July 13, 2024

2016 REAL ESTATE ADVICE

Why Kevin O’Leary says real estate is one of the worst investments in 2016. Although Mr. O’Leary is talking about Canadian real estate in this video, I believe the same factors could apply to the Silicon Valley San Francisco Bay area of California as well as a number of the coastal communities in California. Click this link to read my 2016 San Diego real estate market outlook.

One flaw in Kevin’s theory is more often than not you can pay less on a mortgage then you can for rent so in five years after putting money in month after month the year of the year instead of have a equity you have nothing!

2016 REAL ESTATE ADVICE2016 REAL ESTATE ADVICE

Renting is throwing money down the toilet. You’re telling me that giving away $21000 a year on rent ($1750/month) is better than putting that $21000 towards a mortgage? There’s no way. If I bought a house and sold it at the same price the next year even after fees I would have spent less on housing than if i rented. Lets say I buy the same house for 430k and borrow the full amount with a 30 year mortgage.

After 1 year of paying $1720/month I would have paid off $9500 of principal, meaning that If I sold at the same price I bought the house for i would walk away with $9500 more than if I rented. Of course the $9500 would be reduced by transaction costs but if I held it for 5 years that cost would be spread out more and I would have still payed much less for housing than if I rented.

Whether or not the market will have a major correction is a completely different story but it is still irrelevant for most people. If there is a crash and the market drops 30% you would go from a $430000 house to a $301000 house. This does not matter because every other house dropped by just as much. So if before the crash you were looking at moving to another house of the same value you would still be able to move because the value of their house dropped just as much as yours.

Buying a house is a good investment if you get a cheap fixer upper mainly to live in and have a really cheap mortgage or better yet no mortgage if you can buy it outright. I would much rather be invested in a tangible asset that I use everyday than to buy paper assets that will probably become worthless toilet paper.

For another point of view on the 2016 real estate market see the Price Waterhouse Emerging Trends in Real Estate report.

2016 REAL ESTATE ADVICE

3 thoughts on “2016 REAL ESTATE ADVICE

  1. My Brother-in-law got a degree from the U of Kansas in Lawrence and he’s my dumbest relative. Occasionally we think about escaping some of the political insanity of California and make a list of places that have some appeal. Lawrence dosn’t make the top 500.

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