Get my 5-day email funnel that generated $400,000 from a single launch

Want an email sales funnel that's already proven to work? Get the entire word-for-word email funnel that generated $400,000 from a single launch and apply it to your own business.

Yes! Send me the funnel now
Start Here: “The Ultimate Guide to Personal Finance”

The Beardstown Ladies

68 Comments- Get free updates of new posts here

1 0

People are cognitively very, very bad at taking all costs into account when calculating investment returns. In one haunting example from a New York Times article on real estate, one investor illustrates this perfectly:

By comparison, he views the four-bedroom home he bought for $32,500 in 1965 – or about $200,000 in today’s dollars – as a money tree. He and his wife recently listed it for $413,000. That would translate into an annual return of 1.2 percent, taking into account inflation and the cost of two new decks and an extra room.

They plan to move to Texas after it has sold. “I wish I’d bought more real estate,” Mr. Larson said.

Regular readers of iwillteachyoutoberich will know that you could earn several times the 1.2% return simply by investing in a simple target-date fund or index fund. We’re not properly wired to calculate all costs of our purchases; in this case, taxes, and all the other costs of buying a house.

Sadly, Mr. Larson truly believes that he got a great return.

* * *

When I recently asked “What are areas where people THINK they earn a lot, but actually don’t?” iwillteachyoutoberich reader Baron wrote a fascinating comment about a group I hadn’t heard of before.

“individual stocks. ever heard of the beardstown ladies? they thought they were performing as well as warren buffet. when the accountants went through their numbers, they actually underperformed the market. people screw up accounting all the time whether it’s stocks, real estate, or some other investment.”

This was news to me, so I dug around. From Wikipedia:

The Beardstown Ladies were a group of older women who formed an investment club, formally known as the Beardstown Business and Professional Women’s Investment Club, in Beardstown, Illinois, USA.

In 1998, an article in Chicago magazine asserted that the group’s stated returns had included the new investments made by its members, and that when computed in conventional fashion, their annual rate of return for 1984–1993 was actually 9.1%, considerably less than the 14.9% return on the S&P 500 during the same period.[1] Outside auditor Price Waterhouse, hired by the club, confirmed the sub-par 9.1% annual rate for 1984–1993. The auditor also discovered the Beardstown Ladies’ annualized return was 15.3% when all of 1983–1997 was included; this was better than the average stock fund at the time, but still worse than the S&P 500 return of 17.2% for the same period.

Here is a great article on the group, and a followup article from the WSJ.

Key takeaways:

  • “Investing” does not mean picking individual stocks. Few people can pick stocks and beat the market. Nearly no one can do this with regularity. Instead, as a general rule, invest in low-cost target-date funds.
  • Let’s break this down by smart, ordinary, and dumb people: Very dumb people don’t read this blog, so they don’t even think about this and we don’t need to waste more time on them as a category. Moderately intelligent people also generally ignore personal-finance advice, or they may eventually listen. Whatever. Let’s talk about smart people. Smart people generally believe and adhere to the evidence that you can’t beat the market. But here’s the twist: Ironically, HIGHLY INTELLIGENT people believe they can out-smart this advice — and the equally smart people on Wall Street, who also fail to beat the market — and invest in individual stocks anyway. They pay the price — though they may never realize it.

In my book, I do an exhaustive review of so-called experts and show you sophisticated tricks that Wall Street uses to trick you into believing they perform better than they actually do.

Read several book excerpts here.

1 0

Related Articles

Untitled design (6)

How to pay off student loans without thinking about it

Student loans are a big kick in the face that the real world has arrived. The average graduate has $28,...

Read More
stretching

The 4 keys to finding ambition

We’re told we should just be happy with what we have… but there’s a difference between being happy ...

Read More

68 Comments

1 0
 

Leave a Reply

68 Comments on "The Beardstown Ladies"

Notify of
avatar

Sort by:   newest | oldest
Ross Hudgens
6 years 1 month ago

So we know Mr. Larson made a poor investment decision, but when we factor in the costs of an alternative (sunk costs from renting/leasing other homes/apartments), is it still a net loss? In this scenario, perhaps his decision was still the right one.

Jameson Triplett
Jameson Triplett
6 years 1 month ago
There are a number of cost factors here that are being ignored in the house equation. I’d be willing to make a bet that a long term commitment to a house, 20 years, or so, would net about the exact same return on gross wealth as renting and putting any difference in cost into a fund. Plus you have a happiness factor built in. I’ve done the numbers out a few times in my own home purchasing conundrum. If you assume about 2.5% growth in Asset value, it nets out to almost free rent for the time you were living… Read more »
Regina Jank
Regina Jank
6 years 1 month ago
I agree with this. If he COULD put what he was paying for his mortgage into something with better returns, that’s obviously better. But everyone has to pay for housing, so if you have to pay $800 (or whatever) a month for housing whether you bought or are renting, then 1.2% return is better than the 0% return that you’d get renting. Of course this is oversimplified since it doesn’t take into account house maintenance, property tax, and a lot of other factors, but it’s also too simplistic to say “1.2% is a bad ROI on your $800 a month”… Read more »
Writer's Coin
6 years 1 month ago

I knew about the Bearstown ladies but didn’t know about their Enron-like accounting! Just kidding…but this now disproves hundreds of articles I’ve read trying to get people to pick individual stocks. Now if the Sun Times monkey is discovered to be a fluke we are really on a roll…

Chris Caton
6 years 1 month ago

This doesn’t seem like a fair judgment of the Larson family. Pulling a post-inflation profit of 1.2% on your *dwelling* is an excellent return, especially if you account for the comparable cost of renting (which your linked NYT article does for another investor). Investors who do “buy more real estate” tend to rent those properties, increasing returns. As an investment, real estate can certainly be complicated to evaluate, but that doesn’t mean we should collectively throw our arms in the air and tell them to just go buy stocks like a smart person.

Baron
Baron
6 years 1 month ago

to add insult to injury, since a lot of people account for their investment gains poorly, they probably pay taxes on income they never made.

Charbel
Charbel
6 years 1 month ago
I think you could be shortchanging the Larsons signficantly. That 1.2% return may adjust for inflation, but it also assumes that the Larsons paid cash for their home. If they only put down 20%, then that would multiply their rate of return several times over. It’s that ability to easily leverage your dollars that can make real estate such a lucrative investment, albeit (as we’re seeing) a risky one. Also, bear in mind that the Larsons have lived in Minneapolis, a perfectly nice place to live 2 months out of the year that hasn’t seen a lot of growth in… Read more »
Erica Douglass
6 years 1 month ago
“So long as population growth continues, and those places keep attracting people and businesses, they will see good real estate appreciation.” Straight from a real estate agent’s mouth to the blog comments here, I see. I live in North County San Diego. We have possibly the best climate in the entire country. Cool ocean breezes and 60-75 degrees year round. A couple months of rain. Earthquakes that make things exciting. 😉 Anyway, my point. We moved here July ’09…not that long ago. Our house (which we rent because we’re not idiots) has dropped in value from $975,000 to $850,000 during… Read more »
Goal Hunter
6 years 1 month ago
1.2% gain on the full purchase price of real estate is very fine. 1) You borrow 75% or more, then the rate becomes closer to 6% 2) You live without paying rent, or you collect rent, which is probably another 5% when you buy but after 40 years of inflation that could be maybe 100% on the original investment. 3) You have the ability to borrow against the full market value of the house thereby accessing the cash tax-free, saving another 30 or 40% in taxes for money you could use to buy other investments. Total benefit of a smart… Read more »
Erica Douglass
6 years 1 month ago
“You have the ability to borrow against the full market value of the house thereby accessing the cash tax-free…” Are you seriously suggesting taking out a HELOC in order to invest in other things? I suggest you watch “Kitchen Nightmares” and see how many of the people on there did that, invested in a restaurant that is now failing, and stand to lose their house. That story plays out in at least half the episodes. If you invest in a mutual fund in a non-retirement account, you don’t have to borrow against it…you can just SELL it when you need… Read more »
Dustin Taylor
6 years 1 month ago

It seems like this doesn’t really take into account everything that’s happening though. They did get at least a bit more return (if not monetary return) from living in the house for 45+ years. You would need to be spending money anyways towards some sort of shelter (rent or buying, that’s to be decided), but who is to say that they could’ve invested all of that money up front?

js
js
6 years 1 month ago

Well what about the up to $500,000 income tax exemption they will recognize?
Not to mention the 45 years of mortgage interest tax write offs?

Meaning when they sell they will owe no income tax. The index fund would have generated a huge tax burden. Then they would have had to rent for 50 years.

Somebody want to do the math?

Carey_PA
6 years 1 month ago

Was it his personal residence or an investment? I don’t think any personal residence is an “investment.” It’s your personal residence. Period.

Now if it’s an “investment” and he’s been renting it out all of those years, it very well could have been a cash cow…even including the cost of the deck and everything else.

I think it’s silly if folks try to calculate their return on their personal residence. You didn’t buy that home as an investment, you bought it to live in.

Just my .02

Carey

Tyler WebCPA
6 years 1 month ago

As everyone is pointing out, there are a huge number of factors which can make a big difference on calculating return on your real estate. The point is, too many people buy too much house with the justification that it is an “investment.” Or worse, they consider it an investment and that’s all they do!
I like that about the Beardstown ladies because any story emphasizes the need to keep good records and to know how to read and interpret them makes me feel warm and fuzzy all over.

Chase Thompson
6 years 1 month ago

They plan to move to Texas after it has sold. “I wish I’d bought more real estate,” Mr. Larson said.

So I wonder if he said this before or after they told him what his true rate of return was over that time span. I’ve been in the mortgage industry for many years, and I’m slowly moving towards this notion that only specific real estate is worth calling an “investment” and that the misconception of all real estate (presuming the market isn’t taking it on the chin) being an “investment” is running rampant more than ever.

Holly
Holly
6 years 1 month ago
This ties in with my comment on the bad investment post about college. I see people consider the cost of tuition and then parrot that college graduates make x% more than high school grads so it’s a good investment, but what you don’t see is people calculating the opportunity cost of college, including the amount of money you would make working full-time two or four years and the experience you would gain. Obviously, if you’re getting a real degree at an accredited university this doesn’t really apply (some people on the last post started talking about how valuable their MBA… Read more »
mike
mike
6 years 1 month ago
“Whenever it’s cheaper to rent than buy in the same neighborhood, RENT! I” To clarify, how do you determine if it is cheaper? Do you look at mortgage payment versus rent, or do you consider all the factors which go into the real cost of shelter (principle payments, tax benefits, prop taxes, maint, etc….). It is important to consider all of the factors to really determine which is cheaper. “Anyway, my point. We moved here July ‘09…not that long ago. Our house (which we rent because we’re not idiots) has dropped in value from $975,000 to $850,000 during that time.… Read more »
Erica Douglass
6 years 1 month ago
Unlike the stock market, you can figure out when to buy or rent a house. If it’s cheaper to rent the same house than to buy it, rent it. The NYTimes has a great calculator here: http://www.nytimes.com/interactive/business/buy-rent-calculator.html Ramit has referenced that quite often, as well. In my neighborhood, given current prices, it’s “never better” to buy than to rent according to the above link. That’s why I get a bit nuts when people buy houses in this neighborhood! It’s a poor financial decision disguised as an “investment.” And yeah, I get riled up about it. My landlord, who bought this… Read more »
Chris Caton
6 years 1 month ago
The math: First, this will be based on Chicago figures, as that’s where I live and it’s where I’m most familiar with the real estate market. Also, I’ll run a condo-vs-apartment comparison, as that’s where we’re most likely to see similarities in product quality; there’s no sense comparing a detached SFH with an apartment in a big building. So, a 2-bedroom/1-bathroom condo in Chicago (in a decent area) runs at somewhere between $230,000 and $250,000. Call it $230k after negotiations and closing costs. Put up $46,000 in down payment to avoid mortgage insurance and finance the $184,000 balance. A 30yr… Read more »
Erica Douglass
6 years 1 month ago

Hi Chris,

The problem with condos is HOA fees. They can run several hundred dollars a month in some condos, and unlike the mortgage, they don’t go away in 30 years. Condos can also have “assessment fees” that can run into the tens of thousands of dollars. These aren’t often talked about in the buy vs. rent equation.

-Erica

Chris
Chris
6 years 1 month ago

I always like to check the math on these things because the irony of getting math wrong in an article on bad math is so wonderful. That 1.2% return is calculated _after inflation_. Since the authors assume that $32500 in 1965 is equivalent to $200k today, that means they’re assuming 4.1% annual inflation, which means that his real rate of return is 5.3%. After all, you _always_ have to pay for inflation. The S&P 500 annual return from June 1, 1965 to June 1 2010 was 5.7%. That is all.

Jenn
6 years 1 month ago

What drives me really crazy is people justifying buying a bigger house because it is an “investment”. Better to buy the smaller house and invest the rest in the market or other real estate that can be rented out at a decent rate.

Wes
Wes
6 years 1 month ago
@Chris Caton Don’t forget to account for the effect of inflation on the $275. One of the biggest advantages of owning a house is locking in a housing cost for 15 or 30 years (whereas rents tend to track inflation…as they should). In other words, the owner pays $1000 (plus extras) every month for 30 years, while the renter’s rent (theoretically) increases with inflation. So at some point, the renter’s $275 advantage disappears, and in fact the owner is paying less in housing costs than the renter. Depending on your inflation assumptions, this can have a material impact on the… Read more »
Wes
Wes
6 years 1 month ago

In follow-up to my first comment…that’s not to say that buying is always right. I think Ramit’s advice is generally right here – do the analysis, plug in YOUR parameters (not out-of-the-blue assumptions) and see what makes sense.

Chris Caton
6 years 1 month ago

@Wes:

Yes, you’re absolutely right. Renters do run into a few problems in that regard. In theory, the homeowner’s base cost of living decreases constantly. At some point I’m going to have to run the math on that analysis. It’s such a great observation and it should be included in some big spreadsheet or something.

Wes
Wes
6 years 1 month ago

I’ve built the model, and should one day getting around to posting a desensitized version on the interwebs. It’s tricky, because things like property taxes and home repairs ALSO follow inflation.

Bill
Bill
6 years 1 month ago

Erica Douglass, you certainly have the IWTYTBR attitude down pat. Arrogance oozing from every word; contempt for anyone that does something different than you. I’m suddenly remembering why I rarely visit this site.

DanP
DanP
6 years 1 month ago
There’s so many flaws to this logic, it amazes me. This is a very complicated calculation, and so sum it up in a few paragraphs just isnt possible. ONE of the biggest mistakes is assuming that your rent wont go up with inflation every year too. And obviously it would! If i rent a place for a 1000 today, how much is that place going to cost me in 25 years? But if you lived in the same place, ur mortgage should never go up. So at some point, the cost of owning a house on a yearly basis is… Read more »
matt
matt
6 years 1 month ago

if you purchase a house and pay it off in 15 years and then invest the same money you were paying on your mortgage you’ll end up ahead of the renter (who pays rent their entire life) 99 times out of 100

matt
matt
6 years 1 month ago

DanP – I think we’re both fighting a battle we’ll never win with Ramit. He’s convinced himself renting is the best option and I don’t see him ever saying differently, even if basic math backs up your argument.

matt
matt
6 years 1 month ago

@bill – agreed. If your website bio says. ‘When I was 26 I sold my business for $1.1M’ then you’re a loser. Just like when you ask someone what they do and they say, I’m blah blah and I make $150k a year. Unless someone asks you how much you make don’t advertise it.

john
john
6 years 1 month ago

@erica – if your mutual fund investment goes down after a year do you consider that a bad investment? do you sell it all right away? by your logic you would. the arrogance you show in your posts is appalling.

Bryan Taylor
6 years 1 month ago

Very interesting. Reminds me of the book: A Random Walk Down Wallstreet. It’s all in the numbers…

yupfin.com gen-y’s financial plan

Tyler F
Tyler F
6 years 1 month ago
I think people are missing the point. This article opens with: “People are cognitively very, very bad at taking all costs into account when calculating investment returns.” It was not, “Real estate is a terrible thing.” In fact, Ramit never says that, and the second half of the piece has nothing to do with real-estate. I think his point is not that real-estate is good or bad, it’s that people make large financial and investment decisions without thinking them through. Without /really/ thinking it through. Conscious spending. Conscious investment. Ramit doesn’t rip on people who “waste” money on shoes, going… Read more »
Ken Siew
6 years 1 month ago
Hey guys, there’s a very important point Ramit and Erica are trying to get across: run your numbers BEFORE you buy! They’re not saying to never buy a house, just make sure you do your homework before buying it. It’s the biggest purchase of your life, and if you don’t at least run the numbers through the NYTimes buy vs rent calculator, you might be throwing money away. There are obviously a lot of factors to consider when calculating, so it might be financially better to rent, or buy. Just talking about it without doing the number is pointless. Most… Read more »
Mike
Mike
6 years 1 month ago

Someone else probably already mentioned this, but Ramit’s calculation of a 1.2% is WAY off. That’s assuming he purchased the home as an investment, but it wasn’t an investment. He LIVED in the house – you can’t live in your stock investments! If you are comparing the 1.2% return to what you would’ve gotten in the stock market, you need to deduct a couple grand per month from your stock gains to properly account for the fact that his house was his primary residence.

Dave C.
6 years 1 month ago
As quite a few people have pointed out, Mr. Larson’s “investment” in his home is not nearly the bad investment that Ramit suggests. Mr. Larson and his family have to live somewhere. Now they could rent for thirty years and make the landlord rich, or they can buy that house, keep it in good condition and sell it for a profit when the time comes. This is something they can’t do if they rent. I’d rather have a “1.2%” increase when selling my home than a 0% increase when moving out of a rental. If your idea of a good… Read more »
Erica Douglass
6 years 1 month ago

Your comment is only a good assumption when renting and owning are the same price.

Here, I rent for x, and could own for 2x. In that case, renting for x and saving/investing the other x will return far ahead of owning and “throwing my money away” in interest to the bank.

-Erica

Doug Warshauer
6 years 1 month ago
One of the important points that has slipped through the cracks of this discussion is Larson’s comment that “I wish I’d bought more real estate.” While there is some merit to both sides of the rent v buy argument for your primary home, it seems quite clear that buying additional INVESTMENT property and achieving a 1.2 percent return on it would have been a mistake. Ramit’s point that people don’t understand their costs is very relevant hear – Larson appears to not understand the effect that inflation has had, nor the forgone opportunity costs of having invested additional dollars in… Read more »
DanP
DanP
6 years 1 month ago
Well another aspect being over looked is this. I buy a place for 200k and put town 20k. We’re comparing the returns on 20k in the markets, or in real estate. But that’s not true, we have to consider in the markets we’re looking at returns on 20k, in real estate, we’re looking at returns on the 200k as this is technically a leveraged play against real estate. While i entirely agree that most ppl jump into homes without thinking and assume its the “smart” move, for anyoen to say taht buying a house is a bad idea…well that’s just… Read more »
Anna
Anna
6 years 1 month ago

“for anyoen to say taht buying a house is a bad idea…”

Yeah. I’m sure Ramit will NEVER, EVER, EVER buy a house, because he thinks it is always an unequivocally bad idea. No exceptions.

Rebecca Tervo
6 years 1 month ago

I read the Beardstown Ladies story before it was found that they had really underperformed. It was an eye opening experience for me, because I had really been in awe of what they had done together….until we found out the real numbers. Good lesson is to dig down to the real numbers, and trust your gut. If the story sounds too good to be true, it probably is!

Bobby
Bobby
6 years 1 month ago
I do like some of the advice on this site, but I do believe it is possible to pick “pick stocks” or day trade or even swing trade and make money. I have been able to make money the past 2 years in the stock market doing just this. The key rule is to make sure you are disciplined and have a plan ahead of time for what you want to trade, then execute that plan without deviating even a little. It can work – as long as you have the discipline, forget about your (emotional) relationship with money, and… Read more »
SeeingFinance
6 years 1 month ago

I’m glad a number of commenters picked up on your oversight re: real estate.

It is important to remember that real estate is an asset that can provide a financial return BUT IN ADDITION provides the service of housing (a substitute for paying rent), not to mention some tax benefits.

It is not valid to compare his return on real estate to other investments like an index fund. He’s got to live SOMEWHERE! Is the return from the index fund enough to pay his rent? I doubt it.

emily
6 years 1 month ago
Totally agreeing with SeeingFinance’s comments; as well as many others with a similar view about the benefits of real estate providing housing and being an asset. Numbers are great; there’s no denying. However, big return or not, there’s no place I’d rather live than my little bungalow. I love owning my home for some many reasons (including the significant amount of equity I have; the stability I feel in having a nice place to live that I maintain and take personal responsiblity for; and the interest tax write off.) Yes, many of the reasons are purely emotional. Interesting that Ramit… Read more »
Al Jameson, D.C.
6 years 1 month ago
I think the biggest question that people are missing is “How long do you plan on living in the residence?” The problem is that we’ve become a mobile society, moving on average once every 5 years. Hint, that’s the five years that you pay the most in interest, fees, and up-front costs on any house you buy. However you look at the “equity” in a house you own, don’t even factor that in to the conversation unless you plan on living in that residence for at least 5 years. If you ask this question in the beginning, then you can… Read more »
Mike
Mike
6 years 1 month ago
Ramit, I agree with you about people not understanding the real return of real estate. However, I agree with others here as well that point out that there is additional value to the home above the “investment” (which it isn’t…it is much different). I wish you would have included the two paragraphs above the one you did. They provide some different insight: Beyond the shelter it provides, the biggest advantage of real estate might be that it protects people from their worst investment instincts. Most people do not sell their house out of frustration after a few months of declining… Read more »
Mike
Mike
6 years 1 month ago

Add’l calculation — if you assume he was in a 20% tax bracket for the years he paid his mortgage and he had enough to itemize, then his rate of return increases to 6.39% or 3.39% after inflation.

Ben Shive
6 years 1 month ago

The thing that tires me on these discussions is the fact that there is no ‘right’ answer for everyone. Personally I love owning since I’m pretty handy, whereas it might not make sense for someone else who is not. Instead of arguing you are throwing money away doing buy|rent, the more important consideration is you’re not screwing yourself by buying|renting more home than you should.

I’ve seen friends get in trouble both ways, neither is a guarantee.

Mike P
Mike P
6 years 1 month ago
Renting vs. Buying…It’s really more of a situational decision that cannot be addressed in a paragraph or two. However I think the point to remember is that generally over the long term housing tracks inflation plus a percent or so. This in and of itself is not a great reason to park your money in a house and should shatter the idea that your making substantial money on your home. The way I read the blog post, the argument isn’t that Mr. Larson should have rented but that Mr. Larson should realize that his house was not a phenomenal return.… Read more »
getagrip
getagrip
6 years 1 month ago
I agree that renting versus buying is a decision to be made based on a lot of factors and your personal situation and desires. The question of whether or not Mr. Larson made money off the deal and how good an investment it is has also lost sight of the fact that when he would have bought the house in 1965 there weren’t loads of easy investments available to the average middle class guy. Did purchasable index funds exist then? I know trades through a brokerage house cost a lot more than $5 or $10, and to get anything you… Read more »
Vaibhya
Vaibhya
6 years 1 month ago

I am not sure whether its really relevant to this discussion( but going by key takeaways it is I think), but buying index or index related fund is probably best in mature economy like US, but in growing economies like India( I am from India so….) there are easily identified opportunities outside index(so called mid cap), so it makes sense to find something beyond index. If not individual stock picking at least picking a good midcap or extended index fund will give you better returns.

Sara
Sara
6 years 1 month ago
Man, this is getting heated. But seriously, have y’all visited this site before when Ramit talks about his savings breakdown? Because guess what’s on the list? A house downpayment. He’s not anti-house buying. He’s anti-house-buying for emotional or cliche-but-totally-wrong reasons — e.g., OMG I’m 25 and I’m going to be living here for at least two more years, and I’m just throwing away money on rent so of course I’m going to buy this awesome condo!!! We are sociologically conditioned to want to buy houses. It’s a celebrated adult step, like getting married or having a baby. But it isn’t… Read more »
Mike
6 years 1 month ago
Guys, You are missing the point! If you buy property (for personal use or investment) you accumulate capital by repaying the debt and if you choose wisely you might make some capital gain. However, the most important aspect is that in 10 years, the house is paid off!!!!!! In addition, you have the capital as equity. If you are renting, you will pay rent until the day you die and will have nothing. So, although renting will be cheaper in the beginning, there will be a break-even point- when rentals through inflation adjustment and price escalation have caught up. Yes,… Read more »
Mike Hernandez
Mike Hernandez
6 years 1 month ago

I bristle at the notion that investing in individual stocks has anything to do with intelligence. That’s the way I’ve been doing it for 12 years (after a former teacher gave me ben graham’s books for christmas), and while I haven’t hit any grand slams, I’m doing significantly better than if I’d plowed the same money into an index fund. It’s not a lottery, kids. I’m willing to put in the time and effort it takes to make my picks. Does that make me dumb? No–just unwilling to settle for mediocre returns.

trackback

[…] has talked a lot about decisions, and why people make so many bad ones when it comes to money. But for all the poor choices we regularly make about our finances, we often […]

Liz
Liz
6 years 1 month ago

So after reading this and the following comments, I wonder where my parents should stand in this. They are currently renting and and the next 2-5 years would like or buy or build a house – one in which they plan to live in until they die or are sent to a retirement home. Would they be better off finding the perfect place to rent for the next 25+ years or building/buying their own home? What does their investment mean for me when they pass away?

swami
swami
6 years 1 month ago

If you get a house/condo/apartment that’s less than 20 times the annual rent and the mortgage is less than 30% of your take home pay, then go buy the property for self-occupancy..else pass the opportunity… there are plenty of apartments that are available that will meet the criteria mentioned above.

Troy Whitney
Troy Whitney
6 years 1 month ago
I agree that the alleged house appreciation isn’t spectacular, but this may be an oversimplification of the life of ownership of this house. Let’s say the guy put down only $10,000 on the house, and the guy he bought it from carried the mortgage at 5% interest. Then he turned $10,000 in to $400+k. It also might have been that if his mortgage was favorable to rent, especially with the interest deduction on his taxes. I mean, my mortgage rate is 5 1/4 but with the deduction I’m guessing it’s closer to like 4%, and I’m probably paying about what… Read more »
Dale
Dale
6 years 1 month ago
Complicated one! Take for example the show flip it, or flip that house etc; Buy house 100k cost of renovation 20k sell house 200k profit 80k Everybody lives happily ever after. Reality Buy house 100k in Canada where I live, with little of own money. Pay property purchase tax, CMHC mortgage insurance for high ratio mortgage. Purchaser is self employed, must be because he’s working on the house every day. So factor in some big fees because he’s a risk to the lender. Legal fees. 10k Spends the next 3 months day and night renovating at say $30 ph for… Read more »
wpDiscuz