Altucherâ€™s Home Economics
Among TV financial pundits, I enjoy watching James Altucher. I have particularly appreciated his advocacy of no-nonsense quantitative easing by the European Central Bank, as opposed to the half measures unveiled so far. (My viewership has not been systematic enough to form an opinion of his stock tips.)
I was recently pleased to discover that he is also a prolific author. Altucher, who apparently rents an apartment right on Wall Street, wrote a sassy critique of the popular bias in favour of buying real estate. Here is an abridged version of his concluding paragraphs:
Is housing a good investment? Between 1890 and 2004, [American] housing went up a dismal 0.4% per year versus 8% for the stock market.
â€œBut real estate is an asset as opposed to throwing money away renting.â€ Rather than spend $100-200k+ on a down payment for a house, you can put that money in a portfolio of Real Estate Investment Trusts if you truly believe in housing. You can do it with some leverage as well if you believe in the idea (like 90% of Americans do) that you should leverage up 200% the single largest investment in your portfolio (your house).
As an investment, housing represents:
– No diversification
– No liquidity, particularly in times of stress
– Way too much leverage for a significant chunk of your portfolio
– Huge initial sunk costs, extra monthly costs, and huge time costs to deal with the investment.
I also recommend his story about a bonus bringing a friendâ€™s income up to a million dollars.
UPDATE (August 21): Altucher has a new post and video on real estate.
See my discussion – before the housing boom and bust – of housing as an investment for low income households. It is ‘Building Assets Through Housing’ May 2006 at the Caledon Institute’s web site. I make the same points about housing as the above author, based on a detailed ‘rent versus buy’ model.
And here’s an article from today’s Tyee that makes many of the same points…