The Devil You Don’t
An extremely played out topic lately is on the economics of buying a house vs. renting an apartment. I figured I would weigh in on this because:
I’m incapable of an original thought.
I feel like it would be good for my brand to create a series of posts akin to something like “spirit” week, but instead it’s “things millennial bitch about” month.
Everyone who writes a piece on this doesn’t seem to be writing it for the majority of people who actually need the help.
Let me expand on #3. This is a pretty popular article floating around Financial Twitter and other circles that I follow. In it, Ramit Sethi goes on to describe that you can’t save for a house by cutting back on lattes or avocado toast, but instead you should increase your income. Thanks dude, I’m sure “just make more money” is the missing puzzle piece that nobody else has thought of. I don’t necessarily disagree with the points he makes on home ownership, but I hate this whole style of advice. What audience do you think is actually being reached?
In my practice I currently have 307 clients that would fall under the millennial generation category (born 1981-1996). I guarantee you that if I asked all of them if they’ve ever heard of Ramit Sethi and/or watched 45 seconds of CNBC in the past year I would get 307 no’s.
Hey Ramit, do you know who millennials actually listen to? No, you don’t, because you tried to skip the 10,000 hours of mastery in financial advice, which mostly includes arguing with every potential client why I know more about investing than their dad. Keep using avocado toast as your click-bait in that condescending tone though, like you give a shit.
Anyway, I’ll give you a clue; they listen to the fucking guy in the first screenshot trying to sell them a house via Twitter! This is also the same guy who:
Invited people to a free pizza party to learn about investing “as little as $60 in Bitcoin” in December 2017.
Sells t-shirts for St. Patty’s day that say “Grab her by the Shamrocks”.
Attempted to start an investment management firm with a nightclub DJ.
Seriously, read that list again. That isn’t hyperbole; he’s real and he’s spectacular. And despite those indiscretions, some poor souls may still listen to what he’s saying. That’s because he’s not some giant influencer, but he’s from my hometown of 14,000 people. Everyone thinks it’s quirky to come from a small town, but it just means that you see all of your peers turn into drug addicts and it smells like cow shit.
The point I’m trying to make is that if you’re watching Ramit Sethi videos on cost/benefit of buying a home, then you probably don’t need the help because you’re much further ahead in financial literacy. If you’re 23-38 and looking to buy your first home, who do you ask for advice first? The answer is your parents, whose generation has systemically screwed us every step of the way. That would be like asking Elizabeth Holmes for advice on how to appropriately give eye contact.
Normal people don’t know that their current environment is full of financial self-sabotage. They’re surrounded by pictures of their idiot friends on social media and that rogue aunt who blames vaccines for why her kids won’t call her back.
So, when a local nightclub fauxgul tweets out “mortgage will be cheaper than renting elsewhere!” someone might think “hmmm… I bet that’s true. I haaaaate throwing money away on rent.” I can’t tell you how many times I’ve heard a client say some variation of that last sentence without realizing how poisonous it is.
Well, lets do as our good buddy Ramit suggested and “rUN thE NuMbErS” on the house being tweet-sold to find out if it’s cheaper to buy it or rent elsewhere.
What do you think? $1,209 per month seems manageable. Although you’d still have to add the cost of furnishing the place, potential renovations, and maybe even shell out for a home security system because IT’S A TOTAL SHITHOLE.
Pretty convenient how I left that part out until now, isn’t it? Well, it’s called building a narrative, sorry not sorry. Fuck me, look at this place (below)— I’d rather pay $1200 to live inside a Denny’s.
For context, $1,209 might seem really high or really low depending on where you live. In this scenario, it's really high when it pays for a borderline crack den, but if you take that same monthly payment five miles away, it would rent you a really nice 2BR 1200 sq. ft. townhouse.
Once again, the thing I hate about that whole style of click-bait advice is that it totally discounts how real estate is vastly different from state to state— but how would most normal people know that? I live in Western NY, as in 6 hours from NYC, but property taxes in my area are still extremely high. Sure, the sticker prices on the houses themselves are lower, but it’s all erased when you owe $10k per year in property tax on a $250k house.
Better the devil you know than the devil you don’t.
If you’re thinking about buying your first house
That’s awesome, congratulations. Just make sure it’s for quality of life reasons (family, flexibility, land use, rental property.).
If you’re thinking about buying a house because you’re sick of wasting money on rent, stop being stupid. 63% of millennials regret their first home purchase.
For the love of God, when determining how much you can afford do not compare your current rent to the potential mortgage payment. When you rent you can expect your additional expenses to be 20% of your rent payment. When you own those additional expenses are more like 100-200% of the mortgage payment (P&I).
While technology makes finding a mortgage easy, you’ll probably still find the best rate at a local credit union or via 3rd party mortgage broker.
If you’re a financial advisor
Stay up to date on the best First Time Home Buyer’s clubs in your area. It’s almost like if you help your clients save money that they’ll invest more with you someday.
Walk your clients through the benefit of a 15 year mortgage or by paying their 30 year mortgage bi-weekly
If you want to write on this topic, I think you should pretend like you work for Barstool Sports. Better yet, pretend your audience is someone who works for Barstool Sports; just smart enough to make a living on Twitter, but just dumb enough that they don’t pronounce ETFs correctly during podcast ad reads.