Thursday, February 16, 2012

New American Dream is renting to get rich

"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.


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."

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