Speaker 1this is one of the hot topics of conversation we've had on this show several times is many of my guests that are sort of financial advisors say that owning a home is a bad investment i think from what i understood from the research and from reading your books that
Speaker 2you feel differently about that yeah i mean i couldn't feel more differently when we look at where is wealth created in the united states and also abroad it's in two places it's in home equity and it's in the stock market so when you look at housing and you take someone who owns a home and we'll talk about i know it's hard to buy homes right now but when you look at people who own a home versus people who rent homeowners america follow this for one second homeowners america are worth 40 times more than renters so the average homeowner in america today is worth over four hundred thousand dollars but this doesn't
Speaker 1establish causation i that doesn't mean that buying a home make made them rich right it actually
Speaker 2does and i'm going to go through that here so the average renter is worth ten thousand dollars right so why why does buying a home build wealth and how much wealth the united states is now in home equity wall street journal just ran an article on this came out two days ago there's 34 billion dollars now in home equity in america this number has gone up ninety percent since before covid the other money is in retirement accounts which is 60 70 percent in stocks there's 45 trillion dollars now in retirement accounts so those two things alone equal 80 trillion dollars right like when you want to go like where are the breadcrumbs where's wealth being created it's right in front of us now the problem that we have in the united states but also look we're here in london right now the problem we have in so many cities is that real estate keeps going higher and higher and higher and people's incomes are not keeping pace with the cost of buying a home so when someone comes on a show like this and says look you don't have to buy a home it's cost more to have a house and rent you know i watched one of the shows i won't say who it was it doesn't matter they all say the same thing don't buy a house you'll be trapped you'll have to pay you'll have to pay real estate taxes and you'll have to pay insurance and things break they go through all these expenses and it makes it sound like oh yeah if i rent it'll be cheaper so who who do you think pays these expenses when you rent you do the landlord passes the cost of these expenses on to the renter ultimately why do they do this because people who buy real estate buy it for an investment they buy it for an investment they're not they're not subsidizing these costs so it's a hard thing to hear and especially when you're young like i have a son who's 22 he's in chicago he's going to move to new york city it'll be extremely hard for him to buy a place in new york when he starts working right away just will be he probably won't for two or three years a lot of young people want to move to a major city they can't afford to buy right away when i came out of college like you i was in credit card debt i had twelve thousand dollars in credit card debt i remember opening up my bills and having the room spin and thinking i'm never getting out of credit card debt how am i going to buy a house but i did and in fact i didn't buy a home when i was young by myself i bought a home with a best friend so how did i get my first house first house we bought was a and my best friend and i andrew we split that down payment so we each put twelve thousand five hundred dollars down this is how we scraped it together the house was a complete fixer-upper and we didn't have enough money to make the mortgage payments so we rented out bedrooms and we had friends rent bedrooms and that helped us cover our mortgage we scraped it together and that's what a lot of people do when you're young but if you don't get in the game of home ownership and you rent in your 20s and you rent in your 30s and you rent in your 30s you're going to turn around in your 40s and having not been built any net worth when i wrote the automatic millionaire 20 years ago two things have happened since then the stock market has gone up in 20 years six hundred percent okay so if you had a hundred thousand dollars just that has gone to six hundred thousand dollars if you bought a house the house has gone up four hundred percent so when you read this book with all these there's a whole chapter of updated success stories there are a lot of ordinary people that started saving five ten fifteen twenty dollars a day bought a starter house and today they're millionaires so am i not better off renting
Speaker 1and investing in the stock market versus buying a house because obviously when i when i when i buy a house i'm paying a premium on the house so that i can get a mortgage i want to
Speaker 2bus this myth because what happens is people come on they go the stock look i can tell you right now the stock market over the last 20 years has averaged over 10 annually people go the returns are better in the stock market than the real estate yeah but that's not apples to apple comparison why when you buy a piece of real estate when you buy a home people don't typically pay cash for their first house they put down 20 and they borrow the other 80 so you take like an example of a take a two hundred thousand dollar home two hundred thousand dollar home you put 40 grand in home goes from two hundred thousand to four hundred thousand in 10 years this has happened to so many people in the last five years since covid there are markets all over the u.s where housing prices have gone up a hundred to two hundred percent so a person buys a two hundred thousand dollar home they borrowed eighty percent it's doubled so they've made two hundred thousand in profit they didn't put in two hundred thousand they put in forty so they got a five times return on their down payment they go to sell their house they don't pay taxes on the game because when you own a home at least in the united states you own a home for over two years if you're single you get two hundred fifty thousand dollars in tax-free gains if you're married you get over half a million dollars in tax-free gains you get tax deductions on the mortgages so what happens is people come here and they go you know what you shouldn't be you shouldn't be tied down you need to be flexible when you're young you don't want to have the responsibility and you should take the extra money and you should put it in a mutual fund and you know what happens in the real world steven people don't do that they rent an apartment that's nicer than what they can afford and they spend all their money and then they turn around in their mid-30s and they have no equity because they haven't bought anything and they also haven't saved money it is an absolute freaking myth that people take this extra money that they could have used to buy a house and they're going to put it in the stock market they don't do that and that's why also by the way corporate america got into the game of buying up real estate all over america houses and building apartments to rent to an entire generation hoping these people never buy this like 10 days ago trump came out and basically said he wants the institutions out of buying up all the homes in america why does he want to do that because he because he recognizes how serious of a problem it is to have a generation of americans who are renters i'm telling you when you look at average americans average i'm talking about ordinary americans when you look at where their wealth is it's in home equity and it's in the for better or worse through home equity so when you look at what you know you ask the question about causation if a family doesn't buy a home the likelihood the next generation can buy a home is very low because it's when someone dies the money that is in the house that home equity is often what transfer transfers to the next generation helps the next generation buy a house
Speaker 1i was looking at some stats here because i want to what i want i wish i could sit sit down all of the guests that have been on my show that have had a difference of opinion and i've said that buying a house is a bad investment it could be a really interesting conversation right it would be a really interesting conversation what i've done as an alternative to that approach is i've pulled up what they've said and i'm going to give you some of the things they've said just so so you can rebuttal them um and have your say on them one of the things that they often say is that long-term real inflation adjusted home price appreciation in the u.s is about one percent and one of my guests cited robert schiller as the evidence of that after maintenance which usually equals one to two percent and property taxes which equals about one percent insurance and transaction costs the net real returns approach roughly zero on average so when you say housing is a great investment are you referencing the gross appreciation which is the the total appreciation or the net returns after taxes maintenance insurance and selling costs
Speaker 2so when you dig into these kind of numbers like this what they all say is that the the real real world right so like when you when you talk to someone who owns a home today and they've owned it for 20 years and you ask them How much of your net worth is now in the equity in your house? Over 50% of their net worth is in their house. You will see people on your YouTube channel that literally, if you read the comments, and I'm sure you do, where people say, it's not true. I read a comment yesterday on your YouTube page. All I know is I bought a house and it's gone up in value three and a half times. And the rent when I bought the house was $1,200 and the rent today to buy that, if I had that house, if I was renting, it would be $4,000. So the thing is, you have to understand is that rents always go up, Steven. Like I lived in New York City for 18 years. When I moved in New York City in 2001, a really nice apartment, a nice apartment was like $6,000 a month. When I moved in, it was like $6,000 a month. When I moved in, it was like $6,000 a month. When I moved in, it was like $6,000 a month. When I moved in, it was like $6,000 a month. When I moved in, it was like $6,000 a month. When I moved in, it was like $6,000 a month. When I left New York, that same apartment was $25,000 a month. Follow the insanity of that math. Now that apartment went from being a $2 million apartment to a $5 million apartment. So I could have been renting it, but in my case, I owned it, and it went up in value $3 million. So I have friends who have been renting in New York for 20 years. They have built no net worth. I have no vested interest in this conversation, meaning I don't sell real estate. I'm not a real estate agent. I'm not selling real estate. I've just seen in the real world how people have built wealth. The McIntyres in this book, The Automatic Millionaire, when they came into my office and they were worth $1.8 million, and he was 52 and able to retire, having earned an average of $40,000 a year, all their money wasn't in the stock market. They had bought a home in San Leandro, California. What they called a home in San Leandro, California, was a home in San Leandro, California. It was called a middle-class neighborhood. Their home at the time was worth about $300,000. They had paid their mortgage off, and they had bought one more house on their street. They rented the first house. They bought a second house on their street. They paid that mortgage off. And so they owned two homes free and clear, one house they got income from, one house they lived in with no debt, and then they had saved money in their 401k plan.
Speaker 1So if I was a young person, or not even a young person, a middle-aged and older person, who took my down payment that I was going to pay into the house, let's say my down payment was $20,000, and I put that into the S&P 500 instead, over the long run, won't that grow larger than the total home equity, potentially?
Speaker 2Here's why the index fund theory doesn't work. You can't live inside an index fund. You can't live inside a mutual fund. You have to live somewhere as long as you're alive. Here's what people should do. Take a look at what you're paying in rent. Now, ask yourself a question. If I'm paying $5,000 a month in rent, which lots of people are, right? Do you know people paying $5,000 a month in rent?
Speaker 1Yes.
Speaker 2Okay, so they're paying $60,000 a year. Let's take that number.
Speaker 1Yeah.
Speaker 2So over 10 years, they're going to spend $600,000 in rent.
Speaker 1Yeah.
Speaker 2If the rent doesn't go up.
Speaker 1Yeah.
Speaker 2In 20 years, they're going to spend $1.2 million in rent. If the rent doesn't go up. In 30 years, they will have spent $2 million in rent if the rent doesn't go up. But the rent does go up. So the question you just have to ask yourself is, am I going to take all this money that I'm spending on rent and never build anything? And if you really believe that renting is better than owning, then you should still consider the idea of buying something that somebody else rents. Because I promise you somebody's getting rich in the transaction. If you're the renter, you're not the one who's getting rich in the transaction of renting. It is a great short-term solution, renting. It is not a great term, long-term wealth building solution.
Speaker 1The other thing that people often talk about, and you cited earlier, is the mobility that renting gives you.
Speaker 2Yeah.
Speaker 1Your son was here a second ago. He's 16 years old. Yeah. Soon he'll be at the age where he's got his own place, and he's thinking about different career opportunities. I know I've got AIs, this big thing, so he might want to go to San Francisco. Then he might want to go live in Florence and wherever else. If he's bought a place, there is an interesting sort of psychological, but also financial component to the fact that it makes it harder for you to move with the opportunity of life. And if what people say about the future of work is true, that we're going to have many more careers in our lives than we did in the past, one might assume that we're also going to be more mobile. And so is there an argument to say that buying a house might hurt my professional opportunities, my abilities? The answer is possibly, right?
Speaker 2But here's the thing about rent. Rent's, interestingly enough, a major obligation, right? Usually when you go and you do a lease, you lock yourself into a one-year lease. Sometimes you lock yourself into a two-year lease. When you buy something, and this is assuming that you have the money to buy something, Stephen, look up, because you've got all the data at your fingertips here, look at what the... the average length of time it takes to sell a home in the United States. Just Google that right now. Because what I will tell you is in certain markets, you can put your home on the market and you can sell it in less than 90 days. Now, some markets, you can sell your home in less than 30 days. In many cases, you actually have more flexibility when you own something than when you rent. And that's if you want to sell it.
Speaker 1It says the average time from listing to sale is about $47 to $62. So if you want to sell it in less than 90 days from listing to closing in 2025, including 16 days on the market, and 30 to 45 days to close. That's called less than two months. Even in hot markets, the process from putting a house on the market to legally selling it can take 1.5 to 3 months, meaning home equity isn't a quickly accessible investment. Yeah, but do you think that's pretty quick, 90 days? No, it is.
Speaker 2I mean, it takes you that much time to get out of a lease. Exactly. So here you've got a piece of property that you can turn around and sell in less than 90 days. Now, this is the U.S. You can't do that. You live in Italy. That could be very hard to do that in Italy. But in the U.S., you've got something that's in a good market, it's liquid. The other thing is you can rent it, right? You're actually not trapped. If you start to build equity in your home and you pay your mortgage down slightly, next thing you know, you're able to rent that property and you can still move. Today, people are taking their homes and they're Airbnb-ing them. What I really want for people is the chance to be financially free. There's also an age at which it doesn't matter if you own. You know, once you start doing that, you're going to be able to move. You're going to get older and you've built financial security. You get in your 50s or your 60s or your 70s and you just want to travel and you don't want to own anything. That's a different stage of life. So the question just becomes the money that you make. I go back to the 90,000-hour comment. When you work 90,000 hours over your lifetime, what's your plan to keep some of this money? You have to have a pay-yourself-first plan. That has to be your number one priority is that when you earn money, the first person who you're going to pay is you. If you say, you know what? I watched Steven and I saw David and I've seen a bunch of other people on his show and I'm not going to buy a house. Okay. Then you have to pay yourself first more. Now, I go around the world for the last 30 years, starting with Oprah with The Automatic Millionaire. I launched this book on Oprah and I talked about you have to save one hour a day of your income. And people will get on these social media boards and be like, I can't do this. I can't save 10% of my income. I can't live off 90% of my income. It's not possible. I have to spend all of it. Well, then that person who's renting and not buying a house, which is four savings, is clearly never going to save. So the other thing about buying a house is it does require four savings because when you have a mortgage payment, part of that mortgage payment is paying down your debt. And I teach you how to use a biweekly mortgage payment plan. So you take a 30-year mortgage. And you pay it off five years earlier. And doing that can save you, depends on the size of the home, can save you $50,000 to $100,000 just in interest payments.
Speaker 1What you just listened to was a most replayed moment from a previous episode. If you want to listen to that full episode, I've linked it down below. Check the description. Thank you.
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