To buy or to rent - that is the question
One investor says weve been sold a bill of goods by the real-estate industry.
DEAR HARRY: I always thought that owning a home was one of the smartest financial moves a guy could make. After all, why throw away those rental payments when you could be creating more equity for yourself? Then I heard this guy Patrick Bet-David (who is supposed to be a very successful investor) take the whole idea of homeownership apart. He says that we have been sold a bill of goods by the real-estate industry. Too many people are struggling with the pain of missing their next mortgage payment because they overbought. Most people, he says, should rent their homes and use the extra money that goes into mortgages, insurance and maintenance to start new businesses. That's where the real money is. Is this guy on to something?
WHAT HARRY SAYS: I think this fellow needs a few of his nuts and bolts tightened. New businesses are great - if they're successful. The truth is that many new businesses don't make it; many of the remaining ones are struggling to hold on. Owning against renting has been the success standard in the U.S. for as long as the nation has been here. A typical case: The parents of a close friend bought their first home in 1954 for $15,500. They moved to a retirement community in 2012 after selling their last home for $150,000 in a tough market. If we assume that their taxes, insurance and maintenance would not exceed a reasonable rent, they would have earned a modest 3.9 percent annualized. The trouble may be overbuying, but that's not the norm. The greater risk is in renting.