Rober Schiller just destroyed one of the hottest and stupidest fads of the early 2000s:
“Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.”
That’s right. There is one, and only one, economically rational reason to buy a house, and that is because it provides you the opportunity, with enough time and patience, to no longer pay a landlord or bank money every month just for the privelege of taking up space.
There’s a lot of rationalization going on in real estate, and it’s bad.
- Investment? Not unless you’re in a bubble and you can and flip. That’s not investing: that’s trading. And if you’re good at that, you can make a stupid amount of money by doing it. Chances are, though, that if you’re reading this…you’re not good at it.
- Good schools? You can get into a good school district in a rented apartment. And if your monthly take-up-space-bill is zero, that pays for a lot of private schooling, too.
- Safe place to play? Any place worth living in usually has kick-ass parks, and most apartments have green spaces that are safe, too. If they’re too young to play unsupervised in an apartment greenspace, they’re too young to play unsupervised in the back yard, too.
- Bad things happen to houses. Bad and expensive things. Foundation repair. Termites. Hail damage. Plumbling breaks and water damage. They have to be fixed, and the lawns have to be maintained, or else the Zoning Nazis will be all over you and your neighbors will stare daggers at you.
- Expensive houses in “good neighborhoods” usually means long commutes, which is a tremendous cost in both money, and your most valuable asset, TIME. Time is not money. You can always earn more money, but once your clock is punched, the game is over.
- The quality of construction of most “tract mansions” near the “good schools” is frequently abysmal. A half-million-dollar house built out of chip-board is a poor investment compared to a house that costs a third of that, with the rest in stocks, bonds, and precious metals. Just because a house is big, doesn’t mean that a house is good.
Here’s your strategy: get the cheapest house you can possibly bear to live with. Pay it off, as fast as you possibly can, especially while interest rates are low and saving is a chump’s game anyway. Then, once you’re used to dropping that huge chunk of change on the mortgage, saving will be a breeze — you just transfer the same amount of money…not to a bank, but to an account you already own. THEN, once you’ve got six months’ of your total income (meaning, if you’re married, what you both earn in six months), and ONLY THEN is it safe to look at this little thing called “investing.”
Investing is the hallmark of the middle class. And the first rule of the middle class is “don’t be a rent-serf.”