Get the other side of the argument at ‘the American nightmare’ link below:
While opponents of homeownership claim it’s “the American nightmare,” self-made millionaire David Bach is doubling down on his faith in real estate.
He thinks that not prioritizing homeownership is “the single biggest mistake millennials are making.”
Buying a home is “an escalator to wealth,” he tells CNBC.
Young adults in particular aren’t hopping on this escalator, and it’s a costly mistake, Bach warns: “If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter.”
The self-made millionaire is quick to say that the smartest investments he’s ever made have been the three homes he’s purchased. He tells CNBC: “I first bought a home in San Francisco. It skyrocketed in price. I moved to New York and bought another home. It skyrocketed in price. My net worth has gone up millions and millions of dollars, simply because I’ve lived.”
Bach argues that you have to live somewhere for the rest of your life, so you might as well invest in a home that you could own permanently.
As he writes in ‘The Automatic Millionaire’, “As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!”
If you want to get in the game of homeownership, start by crunching the numbers, Bach says: “Actually do the math. Look and see what things costs, starting with the smallest options. This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this.'”
A good rule of thumb is to make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay. He also recommends having a down payment of at least 10 percent, though more is always better. Finally, recognize that “oftentimes, buying your first home means you’re not buying your dream home,” Bach tells CNBC. “You’re just getting into the market.”
A lucrative market, that is. “The fact is, you aren’t really in the game of building wealth until you own some real estate,” Bach writes.
Read the full article here:
The “elevator to wealth” always goes up except when it doesn’t. Most recently in California this was between the years of 2006 through 2009 and before that 1990 to 1993.
What will the future hold?
– The fed has been telegraphing rate increases. The Stock Market is also expecting this.
– Average wage for entry level home buyers hasn’t increased as quickly as home prices. What this means is it’s more and more difficult for new home buyers to get in the market.
– Population is increasing in California this means more people are trying to buy than not. This equals pressure on home prices continuing to go up.
– Foreclosures are not happening in California. If this changes it might slow some of the home price increases.
Personally I believe prices will continue to go up but not as quickly as they have in the past. However foreclosures are the big wildcard. Trump (and his management team) may or may not change the current status quo.
I agree! I hope JtR doesn’t mind a long story here but hopefully my own example in real estate will help someone else.
We built our first home in Hawaii in 1988. It was only 1,248 SF and 3/2 with a carport with an ocean view. The lot cost us $50K, and we built the home for $70K. Yes, sweat equity helped but it doubled in value in less than four years. We then moved to Bend, OR in 1992 and bought a 3/2 + office home of about 1,940SF. We made a small amount of profit when we sold in 1998 to build our dream home in 1999-2000.
Our young kids helped. It was 3/2 + office (entire home had radiant floor heating) and an expanded double garage with storage in an upscale neighborhood with a view of Pilot Butte. It was about 2,100SF. The lot cost us $50K.
My younger husband’s shocking cancer diagnosis in 2001 got in the way of our dream and we sold that home to move to Santa Barbara to be with decades-old friends for needed support in 2002. It was four years before Bend, OR home prices skyrocketed but we sold for 2X what we owed on our mortgage.
My much-younger husband died in 2004, so I (we) ended up renting from 2002 to 2010 in Santa Barbara County. I longed to be a homeowner again and was tired of the $2,000/month rent for a trac home.
With JtR’s advice, I sadly left CA to be able to afford a home after getting our two kids through college/internships without student debt.
I bought a new-construction home in 2010 and sold it last April (due to problems with a next-door neighbor). The equity provided the 20% down payment I needed on another new-construction home in a more upscale subdivision just 998 steps away. It’s built by one of the premiere builders who has a waiting list of clients.
I tell this story as we lost over $100,000 in the tech crash in 2001 and then 23% of my net worth (Ouch!) in the financial crash in 2008. Without the diversity of real estate, I don’t know where I’d be now.
I will always honor the Bill May, our real estate agent we met in Hawaii. He wouldn’t let us buy a 2-bedroom house (“You’re going to have more kids, right?), or any house because my husband was a finish carpenter. His words of advice were simple but valuable: “You have to live someplace anyway. “Why not own a home instead of paying someone else’s mortgage?”.
I’ve been addicted to real estate ever since!
Ugh……the old “your throwing away your money on rent” trope.
Is this guy a shill for NAR?
So 500k house with 20% down is about $2500 a month according to Zillow’s calculations. Keeping to Bach’s rule of spending no more than 30% of take-home pay, that would require a monthly salary of $8400 AFTER TAX. What’s that 175-200k gross?
Once the CALPERS pension crisis hits in about 10 years, the state will have no choice but to change prop13. Don’t think it can’t happen. Look at Connecticut and Illinois as examples.
I’d like to believe it is true, but can’t. The “escalator” has been broken for many young Americans.
Young people don’t want to own anything. They want no responsibility along with being tied down, taking care of yard, upkeep and much more. Think about it. They get music for free on the internet. Don’t buy books, read on the internet, watch the latest shows and movies for free on the Kodi app and much more. The days of parents telling to do whatever it takes to buy a home are gone. It’s a different mind set. Plus the older generation put down 20%. They had skin in the game. Where I am in Arizona a typical deal for a young person is put 3.5% down obtain an FHA loan and have the seller pay all the closing cost. Times get bad, the kids get sick, a job loss and guess what, they walk away from the home after tapping out the equity and we go through is all over again. Maybe it’s a good thing young people are not buying.
If you want to look at where San Diego real state is headed, look no further than London where the rental market is extremely competitive. Everything is super expensive. Tons of foreign investment. The wealthy buy up all the homes and many of which they convert into 6, 7, 8 bedroom homes for the sole purpose of renting them. Don’t believe me, check out west London. I have a friend living in one with 7 other people. The downstairs has been converted to 6 bedrooms and 2 bathrooms. There is no “living room”. Its just an L shape hallway with doors and at the end is a kitchen. 8 people live in this house. It’s not even nice and just looks patched together. The avg rent is $800 per person. Owned by a rich Spanish woman who has a few similar properties. Point being is that when a city gets so dense, the wealthy can drive up the prices by restricting the volume and they know this. It’s essentially collusion. Rents in San Diego have not gone down in the time I’ve lived here (since 1998), irregardless of a depressed housing market in 2006-2009. So yes, those that make a decent living need to buy something, which usually means sacrificing the wants and settling for the needs. In San Diego you are definitely pissing your rent money away on someone else’s mortgage. You’re not losing money until you sell (in a depressed market). Same as the stock market. So I largely agree with this article for the most part.
“I’ve been addicted to real estate ever since!”
Interesting post, Susie! Thanks.