Why Owning is Almost Always Better Than Renting

This excellent article does a good job of explaining why owning your own home is almost always better in the long term than renting.

It comes down to one thing: inflation. Mortgages can't adjust for inflation, while renting can. Thus while the renter faces steadily increasing rents, the owner eventually will be paying a fraction of the original real value of the mortgage. The owner starts by paying more, but eventually pays far less.

This effect takes place even without factoring in appreciation, but if you do factor in a moderate appreciation, the effect is much more pronounced. While your house's value goes up 4% a year (even though your mortgage does not), the renter's rent goes up 3%.

Combining that with the leverage of only having to own a portion of the total equity in the house and you have a near unbeatable victory for owning versus renting. If you plan on living in a place for 5 years or more, you should strongly consider owning,

Should You Be Fleeing the Country?

If you are young, lazy and desperate to retire young, you are pretty much consigned to a life of hard financial sacrifice, number obsessing, soulless work drudgery, and mandatory mutton-chomping. Unless . . . .you flee the country.

Fleeing the country for your retirement has many advantages:

1. Taxes- A U.S. Citizen living abroad does not have to pay taxes on his first $84,000, assuming he meets the other criteria. If you plan on making more, you could voluntary give up your citizenship if you want to avoid double taxation.


2. Nicer Weather- Sunny, beautiful and lovely, sure beats cloudy, polluted, and depressing. Studies show that the levels of sunshine can have a positive effect on your level of happiness.


3. Cheaper Standard of Living- Depending on where and how you live you could live a lot cheaper. Housing, food, and other staples can be had for a lot cheaper.


4. Retire Earlier- With all of the money saved from taxes and cheaper housing and food, there is no reason you can't retire earlier. If you could comfortably retire on $40K a year you could easily retire once you'd saved $750K. You could write Fidelity to tell them to go bleep themselves for telling you you need $5 Million.


5. Comparable Services- Depending on where you retire you might be able to get comparable schools, hospitals, etc. Or you could use your extra money to pay for private services.

I'm not saying you definitely should flee the country, but given the advantages, I'm surprised more personal finance bloggers don't consider the option.

How Long Will The Housing Downturn Last?

Americans are unrealistically overconfident about how long the housing downturn will last with most thinking that their homes will continue to rise in value.

There are a bunch of factors which weigh against the housing market rebounding.

1. Houses have appreciated to ridiculously high levels over the last couple of years, while real wages for the middle class have held stagnant, so that houses have become grossly unaffordable.
2. Mortgage rates, while not at historic highs, are much higher than they were during the housing run-up, which was partly fueled by the availability of cheap loans.
3. The collapse of the subprime mortgage market. It's become harder for people with poor credit to obtain financing.
4. Age-Wealth Gap- twenty somethings, already saddled with student loan debt, are having a tough time affording houses. There is a vast age-wealth gap in this country between boomers and twenty somethings. This means that twenty somethings don't have the financial resources to buy their boomer parents' houses.

Housing insiders predict that this current downturn will last two years. All housing is local, and certainly the US population is still rising, but we aren't going to see a national turn around until some of these factors start changing. Its very possible that prices will start to gradually rise at reasonable appreciation levels once mortgage rates fall some more.

That said: it could be an excellent time to own a rental property, as a generation of Americans who can't afford to own homes have to live somewhere.

Will the Internet Kill the Real Estate Agent? Let's Hope So

I bought a house a couple of months ago, and as part of that process I used a buyer's agent. My buyer's agent basically drove me around to various houses which I had selected, helped me draw up an offer and supervised the contract process. For all of this, she got 3% of the sales price of the home (around $12K for probably around 40 hours work or $300/hour).

Considering the main thing she did was taxi me around to homes and open them with her little key, this seems like an exorbitant waste of money, especially since my wife and I found the house that we bought at an open house, without our real estate agent even being there.

In addition to these jobs, she also 1) showed me a couple of houses which were completely outside of what my wife and I told her we were interested in - but, surprise! they were her listings (so she would have gotten a 6% commission if they sold) and 2) pressured myself and my wife into raising our offer price, preying on our fears that we would lose the house we really liked and 3) pressured my wife and I into using her mortgage officer and home inspector.

My experience does a good job of showing some of the problem with buyer's side real estate agents:
1) Their incentives are completely misaligned with the buyers interests. They make less money from getting a good deal for their clients on the price of the house. They make more money from trying to get their client's to accept one of their listings. They build up relationships with settlement companies, bank officers, home inspectors- who all tow their line and toss them business/commissions in return.
2) They make a ton of money for doing very little. There is nothing that a buyer's side real estate agent does that can't be replicated by more legwork from the buyers and by more legwork from the closing company and associated real estate lawyers. I basically paid $300 an hour for use of the real estate agent's key.
3) They have a racket set up in commissions to protect their ability to profit exorbitantly- If I didn't use a buyer's agent, I would still have to pay 6% of the house commissions- only it would wholly go to the seller's agent. This is ridiculous, and was the reason I used a real estate agent: there wasn't an easy way for me to recoup that 3% commission.

Fortunately for the consumer, the competition of the internet is beginning to offer alternatives which should break down this racket. Internet sites like hungryagents.com now compete to offer you the lowest commissions through recouping some of their 3% commissions back to the price of the house sale.

Once again the internet will revolutionize a business where a bunch of fatcats are getting paid a whole lot to do very little. Viva La Revolucion!