If you want to get rich, own real estate. Never rent again because the return on rent is negative 100% every month.
Here’s a story why you should never rent if you want to get wealth. Frankly, I’m shocked the guy still has a following given his financial history. It just goes to show that anything can happen in America.
Why I’ll Never Rent Again
A financial adviser by the name of Carl Richards wrote a perplexing post called, “How A Financial Pro Lost His House.” To summarize, Carl bought more house than he could afford and decided to strategically stop making his mortgage payments and turn the keys over to the bank when the house lost value. Gee, how unoriginal.
What is original is that Carl proceeded to write a book entitled “The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money” coming out in January, 2012. Hot dog! He’s planning on making even more money off the rest of us who already bailed him out. At least he shouldn’t call himself a “financial pro”. Maybe he can do the right thing and donate his book’s proceeds to charity, or pay back the debt he ran away from! Nahh.
In the securities industry, if you cheat your clients and do the unethical thing, you lose your license. In the financial advisory industry, if you do the same, I guess you get to write for the NY Times, get a book contract, and make more money!
Where Is The Credibility?
What makes Carl’s article so polarizing is that he tells us his story is unique, and tries to garner sympathy from readers for having to move back to Utah from Las Vegas. During the 2008 – 2009 financial crisis, thousands of people have lost their homes Carl. You are only unique because you think you’re a financial pro and actually make money off of people for financial advice.
He writes, “We love where we live now. Still, there are consequences. We lost our home. It’s not clear when we’ll be in a position to become homeowners again.” You better not dare get a home loan again after making the bank, and ultimately taxpayers foot your bill!
Carl took out a 100% loan, and then took out a home equity line of credit to live an even more extravagant lifestyle. So when he talks about “losing his home”, it’s a farce because it was never his to begin with.
Now do you understand what happens when you have no skin in the game and pay no federal taxes? Essentially, Carl lived in a 3,800 square foot McMansion for years for FREE.
It would be one thing if he put down 20-30% following my 30/30/3 home buying rule, and then lost his home. It would be another thing if he put 20% down, lost his home, and kept mum about it. But to put 0% down and lose his home is not losing his home!
Delusional Attitude About Money
Even more perplexing is that he writes how good he’s doing now. “As for Cori and me, things are much better now. Moving back to Utah clearly was the right choice. The business is doing well, and we’ve managed to pay down most of our debt. It would be easy to say that we’ve learned our lesson, that we’ll never screw up again.“
In other words, he’s back to making more money off people who listen to him for financial advice, even though he was highly irresponsible with his money.
Nowhere in the article does he write how he’s looking to pay his bank back for welching on his loan or doing anything to give back to the community. If the Carls of the world did not exist, the financial collapse and the loss of billions in retirement assets might have been prevented. Thanks buddy!
Why Getting Ahead Is So Easy Today
If you are a financial adviser who decides to take out a 100% loan and screw the bank and the taxpaying public, you do not deserve to be a financial adviser anymore. Your credentials should be stripped from you, just like how a convicted insider trader should be forever banned from working in the financial services industry.
After reading this article, why on earth would you ever rent? I sure as hell will never rent again. You can still borrow a ton of money from banks, live it up for years, and if you find yourself not wanting to pay, all you have to do is not pay, especially if you live in a non-recourse state!
The only consequence is a temporary hit to your credit score. But who cares? It comes back in several years. It’s not like you’re getting thrown in jail or jabbed in the eyes with 10-inch long needles. In fact, the government wants to help you out as much as possible. You can even make $50,000 a year for free from the government if you buy a home and can’t afford it!
Carl gets to write for the NY Times, promote his book, and earn money from dishing out money advice again. Isn’t America great?
In all seriousness, real estate is one of the best ways to build wealth over the long term. Real estate makes up about 40% of my net worth as I own three properties in San Francisco, one in Lake Tahoe, and another in Honolulu. With over $150,000 in gross rents coming in, real estate gives me the freedom to never work again.
Wealth Building Recommendations
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Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible.
For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
I personally have invested over $800,000 in 17 different real estate crowdfunding projects to earn income passively make money.
CrowdStreet is another great platform for accredited investors, if you want to invest in individual deals. They are focused on deals in 18-hour cities where valuations are lower and growth rates stood be faster.
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Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. When banks compete, you win. Take advantage of all-time low mortgage rates post pandemic. You can get free, no-obligation quotes in minutes.
Updated for 2021 and beyond.
I’ve been told since I was in my teens not to rent. That the gold-standard is owning a home. Have you been following home prices internationally? They’re exploding. So more pertinent than ever is the question how poor working-class people are supposed to own homes when jobs refuse to pay more than the bare minimum to survive AND homes are considered mere commodities? Even with crowdsourcing opportunities, one still has to make enough money both to survive AND to pay into the investment. And now in the State health insurance is required by law and is an additional fee on top of taxes, to say nothing of yet additional premiums if you do have to visit the clinic, many of us have even fewer pennies left over at the end of the month. This assumes there are no periodic emergencies (illness, layoffs, deaths in family…) that consume what little is saved.
Also, many financial advisers seem to assume that people are in relationships (married…) so can pool their earnings while saving on sharing housing, food, energy… costs. More and more of us are single so have to shoulder all the growing expenses of life on our own. Yet smaller savings for the downpayment or RE investment.
Oh, and what about the jobs situation, at least in the States? For decades now, jobs have been heading overseas where rights and costs are much more lax/lower. Since the financial collapse of 2008, in the US the jobs that have returned to the market are typically low-pay service positions. More and more people survive in the unstable, unreliable gig economy. That’s not conducive to paying a mortgage or into an investment consistently month after month–let alone qualifying for a mortgage.
The advice to own without addressing all these (and other pertinent) issues seems to me to apply to those who’re lucky enough to earn enough–and stably so–to qualify for a mortgage in the first place.
I have to say, if he was a financial planner at the time or purchase and didn’t bother to run the numbers, then he was a really bad financial planner. I’m self-taught when it comes to finances, and even I knew enough to turn down the max mortgage that I could get approved for. I don’t have much sympathy for folks who make really bad financial decisions – consumers need to educate themselves, and that applies to finances/mortgages as well.
And I have even less sympathy for this guy’s bad decisions since he’s a financial planner who “felt we could afford around $350,000” and yet when it came to buying a $575K home 100% financed PLUS adding a home equity LOC, he “never sat down to figure out what it would take to make this work. I just wanted to believe him. ” GAH! People, he may have learned his lesson, but seriously…if he’s that careless with his own money, I’d hate to see what he advised his clients to do with their money. RUN away from this financial planner!
As a final insult… I know this guy and he uses a ghost writer for his blog, NYT articles and book. He really is laughing all the way to the bank.
I’ve come to realize a couple big bloggers in the personal finance sphere also use ghost writers for most of their content! Pretty amazing. If they can pull it off, why not I guess! Provides business to writers.
Well is credit took a hit and he will be in credit purgatory for quite awhile. He gets to write a book but, unless he’s a best selling author already I doubt he sells a lot of copies.
Tell me more about the RIA business you’re starting. Did you incorporate and get a CFP license or is this not necessary? Maybe you can write a post about it!
This guy Carl is a piece of shit. How can you call yourself a financial adviser and not follow your own advice. As start up RIA this really grinds my gears. All financial advisers should have to disclose their financial information to client prior to opening and account. If they do not have perfect credit it should be explained. If they have any debt it should be explained. so on and so forth. I agree 100% if a financial adviser does not have his financial house in order you should not be allowed to give advice.
But he’s living the American dream and is going to get rich thanks to you!
Also, I’m currently looking into buying a rental property. It just doesn’t make sense in my area. A 1BR for $600-700K is a joke.
AL again. In response, I would say I’m intentionally eschewing the “plush lifestyle.” Living with others is a lot of fun and less stressful on the environment. I’m also able to save 80+ percent of my 250K+ income. It’s a win-win situation that helps me regain my freedom in the short term.
It’s up to you Al. The landlords need renters, and hopefully with your income, you will be a small financial risk.
After college, I no longer wanted to live with roomies. Just a personal choice. More power to you if you can live very humbly.
The people who are buying the 600k 1 bedrooms likely earn more than 250k or are a couple.
Sam,
Here are my reasons for renting. In my town, the median home price is over $1M. I live in a great neighborhood within a mile of my office. I rent a bedroom in a great house for $1200/mo. I have two great roommates and can easily socialize with others, if I want. If I were to buy the cheapest 1 BR in the same neighborhood, I would be paying more interest, taxes, and maintenance than my current rent, even when taking into account the deduction. I would consider buying if prices move significantly.
But meanwhile, you’re living in a rented bedroom while other people are living much more plush lifestyles on your dime.
Unless you’re under 25, I don’t see how living in a rented bedroom is a fun way to live. At least you can save some money.
Thanks for this. The people who stuck with their home loans despite the difficulties are like those CEOs you mentioned: They just did the right thing and didn’t make a big deal about it.
That describes pretty much everyone I know. They look at the thing as, um, a CONTRACT: You sign on the line and then you make your payments, whether housing bubbles burst or not. It’s your home and you stick it out until you can make the final payment. If that means doing without things you want (or even need) due to factors like unemployment, the skyrocketing costs of food and fuel, or taxes that go up-up-up, then that’s what you do.
People like Carl make me tired. “I operated within the legal framework” is NOT the same as saying “I acted ethically/honorably.” I would ask “Is there no shame any more?” but I fear it’s a rhetorical question.
Don’t think there’s any shame any more. Gotta work it since everybody else is. If a Financial Planner works it and can have a free ride and make money due to the free ride, then so should we all because we accept it. If we didn’t, he wouldn’t have any clients.