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Hello Ramit,

Let me start off by saying I’ve never written to a financial blogger before but a recent post of yours got so far into my head that I just had to reach out to you. I’ve been reading your site for a long while and I really enjoy it, so much so that it’s become one of my daily reads. You’ve helped me a great deal over the last six months or so by pointing me to interesting articles and, of course, writing some fine articles yourself. However, an article you recently linked as being “The single best article on why real estate is not the great investment people think it is.” has caused me to break my silence and write you this email. I’ll understand if you simply throw this long, boring and possibly rambling email in the trash, but after reading the article twice I feel I need to point out a few things to you that bother me about it.

To start off, I agree that while the average homeowner might like to think of their home as an “investment” the author is correct to point out to these people that the home a person lives in for 30 years should not be called an investment. However, where I disagree with the author is in almost everything else he says in the article. To wit; the author doesn’t explain the difference between INVESTING in a home and OWNING a home so that his audience can actually change their point of view and actually become investors instead of owners.

Let me try to explain.

The author first makes the assumption that you (the general you, not you in particular) are buying a home as an investment, but then the author turns around and says that you’re going to live there for 30 years, which defeats the idea of investing. When you invest in a home you are either renting it out for more than the monthly outlay or you’re “flipping.” If you’re flipping then your ownership timetable should be as short as possible, usually less than 12 months, because the longer you hold a property the more you have to pay which lowers your potential for profit. The true real estate investors motto is, “Buy to rent.” or “Buy it, fix it and sell it.” not “Buy it, live in it for 30 years, sell it and pray it’s enough to retire with.”

Not once does the author explain this important difference between investing and owning within the article.

If the author were to explain to the owners who thought their home was a long-term retirement vehicle this difference (investor vs. owner) then maybe the article would have merit. But as it stands I feel that the author is only planting fear and misinformation about real estate investing to his readership. This article seems to deliberately confuse the two concepts, or at best unintentionally misuses them, and thus continues to confuse the homeowner and/or novice real estate investor into equating buying a home with investing in a home.

Even the authors examples are hopelessly biased. The article states almost from the beginning that most people only live in a home for seven years, but afterwards EVERY example given is dependant on the homeowner staying in the same home for 30 years. So, which is it? 7 or 30? Investor or owner? It almost seems that with this article the author is actively attempting to scare people away from buying a home in the first place by making home ownership as unattractive as he possibly can.

Using the authors’ math on the average cost of home ownership makes sense on the surface, but ONLY if you’re going to live in the home for the entire term of the 30 year mortgage. That makes you an owner, not an investor. Where is the cost analysis of the investor who buys a depressed property, fixes it up for a (relatively) small sum and then sells it at a profit less than a year later? Or what about the investor who buys a rental unit and then rents it out for more than the cost of the mortgage and monthly upkeep?

Obviously, an investor would never pay 30 years worth of home ownership costs, which means the investor CAN make a tidy profit by selling if their home DOUBLES in price after 3 to 5 years (according to the “30 Years Of Home Price Increases” chart.) Admittedly, some locations don’t appreciate as well as others (Houston), but any savvy investor would realize this and invest in only those places where they felt they could get a good return on their money.

Furthermore, I take issue with the authors insinuation that by purchasing a home and becoming an OWNER (not an INVESTOR) you will suddenly be unable and/or unwilling to invest in retirement accounts, IRAs, stocks or bonds for the next 30 years. As if you, the new homeowner, would suddenly be unable to do anything with your money except make your mortgage payments each month.

And finally, this article is written by a man who has published a book on how to make money INVESTING in the RENTAL real estate market. Of course he wants people to rent instead of own. How else will he make money?

I’m sorry for rambling on like this, and I hope you won’t ban me from your site for it, but I really do value your insight into the world of finance and needed to point out why I took such an issue with that article that you seemed to like so much. To make it fair, I’d be very curious to hear your thoughts on one of my favorite real estate investment books, “Find it, Fix it, Flip it” by Michael Corbett (http://www.amazon.com/Find-Fix-Flip-Millions-Estate-One/dp/0452286697/ref=pd_bbs_sr_1/104-1144467-9261559?ie=UTF8&s=books&qid=1174109014&sr=8-1).

Or you can just tell me to shut up.

Best,
GeekMan

I’ve also found two unexpected perks:

1. I’m finally getting some of my friends to sign up for a high interest account. With HSBC or ING or Emigrant, there was lots of feet dragging and “but, I’ll have to transfer stuff out again just to pay bills?” and so forth. But since this is a checking account, it’s been easy to convince people to at least consider it, since they’ll get an ATM card and can pay bills easily.

2. Since it’s automatically linked to a brokerage account, there’s a chance that young people who don’t have much financial experience will be less spooked about learning about Investments. I can see how, with the brokerage account so closely aligned, it will be simple to tell my friends: “Look, you already have a checking account here, and your emergency fund, why not try an index fund? Or seeding a Roth? C’mon, just click right there, and read about it. Try a couple bucks in there, see what happens in 20 years.”

Ah, convergence. Delicious.

As far as depositing paper checks – I manage it by keeping a free checking account with Wachovia, depositing paper checks there, then electronically transferring the money to my Schwab account. It takes a day or two, but it’s worth it because I don’t really feel comfortable mailing an endorsed check…

It’s a great system. She doesn’t buy ugly overpriced bags and I don’t have to wonder WTF she was thinking for purchasing something so damn ugly and expensive.

Side note: I feel the same way about watches. There’s plenty of ways to get the time other than by wearing a Rolex. Hell, most people have cell phones these days that have internal clocks anyway.