Home » Money » Real Estate Part 1: Why You Shouldn’t Buy A House

Real Estate Part 1: Why You Shouldn’t Buy A House

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Collegemarriage, career, home ownership, the sacred cows of middle class western society. The foundational pillars in the pursuit of happiness. The cornerstones of The American Dream. If a man can commit himself to these sacred principles through hard work and sacrifice he will be able to relax and enjoy the fruits of his labor in his golden years, at least that’s what you’re sold.

The truth is that many men will be in ailing health by 65, not able to retire financially and 1 in 6 or 17.4% of men will be dead before 65 . Even the term mortgage was derived from “law french” in the middle ages which translates to death pledge.

This lifestyle is also known as the deferred life plan, the idea being to sacrifice your youth for a bright future in your golden years, fully reinforced by society and your family as the smart thing to do. And that’s if things go well. When they don’t, its divorce, alimony, debt, child support, and wage slavery for life with no way out.

The American Dream was a noble sentiment crafted by James Truslow Adams in 1931 that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement” but there was no mention of a 30 year commitment to a mortgage lender.

This phrase was co-opted by the media and corporations as a part of the American religion with home ownership as one of its defining tenets, home ownership became part of America’s religion because corporations didn’t want employees to have job choices or financial independence.

With the rise of factories and assembly lines came the rise of row houses and communities of factory workers. Since then home ownership has been promoted as the ultimate vehicle for middle-class savings.  A mortgage was never a good idea but at least in those days men could rely on a job for life and retire with a gold watch.

Those days are long gone, the temporary worker is the norm and the average person doesn’t last more than three years at any one job. For some of you guys you might already be convinced but for the rest of you, keep reading, first we debunk the common reasons why people usually buy a home and then we drive the nail in the coffin with even more reasons not to buy a house.

Reasons Why People Buy Houses

1) Status

When you buy a house you’re now an upstanding member of the community, a success or at least on your way to success. Everyone else you admire owns a home and now you do to. The fact that everyone else is doing it should be your first warning sign that it’s the wrong idea, everyone else is not a winner.Everyone else is leveraging themselves to the hilt to keep up with the Jones’ who are doing the exact same thing. Everyone else doesn’t even contemplate freedom because they don’t realize they’re slaves.

2) Dreams

The bank, your real estate agent, your family and society tell you that you’re buying a home. Ideally one with a white picket fence, and a spacious backyard. A warm, cozy place to raise a happy family. It’s not a home, it’s a house, a home is where you live, whether it’s a condo or a cardboard box. Calling it a home is what real estate agents and mortgage lenders do to manipulate your emotions. They sell you the dream of home ownership, what you get is a house that’s subject to rot, rust and needs renovations.

3) Pressure

Women love houses, a house represents the idyllic foundation for raising a happy family. When a woman is planning her families’ future she wants a house like Malcolm X wanted freedom, by any means necessary, that means pressuring their husband.

The husband is told that babies need space. That pressure is reinforced by his and her families. The truth is babies don’t need anything except food, clothing and shelter. It’s true that its more comfortable to raise kids with space but not at the expense of having unhappy, stressed out parents.

Most guys shouldn’t be getting married for a number of reasons one of which being they can’t afford a wife and kids let alone buying a house. My ex-colleague is a great example, demanding wife, expensive wedding, multiple trips per year on credit and now a new house, none of which he can afford. Fully supported by my ex-boss who even went so far as to loan out his appraiser knowing he now had his top salesman buy the balls for the rest of his life.

4) Appreciation

Houses will appreciate but compared to stocks or bonds they are the least appreciable asset class and the worst investment. Robert Shiller author of Irrational Exuberance explains:

From 1890 to 1990 the appreciation in US housing was just about zero.  That amazes people, but it shouldn’t be so amazing because the cost of construction and labor has been going down.

If you really wanted to invest in housing you can just buy an REIT, which is liquid. There is a common myth that houses always appreciate in the long run, this is not true, for evidence just look at the housing crash that put millions of people on the street.

The majority of a houses’ appreciation comes from inflation, the average person looks at a $400,000 profit over 20 years and thinks he made the right decision when the majority of those gains are illusory and caused by 3% inflation per year. Unless there is a bubble, house prices only rise with salary inflation because prices can’t increase more than incomes in the long run or people wouldn’t be able to afford them.

5) Customization

People think because they own a home they can do with it as they see fit. But housing is often restricted by the Home Owners Association and city zoning committees. Even if you can negotiate your way through the approval process you now have renovations and years of headache ahead. Minimalism is the way, fuck spending time and effort renovating, just move. As a renter, you can just move to a place you like better.

6) Renting Is Just Throwing Money Away

Not true, the cost of living is a necessary expense no matter if you’re renting or owning. As an owner you’re throwing away money on interest, tax, insurance and maintenance. Also taxes and maintenance may go up faster than your rent, you might have a couple good years until things start breaking down, fire, robbery and now you’re deep in the hole.

When you rent, you are the client, a client with a lot of legal rights protecting you, you’re the buyer and they’re the seller, your landlord works for you and you always have the option to leave which gives you power. Unless you can afford a house outright you’re always renting, your choice is whether to rent a house or rent money to buy a house by taking out a loan.

It’s true as a renter you don’t build equity, but equity is just money, instead you can live in a cheap apartment and divert all your savings towards building a business or invest in an asset with a better return than housing like a medium return bond fund or an index fund.

 

Reasons Why You Shouldn’t Buy A House

1) Opportunity Cost

When a man buys a house the majority of his savings go towards the down payment and that money is effectively dead. Yes it will get a very modest return over the years but that return won’t make you rich or financially free. Even when you do sell the house, since you believe in buying houses, you’ll just take that money and dump it in another house never to be seen again.

That $100,000 down payment could have launched a business that gave you a $5,000% return. Even if you own outright, you could sell the house, take that money and invest in a medium yield bond fund and rent a similar place for less money. That extra income could be 300% beyond the cost of rent allowing you to retire now and retire well if you wanted to move to a cheaper country.

2) A House Is Your Biggest Investment But It Doesn’t Solve Your Biggest Problem

Your biggest problem is that you’re a slave and all your resources are dependent on your boss, not on yourself. Buying a house will be the biggest investment you make and instead of alleviating your biggest problem, it compounds it.

As a home owner you’re now not only a wage slave but a debt slave as well. Your biggest investment should be towards freeing yourself from the slavery system and creating a money machine, not plunging yourself deeper into bondage.

3) Leverage

Leverage is a bet that the appreciation will be greater than the cost of borrowing, when it works its great, when it doesn’t its a disaster. If middle class people borrowed hundreds of thousands of dollars from the bank at interest to take a 30 year gamble on the price of an illiquid asset that wasn’t a house, they would be labelled insane. Leverage is a double edged sword and a sharp one.

It’s true you can profit from it when you’re right, but that house of cards can just as easily collapse as millions of Americans saw in the housing crash. Lets say you buy a $100,000 house at a 10% down payment of $10,000, that means you’ve taken out a $90,000 loan from the bank. With only a 10% correction in housing prices to $90,000 you lose 100% of your investment, your savings are wiped out completely. At a 20% correction, you’re down $200% and now owe the bank $10,000.

4) Commitment

Signing a 30-year commitment to anything is retarded, let alone one with 6% interest and 500% leverage. Can you guarantee 30 years of uninterrupted income? That’s not an investment, that’s a hail mary. A traditional mortgage, might have worked in the previous generation, where you had a job for life but those days are gone. 80% of all mortgages aren’t kept to maturity. Its almost as bad as signing a lifelong contract based on a woman’s emotions in a country where traditional women don’t exist anymore.

5) Captivity

As a homeowner you no longer have the option to move. As a renter you can choose a short commute to your wage slavery cell by living close to work or the subway line. Imagine life with an extra two hours a day because you don’t have to commute, not to mention you can move when you get a new job which for most people is every couple of years.

6) Debt Slavery

If you need a mortgage, you can’t afford it. There’s no such thing as good debt, except for the banker who loans you money at 6% while paying you 0.5% on your savings account. Even if there was such a thing as good debt, a 30 year gamble on uninterrupted earnings at 500 percent interest wouldn’t qualify.It does qualify you for debt slavery however, add a wife and two kids and you’ll never be able to invest in yourself. You’ll never be able to get free. This is why no man starts a business past 40.

7) Our Time

Do you really want to spend all your free time working on your house? Is this where your time is best spent towards creating a happy and fulfilled life? From renovations, to fixing things, to cleaning the gutters, owning even just one property is a part time job. Time that could be spent working towards solving your biggest pain point, being a corporate serf.

8) Stress

Buying a home is stressful, you’ve got to deal with bidding, paperwork, lawyers and other friction. Owning a home is stressful, you’ve got monthly payments, things breaking and renovations. Selling a home is stressful with real estate agents, deciding on the right offer and having strangers through your house for months on end. That’s just for the average homeowner, those poor guys on the wrong side of the housing crash were committing suicide. Stress is a very real part of being a homeowner.

9) Lack Of Diversification

The cardinal rule of investing is diversification. If you want to put all your eggs in one basket at least put them in a basket that you have the maximum amount of control over, like a business. By putting the bulk of your savings in your home you’ve tied your entire portfolio to one asset with no control over its price.

10) Illiquidity

Can you sell your house immediately if you need money now for a new business venture? If you lost your job? If you’re going through divorce? If you have urgent medical bills? The answer is no, not unless you want to sell at below market rates and risk losing a good portion of your equity. Clearing your entire stock portfolio can be done in seconds online with the click of a button.

11) Transaction Fees

When it comes to housing costs the transaction fees and the amount of friction they generate is greater then all other assets combined. When houses are bought and sold you’ve got real estate agents, lawyers, mortgage brokers, escrow officers, title representatives and appraisers all taking a piece of the action.

Then you’ve got the real estate transfer tax, escrow costs, carrying costs, property tax and other fees to deal with. Many people think they will just amortize these costs over the length of a 30 year mortgage. The problem is the average length of ownership on a house is 7 years, not thirty. That means the 7% you pay in commission and closing fees comes out to 1% a year and you will do it all over again when you move.

12) Maintenance

Everything in your house will break. You either get to fix it yourself or pay someone else to fix it. When you rent you tell your landlord there’s a problem and he fixes it, it costs you nothing and you do nothing. Your fridge breaks, you call your landlord and one day you come home and you have a new fridge.

13) Damage

When it comes to buying a home the best you can hope for is that it doesn’t have major problems, there is no potential hidden upside but a large potential downside. That could be underlying structural problems, leaks, mould or any number of things you will need to go out of pocket for.

You can easily spend half your down payment going out of pocket to fix things that you and your appraiser missed. The same ex colleague with a demanding wife and the house he can’t afford got the added surprise on purchase that his house was infested with mould and would cost thousands to fix.

What You Should Do Instead

Live cheap, as cheap as possible. Bank your money and use it to towards investing in your business, or as a runway for sustaining yourself while you build your business, owning your own business is the only way out of slavery. Read more on why you shouldn’t invest in real estate in part 2 of this series.



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14 Comments

  1. September 26, 2014 at 2:00 pm

    I love this article!
    I got sucked into the “it’s time to buy a house” mentality and have regretted it ever since. As soon as I realized I would be paying for it until I was well into my 50’s and wouldn’t make any money on it after spending almost twice as much as the selling price on it, I dumped it and ran and never looked back. That was back when I was a man of weaker character. My rule: If you can’t make money or grow from it it’s not worth buying.

  2. September 26, 2014 at 9:49 pm

    Thanks Jason, I hear you man, a lot of guys have been sucked into that mentality, you saved yourself a lot of pain by getting out early. Thats a great rule.

  3. December 28, 2014 at 5:06 pm

    I’m not sure if I agree with your numbers, and even if they do I think the rural areas skew the statistics.
    The big cities are only growing. Look at the statistics for the past 22 years in Copenhagen:
    http://rkr.statistikbank.dk/statbank5a/Graphics/MakeGraph.asp?menu=y&maintable=BM010&pxfile=20141228215319151101176BM010.px&gr_type=0&PLanguage=0
    Average m2 price goes from 5.500kr (900usd) to 25.500 (4200usd) – thats around 8% per year.
    Had you put down 20% (1/5) you would actually have seen 8%*5 = 40% return on money invested. Per year.
    A rental property in a big city is a “concrete” investment – you know what you can rent it out for, and there is a HUGE demand because everyone are either poor or wants flexibility and freedom from responsibilities. Yes you have to fix a toilet now and then, but it’s quite straightforward and easy. Stocks on the other hand, are completely out of your control.
    If I can ensure let’s say 5-10% ROI before tax just from renting out, and I can get appreciations on top – why not? Looking forward to your answer.

  4. December 29, 2014 at 10:13 pm

    Hey Boy Toy, good to see you back.

    I’m happy to respond, you make some good points although I can’t see that link. As for the data I used here’s a link to the Schiller study“, its a massive study on real estate trends going back hundreds of years. Here’s an excerpt to give you an idea that home prices increase much slower than most people think.

    “Do real home prices have a substantial long-term uptrend? The chart suggests not. First, what about the United States? It’s notable that until the recent explosion in home prices, real home prices in the United States were virtually unchanged from 1890 to the late 1990s. The Amsterdam data show lots of ups and downs, but only the slightest hint of an uptrend. Prices approximately doubled, but it took nearly 350 years to do so, implying an annual average price increase of only 0.2% a year. The Norway data do suggest such an uptrend, but viewed from the longer perspective of the Amsterdam data, that uptrend seems to be merely part of a long cycle from the early 19th century to the late 19th century. And even leaving the context added by Amsterdam aside, Norway’s real price growth is, on average, negligible: only 1.3% a year.”

    In part 2 on real estate investing I cover a lot of reasons on why I don’t like real estate investing, the main problem for me is the leverage. Here in Canada people are buying homes with 10% down, that means if the market a few points against you your equity is wiped out. Not only that but you can be leaking money monthly on rent/vacancy.

    The Dow on the other hand has averaged 6-8 % per annum for a frictionless investment. Its true other people won’t pay off your asset but you also won’t have to pay interest and fees. An index fund is decent if you can withstand down decades, or you can do a medium yield bond fund. But to me none of that compares to owning a business and dumping as much of your cash into it as possible, and saving the rest for runway while you build revenue. Business ownership is the only area you can get massive ROI, especially online, starting a website is so cheap, the margins are insane. I feel like guys should be investing in themselves.

    With that said if you’ve got a good read on your market and some cash on hand I say go for it, a lot of guys made good money investing in our condo boom here in Canada.

    Looking forward to see how the celibacy experiment turned out for you.

  5. December 30, 2014 at 11:19 am

    Leverage can be just as good as it can be bad, depends on what way the market goes. Risk/reward.
    Yes if market drops 10% you lose all, but if market ups 10% you just doubled your equity. Same EV.
    I just looked up the numbers from real estate in rural areas and they have increased WAY less, and it confirms my belief that “living on the countryside” is getting boring and everyone wants to move to the big cities. I would never ever buy real estate out of a big city unless it was possible to resell under market value with profit or something extraordinary.
    I dont know shit about stocks but this Dow thing – are the 6-8% inflation adjusted? Link?
    No doubt explosive wealth comes from your own business – but honestly I think everyone and their grandmother are going the “website” way and I think you have to do something with higher barrier of entry or something that is more complicated than a wordpress blog with information.
    I’m in the market in Copenhagen – if I put up a room for rent at the highest market price I get 100 applications in one day. Is it like that in Canada as well?
    Yea I can tell you it’s quite interesting to live without girls.
    Cheers
    The Monk

  6. January 1, 2015 at 6:41 pm

    Agreed, leverage is a double edged sword.

    Sure, here’s a link to an annual return calculator, you can take it back to 1913 from 2013 giving an inflation adjusted rate of return of 8.54%. An index fund has been a decent investment if you could stomach the down decades/half decades.

    I agree with you there, the barrier for entry is not what it seems online. If you’ve read MJ Demarco’s book he talks about actively seeking businesses with a high barrier of entry and I would agree, the barrier for online is not setting up the site, its generating traffic. With that said, outside of online guys can always do a service based business with low cost of entry thats profitable from day one and just grind. That could be a blue collar business, independent insurance brokerage, whatever skill they have. My buddy started a car brokerage and did 40K in his first year with no outbound calls, all customers through either referral or through google adwords at a cost of about $500/month.

    Ya the condo boom has been pretty crazy in Toronto for the last 10 years or so, not quite 100 applications a day but there is still a big demand for tiny condos downtown. With that said I think we’re overdue for a bust, when you have 400 square foot condos going for $250,000 something is wrong.

    I bet I’m considering celibacy for the next 4 months as an experiment to see how much more productive I am, I’d love to see you do a post on it.

  7. Jon
    January 14, 2015 at 6:50 pm

    I respectfully disagree with the premise of this article. Well-selected locations for real estate investment can build tremendous amounts of wealth, as it has done for many friends and family of mine. You are correct in stating that with 2008 considered, housing prices don’t seem to appreciate in the long run. But look at stocks, and you see the same story. It is theoretically true that housing prices can’t appreciate beyond real wage rates. The same is true of nominal stock values. Yes, business can create additional value which is reflected in stock appreciation, but real estate is one of the largest business industries in the world. In fact, a large proportion of modern millionaires earned their wealth through real estate. It is something worthy to keep an open mind about.

    The bottom line is that no investment is easy. For people with a lower risk profile and large capital reserves, real estate is probably a good option. Not good for everyone, but it undoubtedly has its merits.

  8. January 15, 2015 at 7:05 pm

    Hey Jon, thanks for your input, you’ve definitely got some good points here.

    With that said when it comes to stocks they have a better track record over real estate in the long term, you can check out the links in the comments section in my response to Boy Toy.I agree that there are many wealthy real estate investors and for people with large capital reserves (people who are already rich) its a decent investment because they can buy a house without going into debt. But for the majority of guys reading this site, in the 18 to 35 age bracket I don’t like the idea of them taking on a massive house of cards of debt. Its a dangerous proposition and in my opinion is still part of the deferred life plan, suffer now and be rich in your 50’s/60’s, I’d rather have guys focused on making money now and I don’t see any better investment than your own business. I also think you might want to check out part 2 of this piece where I talk about my other objections to real estate investment specifically.

    Even though we might disagree over a few things I’m sure we agree on a lot and I think your comment is a really good example of constructive criticism done properly.

  9. Brad
    May 5, 2015 at 7:06 am

    I generally agree.

    Only exception was condominium, though.

    I used to pay $900 a month when I lived in a Apt.

    Now I bought a condo for $60,000 out right in 2013.

    (This condo used to be $150,000 in 2006.)

    Now I pay only $950 property tax a year.

    I pay $280 HOA a month, but it includes water, heat, trash, maintenance and insurance.

    I can say that my monthly expenses are less than half now.

  10. May 6, 2015 at 11:18 am

    Hey Brad, I agree. In part 2, investing in a home I break down the exception of owning if you can pay in cash. The only time I wouldn’t agree with that is if you’ve dumped all your savings in a home, because that’s money that you could have dumped into a business at a much higher rate of return/removing you from wage slavery. Sounds like a great deal, you must be out in the US, I was looking at places in Florida and Arizona for around those prices. Here in Toronto that condo would be about $300,000.

  11. alina
    June 12, 2015 at 10:53 am

    Interesting article and ideas.

    Although I see that your website is targeted mainly at men, I allowed myself to comment as I’m a woman interested in rational lifestyle ideas (who also likes Robert Shiller’s views).

    Indeed, people have dreams and are sold dreams. Letting irrational impulses prevail over reason, especially when large debt and lifelong savings are involved, can ruin lives or chunks of them.

    It’s true that, in general, women love houses, and home design as well (just as men usually love outstanding cars :-) ). And it’s true that it is important to avoid this sort of temptations when one cannot truly afford them (e.g., need for debt or spending all of one’s savings).

    Freedom from debt, peace of mind, contentment with what one has matter a lot for individual and family happiness. (Many times we learn from our own mistakes.)

    Regarding marriage, I believe this can be a very strong and beneficial partnership, for both parties involved, if done with the right person. As Saint-Exupéry once stated, “aimer, ce n’est pas se regarder l’un l’autre, c’est regarder ensemble dans la même direction.” (“To love is not to look at one another: it is to look, together, in the same direction.”) I personally am happily married and wouldn’t want it any other way (and so does my husband feel). We had a simple, affordable wedding and live within our means. You know, Robert Shiller is married, too, to a psychologist who has had a significant impact on his works. So marriage isn’t always a bad thing when done with the right person who loves you and whom you love, and who shares your views on life. However, some men maybe just don’t want to commit themselves, regardless of the woman, so maybe marriage isn’t for everyone, I don’t know.

  12. June 13, 2015 at 6:15 am

    Some great point here Alina and I agree with the idea of a partnership. In earlier times marriage definitely would have been an option, my main problem is the financial aspect, when one in two marriages end in divorce I think its a much too dangerous proposition for any businessman. With that said a verbal marriage, with seperate assets and an ironclad cohabitation agreement is much safer IMO.

  13. Watari
    July 2, 2015 at 11:26 pm

    Hey will,

    I am 25, living in London and your article is a breath of fresh air. I thought I was the only one thinking this way. Unfortunately most of the people I talked to are completely brainwashed with the whole idea of owning, irrespective of the price and long term consequences. Completely agree with you on the idea of marriage. Nowadays it s all about dodging bullets and striking right. Fellow Young professionals with not much savings wanting to pile into debt the local shoe boxes because they have in mind the boom years of 1980 and 2000 as well as post QE. Now you have even posh school kids advising to others that the best way of making money and start their business is to get themselves a buy to let mortgage and have a renter paying it . Of course they don’t even understand LTV, everything related with adjustable rate of interest, thinking that their net yield is always gonna be positive because it has been a winning trade thanks to ever lower interest rates and tax deductible programs. I believe the 30 year cycle of low interest rates may come to an end at some point near by. I know Toronto and Canada is completely nuts in terms of housing bubble, we took your former man in charge (Carney) to keep the champagne flowing in the UK. What is really nice about your website is its diversification (it is not only relevant in the investment field). I originally came because of the tinder article, and did not expect to find such a piece on the same website. Keep up the good work. Btw, love the social economics essay on the sexual marketplace, I never got that far in analysing it nor phrasing it that well. Surely because English is not my first language (but that you must have already noticed ;))

    Cheers

  14. July 3, 2015 at 3:07 am

    Watari, thanks for the support you make some really good points. You’re absolutely right the majority of people are so deep into the machine they can’t see the forest through the trees. My rent in Chiang Mai is about $200 USD or 100 pounds, no debt whatsoever. Glad you like the diversity of the posts, this site is specifically designed for sharp guys like you, all the best man.

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