A lot of people will tell you that buying a home
is a good investment and that couldn't be further
from the truth.
If you look at homes, most people say, "Hey, I
bought a home 10 years ago bought.
It for $200,000.
I sold it for $300,000.
What an amazing investment."
But in reality, it's usually a terrible
investment because you're paying to live in that
home. You're paying property taxes, you're paying
maintenance, you're paying insurance.
And there are all these other things that happen
with your home that you've got to pay for.
Once you add that to the cost that you've put in,
in many cases you're better off owning much less
home or even renting and taking the money that
you save, investing it in a diversified portfolio
and watching that grow.
So when you're looking at renting versus buying
what you really have to compare is the cost of
your capital.
So you might be paying very high rent.
Let's say you live in Brooklyn.
You're paying $2,500 a month to live somewhere.
If you bought, what would that cost?
Would it cost $4,000 or $5,000 a month?
What are all the other costs you're not thinking
about to maintain that property and pay taxes on
that property?
If you take the difference and you save it, that
extra $2,500 you're saving in a diversified
portfolio is most likely, almost certainly, over
a long period of time, going to grow to be worth
more than what your home equity would have been
worth if you just put the money into a home.
The one thing about owning a home is that it's
forced savings.
You've got to find the money every month to put
into your home, to pay that mortgage.
So it forces you to build equity.
But if you're disciplined, what you can do is,
you can take that difference, you can go open an
account at a low-cost custodian and invest in a
diversified portfolio.
You can start with something like the S&P 500.
And if you take that difference that you're going
to pay towards the home and you save that every
single month, 10, 20 years from now, you're going
to be in far better shape than if you had
invested that in a property that continues to
take money from you.