

Why Entrepreneurs Should Not Buy Homes  - esalazar
http://techcrunch.com/2012/03/24/entrepreneurs-should-not-buy-homes/

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trip42
For many people, the real return on buying a house is owning the house, not
the increase in value of the property. Where I live housing is fairly
inexpensive and I can't think if of any other similarly sized investment that
is guaranteed to cover my cost of housing for the rest of my life.

(edit: typo)

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lpolovets
In the introduction, the author mentions that 1) he had a lot of problems
selling his first home and 2) the story of his second home is so painful that
he doesn't want to write about it. After reading that, it's hard not to take
the rest of the article with a huge grain of salt. There are a few good points
about home ownership requiring a lot of cash and limiting your mobility, but
most of the points are very questionable: the tax deduction is NOT
microscopic, maintenance does NOT have to be a huge issue (depending on the
house), you will NOT spend all of your time working on the house (again,
depending on the house), and so on.

Entrepreneurs, specifically, can do clever things with houses. For example, if
you can afford the down payment, there are many places where you can buy a 4
bedroom house, rent out 2-3 of the bedrooms and have a net profit every month
(especially with the current interest rates.)

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jarek
> rent out 2-3 of the bedrooms

... thus further limiting your options should you wish/need to liquidate your
investment or just plain move...

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herval
why so?

In most countries I lived on, you can evict renters with at most 1 month of
notice. Plus, some people actually prefer to buy estate which is already
rented (specially with long-term contracts)

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jcslzr
So basically is instead of making a downpayment for a house, invest in a
business, and get a much better return.

The difference is the risk involved in those decisions, since a house is kind
of a guaranteed investment.

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nestlequ1k
Kind of... except when it's not.

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randall
"Rent. People will argue that the price of the mortgage, maintenance taxes,
etc is all baked into the price of rent. Sometimes this is true. But usually
not. And often maintenance and taxes will go up faster than your rent."

Citation needed.

If I pay $2000 per month * 12 and get 0 equity, vs paying $2000 * 12 + 2000
and get some percentage of that in equity, and deduct some from my taxes,
something tells me if I get past the initial up front costs, and my time
horizon for moving is > 5 years, owning a home probably isn't a bad call.

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runako
> pay $2000 per month * 12 and get 0 equity, vs paying $2000 * 12 + 2000 and
> get some percentage of that in equity

In many/most markets, renting a place costs less per month than owning it.
Spending an equivalent amount on rent vs. total home ownership overhead
typically will mean that the renter ends up in a much nicer place. So the math
would typically look something like this:

> pay $1200 per month * 12 and get $11,600 in investable cash, vs paying $2000
> * 12 + 2000 and get some percentage of that in equity risk.

FWIW, I've owned homes in two states and taxes have increased every year
without fail, even when housing crashed.

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lpolovets
The buy:rent ratio varies a lot from place to place. In a few markets, like
New York, buying is definitely way more expensive than renting. On the
opposite end of the spectrum, in a place like Vegas or Miami, your rent will
be significantly more than your mortgage payment.

I think a buy-to-rent ratio of about 15 (i.e. 15 years rent = purchase price)
is about where buying and renting break even. If you live in a place with a
lower ratio, your mortgage payment would be less than the rent on the
equivalent place; if you live in a place with a higher ratio, you can get a
nicer place for the same monthly amount by renting.
<http://explore.trulia.com/datavis/rentvsbuy/Q2-2011/>

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Vadoff
"On the opposite end of the spectrum, in a place like Vegas or Miami, your
rent will be significantly less than your mortgage payment."

I think you meant to say significantly more.

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lpolovets
Fixed. Thanks!

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nolanbrown23
Buying home is not for everyone but renting is NOT always better. It's better
when you only need a studio or 1 bedroom but once you have a family and
children, renting a 2 or 3 bedroom apartment make no financial sense. In San
Francisco, I'm looking at $1000 more in rent going from a 1 bedroom to a 2
bedroom and can expect that to continue going up.

If you buy smart (i.e. not at the top end of your budget) with the intention
to pay off your mortgage (not sell/buy every 3-7 years), you're in a far
better position then someone who still has ~1/3 of their monthly income still
going out the door. Even if you don't pay off your mortgage, you have the
possibility to refinance, reducing your monthly nut making it far easier to
survive as an entrepreneur.

