Home Ownership ROI

Real Estate
#1

Hey all,

I have a good friend with a Masters in Real Estate saying that real estate investment property and being a homeowner and thinking of yourself as the “rental tenant” for the house you live in can be a great ROI. He is saying that if when you buy a house you rent it to yourself at the price you would rent it to someone else then you are getting a great ROI on your investment. Do you agree with this? He is saying - do you trust yourself more to pay the rent or someone else? Since you will pay the rent consistently you are giving yourself a great ROI.

He is also claiming that being a home owner can be a nice way to get more diversification away from Index Investing and as a hedge against inflation. Full transparency, 95% of my net worth is in index funds.

Honestly I am very content with renting, have rented for 10 years in NYC and it has been great. The only reason I would consider buying is for flexibility in customizing my primary residence the way I would like. Examples include adding his and her sinks, or a larger bath tub, etc. Renting thus far has not provided a bath to do this, though maybe it could?

Thank you very much in advance!

1 Like
#2

Hello Wombat! Jeremy has extensive posts about renting versus buying. What is mostly boils down to is personal preference and living below your means regardless of which option you choose. Most personal finance gurus these days (including Jeremy) don’t consider real estate a “good investment” as much as they consider it a personal choice and a forced savings account of sorts. I personally rent by choice because I value the flexibility, but buying can be the right choice in a lot of situations if you are diligent in running the numbers and don’t tie up all of your money in the home (diversification).

Responding specifically to your friend, they are referring to what is called “house hacking”. Basically buying a home or a multi unit complex and renting out a room or a unit and putting that rent income towards your mortgage, so essentially having your tenant pay your rent. You could do the same if you just bought the home as an investment property and rented it out, but interest rates are more favorable if you’re purchasing as a primary residence versus an investment property.

This is an excellent wealth builder and I did this myself in the past (rented a room in my condo). I believe Jeremy and @vivitron would probably say do whatever makes sense and makes you happy, just 1) live below your means, and 2) invest early and often!

See some of Jeremy’s posts on this topic below

4 Likes
#3

Oh maybe I misunderstood with my reference to “house hacking” in my previous reply. Regarding the metaphor your friend gave you, I don’t really think it matters how you look at it as long you take the total cost of ownership into consideration, you decide what’s best for you, you’re diversified and you live by Jeremy’s 2 golden rules of living below your means and investing early and often.

Personally I wouldn’t take too much stock into what your friend said though. Real estate agents are notorious for selling people on the value of real estate, and I’m not even really sure what a “masters” in real estate even means lol. No offense to your friend! Just do whatever makes you happy and read the posts from Jeremy I posted on my last response.

3 Likes
#4

I totally agree with everything you said! Including not knowing knowing what a masters in real estate is. :laughing:

@OutlandishWombat I don’t own property, but I know that a mortgage shouldn’t be compared to rent. Because as a renter you are off the hook from a lot of expenses that the landlord is responsible for. See this post: https://www.instagram.com/p/CEO0moUgI0R/ [House hacking can be very lucrative though!] I personally see home ownership as more of a lifestyle decision than a financial decision. I agree with Tom and say you should do what makes you happy!

1 Like
#5

Hello and thank you both for the thoughts!

In case you are curious here is the program my friend completed - Masters in Real Estate Development from Columbia University - https://www.arch.columbia.edu/programs/8-m-s-real-estate-development.

#6

Not to bash on your friend, but when it comes to a Masters in RE, my impression is that the school just got more money from your fried, I always believed that the best RE agents are the ones with lots of experience, buying/selling and have lots of happy customers.

Now the way I read you initial comment, is that you buy a home and then rent it out to yourself as a tenant, then I’m guessing you would as a “RE business” will have the house as an asset and pay off the mortgage on it, maybe taking benefit on the interests and what not, then you would take the Monthly rent as income. And since yourself are a “renter” you can’t use the interest payments on your taxes.

Maybe I’m wrong, but it’s like trying to create a middle entity that will hold the house and rent it only to you, maybe weighing the Pro’s and Con’s would be better, since in my opinion, unless you are going to scale it upwards, meaning getting more properties, you could just be creating extra work and hassle, especially with taxes and all that fun stuff… just my two cents