Buying a house is usually a lousy investment. This 8 word sentence is enough to start a fight if you say it to the wrong person. But please, before you come at me with pitchforks, I’m not the one saying this. This is coming from legendary investor Warren Buffett. Let’s just say Warren knows a thing or 135 billion about money.
This video covers topics such as buying a house, renting vs buying, the housing market, does it make sense to buy a house in 2024, Warren Buffett real estate, Warren Buffett’s house, real estate, housing market predictions, and much more.
Make sure to always check out this video:
– Warren Buffett: A “Storm is Brewing” in the US Real Estate Market:
As a bit of background, there is a mindset that renting is throwing away money or that buying a home is always a great investment. While these statements do have some merit, as Warren Buffett pointed out in that clip, they don’t tell the whole picture. Most people just look at the monthly mortgage payment and compare that to what it would cost to rent a similar place. They see that the mortgage payment is around the same as what their rent would be and say “yep that’s it. Renting a home is a waste of money. May as well buy”. However, there is much more that goes into it than just that. To demonstrate what I mean, let me introduce you to our friend John here.
John has been working hard and saving money for years. He has done everything right financially and now has the ability to purchase a home. Let’s take a closer look at John’s true cost of buying a house.
When buying a home, the first thing you have to consider is the down payment. In the United States, there are some companies and government programs that offer low or even no money down mortgage options. However, these types of mortgages are generally considered relatively risky. Just look at the wave of foreclosures that happened during the Great Financial Crisis. These foreclosures skewed heavily towards individuals and families that bought at the peak of the market with little or no down payment. That is why it is highly recommended that home buyers have at least a 10 to 20% down payment when purchasing a home.
Warren Buffett: A “Storm is Brewing” in the US Real Estate Market: https://youtu.be/Jq_6RKHJIIA?si=r2pxygPCtX2ZlNFT
You did not cover tax write-offs for owning a home, plus earnings in the stock market will get taxed every year which will reduce those returns, therefore, when you include that, owning will beat renting. I agree that right now is not a good time to take on a loan to buy a house, but when interest rates go down to 3% or so, it will become a good deal again to buy a house.
I bought a 2200 sq foot home that was 13 years old for $125k . No PMI since I used one of those programs she didn't like. My mortgage payment was $888. Now due to the boom it's 1000. In my city, a 1 bedroom in the bad area is $1100 a month. For a 4 bedroom is about $2500. While I agree with her numbers for extremely high cost of living areas. I think most people don't like in extremely high COL areas. They probably live in low to moderate cost of living areas. So most people aren't getting 500k mortgages. I've also never spent an average of $400 a month for repairs. Need a new roof, use your homeowner's insurance. Need other repairs in your house get a home warranty for $50 a month and your deductible is $125. I don't think I've spent a total of $5000 in the 8 years I've been in my home. The biggest purchase wll be a HVAC system in the future. That averages $6000 for heating and cooling. Divided over an average of 20 years, that's $250 a year.
Also with the average person making 55k and the average family earning 80-100k, most people aren't losing the opportunity to make investment purchases. they never had the opportunity to begin with. They are lucky if they can afford to match their company's 401k match.
I do agree, only buy a house that is less than market rent.
You didn’t mention investing in stocks is voluble is like rolling dice.
It depends when you buy a house in the real estate and mortgage rate cycles as to whether or not it's a worthwhile investment. Many people who bought homes at the end of 2020, at the peak of housing prices and ridiculously low interest rates, will soon find they owe more for their house than what it's worth…and remortgaging at 4+% more than what they started with is going to cost them dearly in the long run.
Others who bought their houses in, say 2008, are laughing right now as the price of their home has likely at least doubled since then.
My house is worth about $640,000 right now…and it costs me about $11,000 a year to live in – what with property taxes and short and long term maintenance costs…and about 300 hours a year or so worth of my labor on maintenance and upkeep inside and out…work that doesn't exist in a rental.
I'f I sell my house and clear at least $600,000 on the sale….and invest it in relatively safe, sector-strong companies and investment vehicles with steady dividends averaging 7% (which is fairly easy to do), that's $35,700/year after paying in my current tax bracket. Instead of spending $11,000 a year to live in a house, I'll have $2,975 / month income to spend on a place…and don't have to worry about mowing lawns, or cleaning gutters, or replacing the roof or furnace when the time comes.
It made sense to buy a house when I was younger and raising a family. Now that we're empty nesters and the house is paid for, it makes more financial and "free time" sense to sell and rent going into retirement…with an extra $11,000ish a year to spend on vacations and toys. The trade off is, it's a rental…which has pros and cons of it's own.
If it wasn't for the growing risk of a severe market pullback..and the political insanity looming in the fall and possibly beyond…I'd of sold already. It just makes too much financial sense at this stage of the game.
My long-winded point is – buying a house may or may not be a lousy investment. It's never absolutely one way or the other.
I didn't say that. I was saying that if you run the numbers, especially in a more normal real estate return environment, it's not the unbeatable investment many make out. I don't own one at the moment, but I'm single without kids and might get one when I have a family.
If housing is such an unbeatable investment, maybe you should just borrow as much as you can and buy as many houses as you can. If you can't lose with realestate. You should probably also sell an online course teaching others how easy it is to make money in real estate like you.
If one does not own a house, then one needs to pay rent (unless you have the Gaul to live with your parents rent free), so that rent money is literally wasted.
I calculated out the options for myself all the way into retirement. None of these "just rent" people do that.
1. Rent = Losses on home ownership from taxes, insurance, maintenance, mortgage interest (@7.6%), etc. Ignoring all tax breaks that may exist.
The only advantage to renting is lower payment… initially by $500/month. This benefit decreases annually with Rent increases. After 10 years of renting it is cheaper to own an equivalent home. The opportunity cost to own is only a few percent difference ROI on home appreciation vs stock market performance.
If you play this out over 30 years, by the time I hit retirement, renting costs double what home ownership does. I would need an extra $2500 to $3000 a month to to cover rent in retirement. This is assuming an aggressive 8% annual inflation in home ownership costs
The cash flow recovered from owning your home are worth $600k to $1 million in retirement savings.
I'm renting right now because we are moving soon. Then we are buying.
You can use tricks like paying biweekly on your mortgage to pay it off 7 years earlier, paying an extra $200 per month to pay it off another 4 years sooner.
Do the math for yourself. If it doesn't work out in you favor… consider moving to find better opportunities. Don't get stuck in indentured servitude to your liabilities.
I can never convince my wife of any of this.
Leverage and appreciation on your home cover all the costs easily
We need this information, failure is inevitable when knowledge is failed to apply, why allow poverty rule ???
I suppose its better to rent, Buffettt? 😂
How come Buffet lives in a house ?
Keep paying 5k a month in rent.
What was not considered in this math calculation is the subtraction of the money you would have paid out for rent over 10 years. So, you may gain all that money from the stock Market, but you have to still live someone for those 10 years. So, you end of up paying someone else’s mortgage for them by renting.
No I know he's on a pedo flight log…
If buying a house is such a lousy investment then how come 44% of all homes sold last year were purchased by big investors??? 😂
I’m in the home repair business and I can tell you $10,000 for a repair on your home is very low. I often quote over $30,000 easily for foundation repairs. Then consider 30,000 or more for today’s roofs and then every other issue that can possibly happen with the home given, it has so many moving parts. oh and let’s not forget the wife is gonna want a nice upgrade on the home every 10 years which will cost you more than $80,000 on average. No thank you! I would rather rent and sleep good at night and take vacations whenever I feel like it, dumping it into Home.
My question is – why do millionaires own so many homes then if it’s not a good investment ? Now if you have a good investment where you know you won’t lose all your money then don’t buy a house. Most all people are not good at investing, so a house is a smart choice.
Mortgage paid to bank
Taxes
Insurance
Utilities
Plumbing repairs
Roofing repairs
Electrical repairs
Landscape and maintenance
Pests and termites
A Tony B Camper
Dodge van sounds appealing
Nothing is a bad investment if it’s fairly priced, everyone knows real estate is the best way to succeed.
I just started a lawncare company last year as a side hustle I’m at 46 customers so far. And I still have another job while doing this lawncare but all this couldn't have happened without an financial education and plans. All thanks to my advisor.
A class based society where the rich tell the poor how to spend their money and when anyone says anything at all about how they spend theirs they say " it's my money I'll spend it how I want". A system where the poor are looked down at and the rich are praised for doing nothing. Wealth hoarding and greed undercutting the hard workers while the rich spew hate towards the ones who do the actual work. Punished through taxing while the criminals are rewarded with little to no taxes. People can't afford healthcare but the rich use taxpayer money for their healthcare. People can't afford to eat but the rich cut down all the fruit trees and demolish the gardens and grow no food anywhere but where they make money. Tax the water, tax the air, tax the land, tax the power, tax the heat, tax the shelter, tax the tax, take more and more and more, then say the poor are the problem. Sorry but warren Buffett can spin on it. He's done nothing to help anyone in this world or America.
Ok, I'll live in a van until I can 350k.
What works for the rich not always work for the poor. For the poor a house is their biggest and best investment (except in some cases). And it doesnt have anything to do with how much money a person will make from that investment, but about security and peace of mind. And also less expenses once the house is paid off
I dunno man. My mortgage payment is now lower than most peoples rent.
Buying a house is the best thing for 99.9% of people period.
The most money I ever made was through the buying and selling of real estate. They know nothing about real estate.
It is just a game you need to know how to play it .when you you buy first home you are learning first listen about real estate then you can make it investment and start your business forward or you make liabilities and start loosing money the point is who you are ? I do not need warrant or who ever to guide me every person has on life do not try match it someone else
OMG uptalk on steroid… 🙁
Buffett must be in real-estate
This conversation is irrelevant in so many places right now where CoL is so high that people are going into debt to feed their family.
Most of us cant be buffet. It will be better to have at least one house and live a more stress free life.
We wont be able to follow all principles and ideas of other people😊
Well owning a house is gone for most usa Americans now and so r eggs,milk bread,steak