Why rent? To get richer.

by

An article I probably only like because it re-affirms my own decisions.

Shares have been remarkably consistent over the past two centuries in their 7% real returns. In Jeremy Siegel’s book “Stocks for the Long Run,” he finds that real returns averaged 7% over nearly seven decades ending in 1870, then 6.6% through 1925 and then 6.9% through 2004.

The average real return for houses over long periods might surprise you: It’s virtually zero.

6 thoughts on “Why rent? To get richer.”

  1. I’m still angry that the government subsidizes home ownership — why don’t I get a subsidy for being awesome?

  4. can you also point out why the real return on houses is virtually zero? what “eats up” the above inflation rise in home value?

  5. Brandon and a bunch of us were discussing this article recently and the article is missing a ton of info regarding the advantages of buying real estate. Here’s the net of our discussion that I figured I’d add to the fire of your blog.

    1. With real estate, you get leverage which increases your overall ROR.

    If I put 10k down on a 100k house and the house appreciates a 3% that year I just earned a 30% return on my down payment (3k appreciation/my 10k down payment = 30% ROI). Even when you factor in costs for carrying the loan, this will only get bumped down to about $18-19% before tax breaks.

    It will be nearly impossible to guarantee the same ROI with stocks while maintaining the same risk profile.

    2. Tax Advantages:

    The author’s argument on why taxes breaks don’t matter hinges on his omission of leverage and is also bogus.

    The costs of financing the purchase of homes and stocks are high enough to make the associated tax breaks moot. I submit point 1. as evidence to the contrary, plus how many folks do you know that can drop 400k cash for a home? Assuming that we finance, I now get to deduct all the interest I pay on any loans associated with my home from my AGI. For the scenario above this tax deduction would reduce my AGI by about 6k . Now do the math, if my tax bracket is 27%, the tax I’m saving is 6k *.27 = $1620, which is additional 16% return on my investment of 10k.

    3. Regional Markets:
    Analyzing RE on a national level is purely academic and pretty useless for practical purposes, like deciding to buy vs. rent.

  6. I’m convinced. Signing up for my first mortgage today! I’ll let you know when the money starts rolling in. 🙂

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