Photo by Rick Wilking/Reuters

Wed Feb 15, 2012 12:05pm EST

(Reuters) - Rich Arzaga owns a luxury home in San Ramon, California, but he's not betting on it as an investment.

The founder and CEO of Cornerstone Wealth Management, who bought the 5,000 sq. ft. property in 2005 for $1.8 million and has spent $500,000 improving it, considers the abode a wonderful place for his family. But ask him to rate his home -- or any home, for that matter -- as a financial investment, and Arzaga balks.

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor inpersonal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

That's right: 100 percent.

The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs - what's needed to hold and maintain the asset - range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.

"I don't have the emotions a lot of people do surrounding real estate," Arzaga says. "I have steely eyes for how investing in real estate works, and I'd better be a prudent investor for my clients."

Owning a dream home, he says, creates a drain on other financial priorities, causing homeowners "not to meet their financial goals. They were going to fail."

Some real estate experts thought there was some truth to Arzaga's argument, albeit with several conditions.

"To state that owning a home is or isn't a good investment is too simplistic," says Jeffrey Rogers, president and COO of Integra Realty Resources. "It depends. In times of relatively higher rents, low home values, and low interest rates, it makes sense to own a home. But in a reverse market, it wouldn't be economically feasible. Over time, those who purchase in down or flat markets with low interest rates come out ahead."

"Our lifetimes are a long time, and when we look over the long term, real estate and other investments tend to have a positive return," says Jed Kolko, chief economist at Trulia.com,

a real estate search and research website. "But when it comes to real estate, changing your mind is expensive. There are a lot of costs involved in buying, selling and moving. If you move every two years, it's probably a bad investment for you. It also depends on your job market. If you're in a one-company town and the company goes down, there goes your job and there goes your home value."

Greg McBride, a senior analyst at Bankrate.com, agrees with one point of Arzaga's. "Home ownership is not so much a creator of wealth as a store of wealth," he says. "The promise of home ownership is that over the long haul, it can rebate many or perhaps all of your costs, unlike rent, which doesn't rebate a dime."

The trouble, he says, is that many Americans want a home so badly, they neglect other ways to grow wealth and financial security.

"You have the other financial bases covered: emergency savings, retirement savings, paying off debt, saving for the education of your children," McBride says. "There's no sense in buying a home if it's going to deplete your emergency or retirement savings."

McBride crunched the numbers in a pre-bubble era (2004) for a home purchased at $200,000 by a buyer in the 27 percent marginal tax bracket. Factoring in a 30-year mortgage, $1,200 in annual home insurance, closing costs of $5,500 and maintenance costs of $100 a month, along with property taxes, he calculated that it would take a selling price, 10 years later, of $395,404 just to break even. His conclusion gave Arzaga's view credence: "Homeownership may not be the moneymaker you think it is." (See the full chart at link.reuters.com/hej66s)

Then there's the emergency fund, a must for when a home requires unexpected repair work.

"As far as emergency savings is concerned, six months of a cushion is adequate," McBride says. "But only 24 percent of people have that kind of cushion, and about 65 percent own homes."

So while home ownership may sound glamorous, you need a lot of money to make it work, without much guarantee of positive returns in a post-bubble era. Indeed, Arzaga cites himself as an example of how home ownership doesn't pay off. His residence is today worth $1.5 million, about 17 percent less than what he paid.

So why not sell? For Arzaga, it's a lifestyle choice, and one that he doesn't regret, since his big money-making investments are elsewhere.

(Editing by Bernadette Baum, Beth Pinsker Gladstone and Andrew Hay)

http://www.reuters.com/article/2012/02/15/us-housing-americandream-...


Views: 76

Replies to This Discussion

Homes in the US are still way overpriced.

Does anyone out there know where I could rent a good cheap cave,only Canadian cave owners need apply!

RSS

"Destroying the New World Order"

TOP CONTENT THIS WEEK

THANK YOU FOR SUPPORTING THE SITE!

mobile page

12160.info/m

12160 Administrators

 

Latest Activity

tjdavis posted a video

"This Is What BlackRock Is HIDING From You" - Whitney Webb's Last WARNING

🔥My FREE Daily On-Chain Analysis & Crypto News In 5-Mins: 👉🏻 https://www.cryptonutshell.com/subscribe🔥🌳 You can NOW Become a member of our channel to s...
16 minutes ago
Hobby Radio left a comment for Less Prone
"Thank you Less."
3 hours ago
Hobby Radio posted a blog post

Shortwave and other Radio Matters

Hello  Dan here, I use to be a member back in the original days of 12160.  That was back when the…See More
3 hours ago
Doc Vega posted blog posts
13 hours ago
Doc Vega posted photos
16 hours ago
Less Prone commented on Doc Vega's blog post Are they Going to get Trump One Way or Another?
"I'd like to reformulate "Is Trump going to get them, one way or…"
yesterday
Less Prone left a comment for Hobby Radio
"Welcome back!"
yesterday
Less Prone commented on Less Prone's photo
Thumbnail

Donal J Trump

"The assassination failed so the cabal contacted Trump and reminded of who calls the shots. That…"
yesterday
Hobby Radio left a comment for Ham Amateur Radio
"https://hobbyradios.site/  ; Welcome and post some radio stuff."
yesterday
Hobby Radio updated their profile
yesterday
Hobby Radio is now a member of 12160 Social Network
yesterday
cheeki kea commented on cheeki kea's video
yesterday
cheeki kea posted a video
yesterday
cheeki kea commented on tjdavis's video
Thumbnail

Power

"Great song tj I love these blasts from the past when talent was actually real. Words like they were…"
yesterday
Burbia commented on Doc Vega's blog post We Could Have Expected that the Left Would Rationalize Calling Trump's Attempted Assassination a Fake
"Have a look at who's fingerprints are involved with the assassination... "Social media…"
Thursday
Less Prone commented on Less Prone's photo
Thumbnail

Donal J Trump

"The video old.bitchute.com/video/cNyHRsc09ypP/"
Thursday
Doc Vega posted blog posts
Thursday
Less Prone posted a photo

Donal J Trump

Now you know what the "J" in his name stands for. Isn't it time to appoint more American people as…
Thursday
tjdavis posted a video

Power

Provided to YouTube by Universal Music GroupPower · Tears For FearsElemental℗ 1993 Mercury Records LimitedReleased on: 1993-01-01Producer: Tim PalmerProducer...
Thursday
tjdavis commented on FREEDOMROX's video
Thursday

© 2024   Created by truth.   Powered by

Badges  |  Report an Issue  |  Terms of Service

content and site copyright 12160.info 2007-2019 - all rights reserved. unless otherwise noted