Today’s show topic is real estate and we’ll be discussing why your house is a terrible investment, how to do a proper rent vs. own calculation, and other wealth building topics with our special guest, James Collins. It’s certain to be challenging, controversial, and, I hope, appropriately radical.
Please listen to the entire episode to understand what we mean when we say that your house is a terrible investment! 🙂
James got his start selling flyswatters door-to-door and picking up empty pop bottles from the side of the road at eight years old. Since then, he’s earned his living as a soda jerk, Busboy, dishwasher, order-puller, grocery bagger, stock clerk, produce clerk and gas station pump jockey, a Mail clerk, ground man for a tree crew, landscaper, ad agency founder, account executive, ad space salesman, investment officer, entrepreneur, consultant, sales trainer, speaker, writer, radio talk show host, and a publisher.
Today, he is officially retired–sort of–but from time to time he shares his wisdom with the world over at www.jlcollinsnh.com in addition to sitting on a couple of corporate boards for small, entrepreneurial companies that he finds interesting.
Resources for today’s show:
- Why Your House is a Terrible Investment – Jim’s original essay that I read on the show.
- Owning a Home is the First Commandment of the American Religion – A wonderful essay by James Altucher.
- Why I am Never Going to Own a Home Again – essay by James Altucher.
- Why I Would Rather Shoot Myself In The Head Than Own a Home – essay by James Altucher.
- People are more comfortable leveraging real estate simply because they’re accustomed to it. Most people understand how mortgages work and thus, are comfortable taking on huge amounts of debt.
- The Long Term Real Estate Appreciation Rate in the USA – article on the true appreciation of real estate by Michael Bluejay
- Renting vs. Owning, Opportunity Cost and Running Some Numbers – the essay James references with the actual calculations for his situation.
- Roots vs. Wings – a rational way to consider home ownership.
- How we Finally Got the House Sold
- Renting vs. Owning – Case Studies in Ecuador
- Like Kind Exchanges under Section 1031 – How to defer your tax on investment real estate transactions by rolling the gain into another similar piece of property.
- Excluding capital gain on a personal residence under Section 121 of the Internal Revenue Code. (The 2 out of 5 years rule.)
- Information on the Home Mortgage interest Deduction: (IRS Publication 936)
How to do a Rent vs. Buy Calculation:
- Calculate your opportunity cost for the money (what it would be earning if you don’t spend on the house)
- Calculate the utility costs for each
- Calculate the maintenance/repairs/insurance costs for buying
- Calculate the taxes for buying
- Compare the figures. Read this post again for an example.
There are various rent vs. buy calculators available. There usually too complicated, but here’s a pretty one from the New York Times. Generally though, you need to use the advanced settings to truly compare them…better to use Jim’s calculations first.