College, marriage, 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
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.
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.
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.
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.
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, f*ck 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.
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.
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.
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.
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.
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.
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.
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.