to remove assets from your estate
    3. Buy life insurance to pay any estate taxes. One step better is to set up an ILIT to keep the death benefits out of your estate thus avoiding estate tax.


    1. Excellent thoughts, Brian, especially for the estate tax. Anecdote on establishing a ‘church’ and owning property/avoiding income tax: a previous neighbor did exactly that, after much research he found that the Unitarian Church was the cheapest and most lenient way (for his further obligations to the Unitarians) to incorporate. It worked great for him for 20 years, but he found the downside the hard way. He can’t sell the property without turning all the money over to the Unitarian Church, or making good on all the back Property Tax and Income Tax. He’s 60, doesn’t work and spent his savings, he’s in poor health, has terrible neighbors, and no money to fix up the house (he has neglected basic maintenance for the 20 years). Maybe he can pray his way out of it.:-)

  8. Romeo Jeremiah

    I also think it’s worth pointing out that the government does not take your home. The government is not in the business of real estate. The “government” places a lien on your property and someone else (who pays off the lien) takes your home.

  9. Hi Sam, Nick from Lance’s party here. Yelena and I have learned a lot from your website. Thank you!

    I rented in SF for years so I never had to pay property taxes. Now I have my house – and a whole lot of interest in what the City is doing with my money. But I can’t agree that ownership gives a false sense of security. My friends who were smarter and bought earlier will always be paying less in property taxes because of Prop 13. Meanwhile, the apartment I used to rent is going for more than double what I paid for it.

    I’ve also seen how long it takes for my old city to go after tax defaulters.

  10. <<<"You don’t own your home “free & clear” because if you stop paying your property taxes, you will lose your home."
    Great point!
    How else can city infrastructure and services be paid for (i.e. – police, fire department, schools, roads, libraries, street lights, etc)?
    Without these things, your house would have little value.
    Consequences of non-payment would be in the form of tax judgements/liens against the property.
    Laws of civilized society!

    1. Some countries have little or no property tax on real estate.
      For example, in Thailand, there are no personal property taxes.

  11. So you’re converting the blog to uplifting comedy ;)

    Seriously, some pretty depressing stuff. Or, liberating. Guess it depends on how you look at it.

  12. It doesnt matter how you look at it. If you have to pay just taxes for a property let say its a property that would rent for $ 3000 a month but you only pay about 250 in taxes a month that put you ahead of any renter since no where you go you have to spend to live. The difference between the above example would mean a 30k a year saving rather than wasting it on housing. Lets just say that owning a home with no mortgage means that you chose one way to make, increase or save money rather than use a different vehicle. We can argue that the person losing 30k a year while renting is also making 30k a year in an investment outside so, at the end it may be the same product just different ways to achive the same goals.
    Also, if i knew that certain stock will give me just a few % over owning a home you would never buy a house in the first place. Its highly unlikely that in the USA a goverment change happen and we lose all to our or a different gov. At least in the next 50 years…. look at whats happening now in Venezuela, soon it will be a communist country.

  13. “After 30 years of paying either the landlord or the bank for the privilege of living in your home, the person with the title to the property has a call option to potentially make a return. Heck, the homeowner has the option to sell as soon as he takes title.”

    One thing I often find that many home owners ignore is the 30 years of property taxes that have been paid that you have to factor into your overall return… the gain is often much less than it seems (lets not forget maintenance, repairs etc)…

    I realize people will say that you end up paying those ‘hidden’ taxes as a renter as well, but owning vs renting is a pretty hot topic these days for reasons like this. I’ve never really seen owning a home as an investment, its more of a life style choice. Unless you can purchase at such a discount and have a large margin of safety…but finding those deals in an ideal location isn’t an easy task.

    1. Yep, I agree, although the owning is now providing for over $150k a year in gross rental receipts now. Thank goodness for amortization and other expenses to keep the taxable figure lower.

      Have you done the analysis on the returns from renting after 30 years too?Let’s say rent is $4,000 a month. That’s over $1.4M spent with no option to ever recoupe the rental spending with a potential sale。That should be too painful for anybody to bear.

  14. Thanks for reposting my comment Sam. Interesting post and looks like we have some great discussion going on in the comments section!

  15. This libertarian sort of thinking really gets on my nerve.

    If we never paid any taxes, we probably would never have a strong government, central banking system and the likes. What good would our wealth be? Our wealth only has a meaning if there is a strong marketplace, technologically driven society and capable and smart people around us who can provide us value for our wealth. If we lived in a jungle, I don’t care how many millions one has…there is nothing to get any utility out of it.

    Old wild west looks good only in western movies. I doubt if any of us will ever have a good time there in reality.

    Now, coming to the mortgage: Owning the house free and clear has huge and obvious advantages. A typical $300K house can be rented out at about $2K a month. That’s about $24K in rent for an year. However the taxes on the same house in most states are only $3K, and maybe an added $1K for HOA and insurance. The $4-5K annual expense (along with some nice handyman’s skills) is far better than renting the place out for $24K, no? It’s all in the numbers. In a rational market, rent already accounts for the property tax overhead and sets itself above and beyond for the owner to make a profit. So owning a place “free and clear” and never having to pay for rent/mortgage ever is hugely advantageous.

    The same goes for cars. Our cars only have value if there are good roads, bridges, road signs and responsible drivers around us. Hence we pay for “inconveniences” like registration, insurance and vehicle inspection. Seriously, does it mean we don’t own the car? Only in a twisted libertarian world view where “one must have their cake and eat it too”.

    All of us are collectively responsible for maintaining a civil world order around us so we can “enjoy our wealth”. Try to see the world from that lense, and maybe people won’t harp on taxes so much.

    Having said this, some states (NJ for example) have exorbitant property taxes and sky high insurance rates, and those reek of massive corruption and should be fought. Again, the devil’s in the details.

    1. Not sure where you’re getting the view that I’m harping on taxes. I’m saying spend your money beyond $5.4M bc the government will tax you half of it = waste.

      This post is about ownership, not taxes.

      I am definitely for broadening the tax base and have a popular post that a lot of people agree on regarding creating a Renters Tax as well. Let’s have everyone pitch in by cutting checks specifically to live, for a greater nation.

  16. The fact that there is someone who can take something that you “own” should tell you that you don’t really “own” it. We live in a misguided society, think for instance of how people in this community feel about debt. To the rest of the world debt is a good thing or at the very least a thing that everyone has so there is no need to not have some yourself. That to me is like what you say to kids when they say “everyone else is doing it” “would you jump off a bridge if everyone else is doing it”. But the truth is that’s exactly what we as adults are doing if we just go into debt because that’s what you do. I got off topic there, but my point is that even in this group we have differing opinions and some of us would view no mortgage as owning a house free and clear, and to be fair it is owning a house very cheap in comparison cause the taxes shouldn’t come anywhere near what it would cost for the mortgage

  17. If everyone didn’t pay their property taxes and San Francisco turned into a lawless wasteland full of potholes and with rubbish piled up outside your house, would it really be worth nearly as much as what you have currently? I’d argue that a lot of the amenity that makes your home valuable is dependent on you paying your property taxes. Maybe it would be better to perceive property taxes as an investment in one’s home? You realise substantial value from the provision of those services when you sell, anyway.

    1. Yes, property taxes does help the surrounding environment, otherwise, property owners would revolt against the gov’t for wasting their money.

      What we should have is a property tax on homeowners and a renters tax, so that everyone pitches in, gets emotionally involved in the community, and cares about fiscal responsibility.

  18. Romeo Jeremiah

    I like the philosophical argument of “ownership.” It can be argued all day. That t-shirt to which he was referring is owned if and only if it’s not taken by someone else. One’s thoughts can be “taken” or “conditioned” differently given the right circumstances- Classical conditioning. People-slavery. Land-emminent domain. Country-colonization. Sex-rape. Philosophically speaking, everything can be taken, but until it is, it is owned by the beholder. So, it’s really a moot point to argue.

  19. I won’t go quite so far as to call Joe a pedantic troll, if for no other reason than I’m probably about to be one as well. Part of the problem with Joe’s analysis is that property taxes are what you pay to your community for the services and other amenities that are a large part of what makes your property worth something in the first place. There’s an argument to be made, however, that property taxes aren’t necessarily the most efficient or most equitable way to fund some of the things we fund through property taxes. Here in Ohio, for example, our public schools get funded largely through local property taxes, which can mean wildly differing school quality (and educational opportunity for local children) depending on how much value there is in local property. So there are lots of movements and arguments for different tax schemes that might produce a more equitable outcome, but for some reason Ohioans keep opting for the property tax approach — even though our state supreme court has gone so far as to hold the property tax approach unconstitutional. Put another way, the Ohioans who are paying high property taxes actually don’t seem to mind, because they’d rather pay those taxes in order to make sure their local schools are of higher quality than those in districts where people can’t or won’t pay higher property taxes, and therefore (a) preserve their property values and (b) presumably provide for their own children. So it’s a lot more complicated than Joe makes it out to be.

    On another pedantic point, can we quit pretending that there’s a huge chunk of people out there in the United States who pay no taxes at all? Because it’s not true. There may be people who don’t pay Federal income taxes because they don’t make a lot of W-2 income, but those people are paying lots of other taxes, most of which are pretty regressive.

    1. “…public schools get funded largely through local property taxes, which can mean wildly differing school quality (and educational opportunity for local children) depending on how much value there is in local property…”
      Come on. Dayton. Cincinnati. Akron. Columbus. Cleveland. The reason the Property Taxes are so low, is because the neighborhood is full of people who subscribe to an underperforming culture. They don’t want to go to school, don’t want to study, don’t want to integrate into the larger American culture. THEY ARE THE 43% THAT PAY NO INCOME TAX. That ‘school quality’ you worry about so much is not money-based. So, stop pretending, and stop being a pedantic troll.

      “On another pedantic point, can we quit pretending that there’s a huge chunk of people out there in the United States who pay no taxes at all? Because it’s not true.”
      Um, yeah. It is true. And you are being a pedantic troll, yet again. Whether those taxes are Federal Income tax (43% of returns pay zero), or some secondary tax through rent, or sales tax (really, what is your guess as to the percentage on sale tax?), we all understand the point of “paying no tax.” But as you say, let’s “quit pretending” that we all don’t know that more than half of the people in the US don’t pay even a fraction of the costs of services they enjoy from all layers of government. You should be thanking the top 20% who pay the progressive income tax, Property Tax, Capital Gains, and otherwise pay the freight for the “huge chunk of people” you claim to speak for.

      1. I don’t mind the estimated 43% of people who don’t pay Federal income taxes for whatever rightful reason they have (not working, retired, etc).

        The only time I mind is when those who don’t pay Federal income taxes vote to raise taxes on those who do pay Federal income taxes. I’m not sure how this can be. I’d love to hear the rational as to why people think this is OK.

        1. The only people who actually vote on your federal taxes are your Senators and federal congresscritters, not the individual voters. The median wealth of the people who actually vote to raise taxes (or not) is well into the Federal taxpaying range, which means that the people who vote to raise Federal taxes do, in fact, pay Federal taxes.

          And in case anyone is wondering, I am, in fact, among the 20 percent of people who are federal/property/capital gains taxpayers that JayCeezy thinks I should be thanking, for whatever that may be worth.

  20. Cashing out SF real estate?! Sam, dont get weak on us Does anyone believe that a non-leveraged performance in the stock market over the next 30 years is going to be superior to a leveraged performance in the SF real estate market?? Now is the time to get as leveraged as u can. That million plus in Equity is just dead in that SF house, take a home equity and buy again. My rule of thumb is if i can sleep well at night, im not leveraged enough!

    1. John,

      May I ask how old you are and how many properties do you own?

      I found my max point of three mortgages, which is why I paid one off this year.

      I love sleeping and have never had a problem sleeping. I don’t plan to start screwing that up for potentially higher returns. How much is enough?

      1. Of all the topics you’ve discussed on this site, I am most surprised by your decision to pay down your mortgage. I understand many people’s desire to pay down their mortgage, but I expected that someone with your experience in the financial markets and outlook on continued low interest rates (and rising rents) would leverage up at this point.

        Personally I am not as confident about a continued low interest rate environment so I try to borrow 30 year money where I can. I just did a cash out refi for 3.75% on a jumbo 30 year fixed. I figure that if I can’t get a return better than that in the stock market, other real estate investments, etc., I might as well quit the game and buy an annuity. I believe that your ARM rates are even lower.

        Also in terms of simplifying your portfolio and freeing yourself of the hassles associated with real estate, you should consider employing a Managment company versus selling. My parents taught me little about wealth Managment except through their failures. I applaud their work ethic for being able to acquire several properties over their lifetime, but they sold most of them prematurely because they didn’t want the hassle. Now they only have their primary residence and a small apartment complex but those have been the best investments they ever made–enough for a very modest retirement.

        FYI I am in my mid-forties and have 6 mortgages, 3 in single family homes and 3 in apartments all highly leveraged–at the time of acquisition I only put a 20 or 25% down payment. Most of these were acquired over the last 3 years to diversify my stock portfolio. For me the real estate is a business with revenues and expenses. It does not bother me that interest is one of those expenses. I use a management company for all but two of my properties. The newer investments take more direct involvement but it seems that within a year or two of purchase, I stabilize them. The “work” is front-loaded and they become more passive income over time. I review the financials and provide guidance to the Managment company. I have no need to visit the building or meet with tenants but I still do since my properties are mostly local.

        I don’t care if I ever “own” any of my properties. I care about cash flow, appreciation and total return. Paying off the mortgage doesn’t give me any more (or less) rights to my real estate from a practical (not legal) perspective. Sure, I am nervous when a tenant doesn’t pay rent or there is a large repair bill. But I never lose any sleep over paying the mortgage or having one.

        1. I love to surprise people. I found my happy state of having no more than three mortgages and no more than $2 million in mortgage debt. I also found my happy state that once you’ve accumulated over a 5-10 million net worth There’s really no point really pressing to make that much more especially if you’re happy with the income generation of 200,000+ a year in passive to semi passive income. Remember, the government taxes any well over $10.8 million when you die at 40 to 50%. What a waste.

          But imagine if you had much more income generation from a business on top of the $200k of the semi passive income generating now? Then you will want to really start simplifying your life because time becomes the most precious commodity now that you have money.then again, time has always been the most precious commodity.

          So I ask you, what is your current passive income generation from real estate and other sources, and what is your net worth? Perhaps you’re not at your goal yet, which is why you press?

  21. Delivery Boy

    Joe’s perspective raises another another point about the benefits of paying off a mortgage too. Let’s say I have a $2,000 a month payment on a $300,000 mortgage. Paying off the mortgage does not free up my monthly cash flow by $2,000. That is because $500 is principle, $800 is interest and $700 is property taxes and insurance. Since $500 is really going back to me in forced equity/savings and $700 will still be an ongoing obligation with or without a mortgage, paying off my mortgage with $300,000 really only saves me $800 a month. But it is less than that because of taxes. If I take the mortgage interest deduction into consideration on my taxes, it reduces the savings to about $600 per month. That is about a 2.4% return on $300,000.

    1. Hmm you are forgetting the other $500 going for principal plus that $600 extra that you say its 1100 a month. After the home is paid you can even take the insurance off (i would) anything happens? You remodel! Insurance is for those have have a blank bank account. How you think they make money? Could they be betting that you will pay around 200k in the next 20 to 30 years without a claim? Whats the worst thing that can happen? Then again that same house that you are paying $2000 a month with be almost the same price in 5, 10 years. While if you want to rent that house it probably starts at around $2300, in 5 years probably$ 2600 in 10 years that same house would be over $3000 just to rent the same thing. But, the hone owner eould still be paying less than $2200 and by that time he can sell for a profit, and if there was a profit that means its like he didnt pay the full rent on the house (why because maybe he paid 50k of the principal already. )
      My own example: i bought for 235k 3 years ago. 6 months ago i moved to a new home (i havent sold, since i am renting it to family) but if i were to sale after just 2.5 years i would have made a huge profit already. The house 6 months ago was worth 285k at least in 2.5 years same house was renting for $2200 a month that means a renter would have spend more than 60k in just 2 and half years. I on the other hand made money from the sale 285k minus 235k and take away selling and closing fees still make money. But its like i didnt pay for the past 2.5 in the house! I only payed insurance , tax and lending fees.

      Who’s better off?

      Well, technically i didnt sale so now is worth more than 310k , still make money from the family that are paying my mortgage!
      Heck the property i just bought 6 months ago already went up in price. I bought for 375k spend around 70k in remodeling new bathroom, new kitchen. .. and they sold my neighbors house for 440k and my other neighbor house was sold 2 months ago for 550k, he just has 200 sf bigger house, then again with my upgrades our house would probably sell for at least 550k if not more. I am not planning to sell thats why i spend so much money on upgrades. But, when you buy in a good area, good location, next to a school you have a good chance of making money.

  22. Sam. Do u believe that you are too heavily allocated to real estate at this time? I have been following your passive income updates and was curious to your opinion on what you think is the ideal asset allocation is between real estate, stocks, CD/money market/ and your S corporation.

    My personal plan for the real estate portion is to own 10 single family homes free and clear to secure my retirement. Yes there will be annual taxes, but I see it no different from the fixed costs a business owner would have in operating his online business.

    Love to get your input.

    1. Bryan @ Just One More Year

      @pandabear – I have invested in rental real estate for over 30 years and have owned more than 10 properties for years. I think it is a great way to leverage “other people’s money” and build sweat equity in investments. It was a significant factor in creating our net worth.

      @ Sam- Your statement rings true with me “The older I get, the more I enjoy investing in income producing stocks over real estate. But that’s because I’m also just growing lazier”. Owning rental properties is a lot of work!

      I have sold seven properties over the last 10 years to move my exposure away from real estate. These properties are now managed by a property manager. The properties we have left can support our early retirement style. The retirement savings we have saved in tax-deferred accounts will fund our bucket list and travel related lifestyle. Social Security will be the icing on the cake.

  23. FS, I remember that comment and have seen similar thoughts elsewhere. To expand on Joe’s idea, if you own stocks you will pay taxes on dividends. If you own a car to use (like 99.99% of all car owners) you insure and pay a property tax along with annual registration. If you ‘park it in your driveway and don’t use it’ you still have to pay tax on the capital gains when you sell it (or it can lose value like 99.99% of cars parked in driveways, and the problem goes away). You have to pay for a driveway or storage for the car; how is that “owning” the car? CDs, Bonds, Commodities, etc. are all taxed.

    Joe is being a pedantic troll. We all know what is meant by owning something “free and clear”. It isn’t a mystery, and subject to interpretation. Nobody likes paying taxes, either, but EVERYBODY likes the services provided by the government. Streets, sewers, fire/life safety, public schools…even tennis courts. There are no taxes on gifts of $14,000/year, or $10.86 million per married couple.

    As for the watch, inheriting a $30,000 Patek Phillipe timepiece has a utility value of $30. I would put that in the same category as a $2 million condo in Manhattan. Enjoy the value, but don’t take credit for achieving that value.

  24. What a fascinating perspective. I never thought about property ownership this way, but it makes a lot of sense. We are obligated to pay our property taxes indefinitely. It would be nice if they stopped after a certain number of years, but I can’t visualize any localities getting rid of property taxes.

  25. So Sam you are tracking my direction…I am a couple of years ahead of you & I recently cashed out my commercial real estate to simplify life, & have a paid for seven figure home. Life is pretty simply…the only thing that I ponder is not having as good of rate of return on the investments I made vs the real estate. First world problems, but I do not regret it at all. I do technically agree with Joe though. I am going through the steps to simplify even further with regards to my primary residence.

    1. I’m glad to hear you feel no regret selling. Regret is one of the reasons why I can’t bare to sell. I don’t want to regret 10 years from now selling for X, when there’s a chance it could be much higher by just holding on. Although there is maintenance work, property is relatively passive and I’m very bullish on SF still.

      I figure, so long as I am not restrained from maximizing experiences (Travel, not having to work a day job, spending time w/ friends and family), then I might as well hold on until I can’t take it anymore. Furthermore, the 5% selling commission has to come down already.

  26. No property taxes in Thailand but you have to pay the land office anytime there is a transaction and this can be very expensive (12% of the value of the property). So people tend to sit on land forever since it is free to hold. There are many derelict buildings sitting on prime property here that goes for $50M USD per acre. The owners don’t need the money and know that the property typically appreciates 5-8% a year so the land remains undeveloped. It’s kind of annoying to see especially when it’s a hindrance to development projects.


  27. I don’t agree with Joe’s assessment. You certainly do own the house despite the yearly tax. The money the government collects pays for local services. The government only wants to collect it’s money therefore their needs to be a punishment for non payment.

    The punishment for non-payment might be different depending on the type of property. Here is an example. In the state that I live in there is a motor vehicle tax. This means that even though I own my motor vehicle, I still have to pay a motor vehicle tax yearly. Granted, the motor vehicle tax amount goes down over time as the vehicle loses value. The point is that though I own the car, I still have to pay a yearly motor vehicle tax. The punishment for non payment is that, if I don’t pay, I won’t be able to register the vehicle the next time I’m due to register the vehicle. One cannot legal drive an unregistered vehicle therefore I’m forced to pay the motor vehicle tax, if I still want to continuously drive the vehicle.

    In short,the government only wants to collect it’s taxes and therefore their needs to be a punishment for non payment. In the case of the home it’s lose your home. Without punishment some would never pay property taxes but the reality is that these taxes pay for various local services that we use.

    1. It is too bad you lose your home though if you can’t pay your property taxes. This is why so many of those mansions get left to the city. Their heirs can’t pay. I forgot where I saw the mansions on the East Coast before…. but I was amazed.

      1. If they couldn’t manage the property tax then they probably couldn’t manage the upkeep of a mansion either. It’s better that it’s taken away. If one can’t afford something then sell it immediately.

  28. As a non-home-owner, I may not have a good sense of this, but I’d say you own it outright. The property taxes, if I understand correctly, are not really for the home itself but more for the property. So, theoretically, if you bought your own island in the Caribbean and had your house airlifted there, I *think* that would all be legal. And then you’d own your home outright. No? :)

    But in all seriousness, I like the question of whether or not we own our stuff. I think it’s a very deep question, and I think it’s also the reason why a lot of people like to spend their money on experiences and not objects. In a sense, I guess even if you buy an object, you’re just paying for the *experience* of having it in your house and being allowed to do what you want with it. Like, I can’t personally see myself ever buying an expensive piece of art so I could have the experience of seeing it in my own home, when it’s free (or cheap) to go and have the experience of seeing it in a museum.

    1. Good analogy on art and just seeing it in a museum. If you own an expensive piece of art, look out for an expensive piece of insurance!

      The sharing economy is helping people accumulate less stuff, and experience more.

  29. Saying that the ability to take a property for taxes means that ownership doesn’t truly exist ignores the concept of what it means to “own”.

    Ownership is a societal concept. We only own what society allows us by its rules and laws to keep, and what we, individually, are able to protect as ours against those who would otherwise take it from us. We might personally, or the government may, fend off attempts to take what is deemed “ours” – but it is only ours until someone else takes it or we give it away.

    We don’t own anything that is immune to some level of risk of it being taken by the government or another person (including another government), really. The only thing we truly own is our thoughts and beliefs – and our only real legacy is how those impact the world.

      1. Romeo Jeremiah

        …they will last to the extent that someone pays your web hosting fees long after you are gone. :-)

        Perhaps every year you should convert all your writings to a book that you can pass to heirs.

  30. You say “a simpler life sounds good to me”, but is that really what you want? Surely by now you would have moved to Hawaii and not continued to pursue all the experiences you have so far in San Fran after leaving your employer?

    I think if you’re wanting to hold on to your properties, you need to ask yourself why – is it for a potential future generation of mini-financial-samurais? Or because you see it as a way to build even greater longer-term wealth?

    Really interesting comment from Joe. I think he’s made a brilliant point. I’m definitely of the view that we don’t really own anything in this world, except for our ability to have an impact on the people and environment around us, which is partly why my own focus has moved much more towards what I achieve each day, and the impact I have each day (in addition to trying to create the best opportunities possible for my children).

    1. I think it’s a good idea to hold onto assets (stocks, property, etc) for as long as possible due to the inevitable trend of assets increasing in value, at the very least, due to inflation, and the most due to a combo of inflation and strong economic cycles. It’s kind of a game of who can hold onto the bars longest until they just can’t take it anymore!

      I’m going to Hawaii for 9 days in December and will reassess the simpler life. I went through a number of failures/rejections recently based on my own proactivity, and I’m questioning what the hell is the point. As if I’m a glutton for punishment when I don’t need to subject myself to anything anymore. New post about the topic coming up, of course!

      1. Interested to get details on what you mean when you say “I went through a number of failures/rejections recently based on my own proactivity”. Are those business things that didn’t go through? Business/investing impacting your personal life (time with family, etc…) for no direct benefit? Etc…

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