Is Buying a home for idiots?

[James G.]

Hi BP. I’ve heard a lot of real estate investors, including Grant Cardone, say that buying a home is one of the worst financial decisions you can make. What is everyone’s thoughts in this matter? I know that house hacking is a good decision but I’m not referring to that. The question is: if you had a choice to buy a house and be in debt for 30 years, or pay a landlord rent every month, which would you choose? Why?

[Omar Khan]

@James G. That depends on a # of factors including where you live, your cost and tax structure, your future plans, purchase price, growth and inflation expectations, mortgage details, closing costs, etc. 

NY Times has a great calculator: NY Times - Rent vs Buy Calculator

Essentially, there is no right or wrong answer because it all depends on your personal situation. The average person who considers their home an asset is wrong. No financial planner/advisor worth their salt, uses the value of an investor's house as part of their net worth (regardless of what posters on this forum believe). It is not considered acceptable, conservative practice. Owning your own home is considered a "shelter to substitute" i.e. if you don't own a home, you will rent. There is an imputed cost to both decisions (invisible as it seems to many individuals).

Nonetheless, the same house, if bought, say at 30-40% below market value can be a great investment. But the economics of owner-occupied house suck and do not make for a good long-term investment. Hence, most professional investors eventually either move up to multifamily or move into commercial assets. 

Grant Cardone isn't wrong on this one. Remember, most people buy a house they can't afford with money they don't have to impress people they don't like (harsh but true).

P.S. There are many reasons to buy a house. They are emotional and valid. For instance, if you work hard, save money and dream of owning your own place. You should buy it! Many people with kids buy over priced houses in good school districts. But those aren't investment decisions (although, they are valid and should be given importance).