The Scam Of Homeownership

  • 0
  • August 19, 2010

home ownership scam

The Scam Of Homeownership

Ok, I’m telling you right now, Realtors are going to immediately disagree, but is it possible that the Dream of Homeownership is actually a scam being perpetrated upon the American public? It may indeed be evil!

Don’t be so quick to say no. Today’s economy may be reason enough to avoid homeownership. The dream that I had as a young man and the dream that my parents had before me, may not be what I now wish for my children.

Real estate is a commodity. Say it and let that sink in. Real estate is an investment. Would you want to buy an investment that had little prospect for growth in the coming years? Putting the money that you would need to buy a home in a simple interest bearing CD may do you better than owning a home in today’s volatile real estate market.

Story continues below…



I can hear the questions already…”but wait, aren’t you a real estate investor who promotes the virtues of real estate investing?”

Well, you’re absolutely right. Let me make a very, very strong distinction. There’s a HUGE difference…like Grand Canyon size divide, from investing in real estate and buying into the crock of homeownership.

The former is based upon prudent due diligence and predicated upon the premise of making money. Hence the word “investment“. My sole reason for being involved in real estate is to make a profit.

The latter is based upon choosing a place to live. It is much less of an investment decision and more of a personal or emotional choice. So with that being said, a lot of economists are saying that right now is NOT a good time to buy a home…but is indeed a great time to be investing in real estate.

Check out the video below and hear what a financial advisor is saying about the scam that may be cloaked as the American Dream.

About Barry Cunningham

Remember us? was one of the co-hosts of the long-running, truly goundbreaking, and arguably the #1 online radio show about real estate investing. Real Estate Radio USA was on the air 5 times per week before podcasting became cool. But now, we're back as a full multi-media operation and we're aggressively buying houses again! We're back baby!

19 Comments

  • This is not interesting. Its flawed, not completely but mostly. For one, notice how he says he is a home owner and rents at the same time. If its such a stress then why does he own? This alone is enough to shut off this crap. Notice at the end where he says 30% of your money is completely “Gone”. For the most part Owners of homes DO NOT put down 30%, they put down 4-10% and generally that money comes back to them upon sale, transfer, tax break (gee did he even say that the tax breaks are really important cause they are). I will admit that in the prior 4 years some people over stretched themselves and therefore with job loss could not afford their place but Home Ownership is not having to deal with landlords raising rents (You can’t raise a FIXED RATE). There’s so much more to say here but really why??? He’s a financial adviser? B-F’in-S. Please put on actual people who know the whole of owning a home. P.S. I’m a home owner and I’m dealing with the economy, not a Realtor or a Mortgage person.

  • Michelle…I understand what you’re saying, but he, and other economists, are talking about the aspect of homeownership for someone seeking to buy in today’s economic climate. If you look at it from a buying decision based wholly on TODAY’s harsh economic realities I think you will see things much differently.

  • Lets take the Bay Area Real Estate market. It has risen in value 20% (this is median). So the value has increased in what is said to be a volatile market. Explain that? But we do know that some markets will get hit again such as (Las Vegas, Bakersfield, the state of Florida). So why not discuss it in terms of location because we know that Real Estate is all about 3 things; Location, Location, Location. But I think talking the vague approach is wrong. The interest rate today is the low 4’s Fixed. That is an awesome reason to purchase. He talks about ARM’s which don’t even need to be discussed in today’s market. If you’ve been renting for 5 years its time to take a look at getting the “HOME” you want. Its a place to live in. As an investment? I would totally take a look at 1031’s at this point as some might not get an opportunity to purchase “up” this good. Real Estate has ALWAYS been Volatile as any purchase is. Its just a matter of when it wears out or changes. History proves the market is a YoYo. Buy low, Sell high. Jump ship before it sinks. There’s many ways to look at it but lets be fair to the markets that are holding.

  • When I say 20% Median increase I mean in 1 full year from last to now. It is well documented.

  • Micehlle, I have ALWAYS been bullish on real estate. As Wil Rogers said,”they ain’t making any more of that”. But I’m talking about end buyers. Mr. and Mrs. newhomcouple. They don’t have my skills, nor your knowledge. And many of them won’t get near qualifying for the low interest rate you are speaking of.

    Not sure about your market but we recently sold a house to a couple. The price was $330,000. They brought in $150,000 cash and still could NOT get a mortgage. Eventually after an exhaustive search and the promise of the right leg of their first born, they were able to get a loan. This is hardly the typical home buyer. Most will not have anywhere near that kind of downstroke.

    We’re finding from our audience that the low interest rates and good mortgage programs are for a select few. The video was from an accomplished financial whiz. Obviously some markets may indeed be pockets of hope…however one can easily do the math and take the calculations and apply them anywhere.

    The only way it seems that you’re conclusion works is IF you can qualify for a fantastic rate on a new mortgage, and IF you are enjoying tremendous appreciation and IF you have the relative downstroke to make it all happen. In today’s economy, those are three HUGE if’s. Underscored by the voluminous amount of foreclosures on homeowners who did EXACTLY what you are proposing.

    Are you sure you’re not a Realtor?

  • Jonathan Woelfel says:

    I think your forgetting homeownership for most people is a long term comittment. In other words, for some, forever. So in perspective i am 29 years old and i bought my first home when i was 25. So when i am 55 and ready to retire, my house is PAID FOR! AKA that 2000 dollar a month Pricipal and Interest I paid is gone. So while renting may be better for the short term, when its time to retire and my house is paid for, Johnny Renter is still paying 2000 a month for his rental for the last 20-30 years of his life.

    You know math, lets break it down. 30 years X 12 months per year = 360 payments at 2000 a moonth = $720,000. So if you rented from 25 on and i bought from 25 on then i would have somewhere between 500k and 1 million dollars of spendable cash in my retirement days then you.

    So in short, rent for the short term but when its all said in done, no matter what the market does, even if your house depreciates 80 percent, i will have more spendable cash then you in my golden years. It may be a long way away but im all for spending the last 30 years of my life mortgage free.

  • Hi Jonathan and thanks for stopping by.

    You are to be applauded, and you must realize that you are more the exception than the norm these days. Most people are not nearly as stable as you are. Your long term analogy is right on…it’s just that most people aren’t in it for the long term these days. You have no argument from me about the long term virtues of homeownership. Again, like I have had to remind people. He is speaking about a decision today.

    In today’s economic climate, is it advisable for one to buy a home…that’s the question…you underscore this by your own statements. By the way, a lot of people made the calculations that you are making 5 years ago and right now some of them are looking at taking long walks off of short piers!

  • Investor says:

    Great comments. Just like with anything nowadays, a serious commitment like this shouldn’t be entered into without consideration. It is a great market for real estate investing, but can also be a good market for home buyers ready and prepared to become homeowners. Some just get caught up in the fact that interest rates are low and you only need a down payment of 3.5% to get into a home, which can easily blind you from the real commitment of being a homeowner. Real estate investors have a lot to take advantage of in this market, but so do homeowners that know what they are getting in to.

  • I don’t think exactly so Barry. It wasn’t about stability it was about lies. A lot of people bought homes at 100-105% of the homes value and Subprime at that and NO DOC-LOANS???????? WHAAAAAT?. And today some are still purchasing homes at 96%/4% down at 4.5% Fixed (not a bad move actually if you’ve got the ability). But for many of those 100%er’s they purchased homes based on figuring they had job security at the pay they were making ($100,000) (Although they SAID they were making $150,000 for the No-Doc Loan). This was such a shocker to them when they couldn’t find a job for more than $50,000 but it was impossible for them to take based on their No-Doc Loan Lies.

    So I still think in any market the person who is planning on staying in the same town for 7 years should buy. Buy a smaller place though and stop lying about your income (No-Doc LOANS??????? You HAVE TO BE KIDDING ME???????? Sorry it still surprises me that this occurs) The rich people on top knew it would crash and they all let these loans through and then put insurance on them so they could reap more money on the failures. People WISE UP & protect yourself by doing the right thing. Jonathan is right.

  • Hey Michelle…7 years might be long enough…but then again it might not be. It’s a tough call for someone to make. But like I said, we’re always bullish on real estate despite the economy…if you buy right.

  • pprofiles says:

    The homeownership rate declined in 2009 for the fifth straight year according to the Housing Vacancy Survey.The housing bust is providing bargains for home buyers willing to take the plunge.

  • I’m a new real estate investor, and this certainly gives me food for thought! A big commitment deserves careful thought.

  • “7 years might be long enough…but then again it might not be”

    If you look at any historical chart on real estate after 1945 it is an extremely rare instance where you purchase a property and after 7 years you haven’t “gained” in some way (be it tax breaks, an increase in equity position, savings from not getting reamed by some landlord, and non-monetary sanity away from noisy apt. neighbors). I can remember Texas had a Recession for 10 years and still the properties were at least a couple percent better meaning $20-$30,000 take home after expenses. But then most people in 60% of the U.S. don’t buy as an investment anyway, they buy as a place to own and at least maintain equity.

    “if you buy right” Ummmm, this goes without saying. Tell us something any of us don’t know already. Are you also a financial expert? If so then show it. All I’ve seen are vague statements which are not much of a challenge. Again you point out that people 5 years ago “did their calculations” No they didn’t. Sub prime no loan docs….. this was a fallacy. Please, lets put the blame where it belongs….. people attracted to shiny things and the Gov. that allowed it.

    To REI. You have to look at Location and the cities previous and future plan. But still be cautious because they said “X_Brentwood”, CA was going to be the “it place”. ummmmmm Not, it was wishful thinking and a lot of wrong press. One had to look at the “Real” money coming into that city to know it wasn’t. Now a city like “Y-San Jose”, CA; no issues because it is already developed and continues to develop. It doesn’t take much. Just don’t let the shiny things attract you for the wrong reasons meaning they appeal to the emotional side of you. Shiny things like Oracle moving into a city doesn’t necessarily mean much when 4 years later they can bail and put people to work in other countries instead. (So for you, you should be cautious about purchasing to high a value that you can’t support if things change)… you can take the risk though and it “may” pay off…. such as people in “Z-Folsom”, CA. Your X, Y, Z could be different but there’s an example.

    People buy to live in the home and take a look at all the positions of “equity” (not just monetary) you gain and….. look at the city you are buying in. Best advise I ever give someone is take a look at the CARS on the street you are considering to buy. Newer cars indicate growth and stability generally. Parked cars with dust on them…… caution. This last statement never failed me in all of the purchases I’ve ever made.

  • Alright Michelle..you’re obviously a realtwhore so let’s discuss it. 7 years may or may not be the period of “gain” that you purport and since no one has a crystal ball…but let’s say take a look at someone who bought a house…hmm… in 2003. Since we are looking at your 7 year proposition. In that timeframe, there are many markets across the Country that have experienced HORRIFIC drops in value. Let’s say Fort Lauderdale for instance. If you bought a home in 2003 down here, in some areas, you would maybe have paid $400,000 bucks or so for a decent home in what may be called a desirable area. That home is now worth $130,000 to MAYBE $150,000.

    Even if you obtained a good rate on a mortgage, there is no denying the huge loss that you are absorbing. And now you can’t sell it because you owe that same $400k plus or minus depending upon again your interest rate and your downstroke. If the next 7 years are similar are you actually telling me that you know that it won’t be or are you saying that it’s ok to invest in something that is going to drop 50% or more in value.

    Also, buying right IS NOT a given. If you (the average home buyer) listens to the advice of your run of the mill realtor, they more than likely will NOT be buying right. When I ‘Buy right” I look at a host of market factors, most of which realtors have no clue of. I look at things like regression analysis, and other factors to make sure that the price I am buying at isn’t based upon some flowery BS CMA prepared by some Realtor. I know that buying right for me means I need to be buying at prices at 30-60% BELOW market value or I don’t pull the trigger. Do you think the everyday homebuyer knows how to ascertain that info? Do you think a realtor is going to tell that prospect that they should be buying that low to make sure they have a hedge on their investment? I don’t think so.

    With this President and his agenda and the recent horrific numbers posted regarding unemployment and housing, one would be an absolute fool to buy a home anywhere near market value in any area of the Country…with maybe the exception of waterfront properties and those homes that are pretty much economic resistant. We have a few of those neighborhoods down here and they are worthy of the asterisk.

    However, a person’s home is indeed their investment and I know plenty of people who did buy in the last 7 years and are eating their hat right now. Like I said, I am absolutely bullish on real estate and I am a devout capitalist and I do have an economic background but I don’t call myself an expert. I like to think of myself as one who will give an opinion and advice and provide people with information relative to known facts, forecasts and information. I expect our readers to do their own due diligence and to see opposing viewpoints such as yours (which is why we don’t delete comments) and let the reader make up their own minds.

    I think the average person can assess their own situation and see where they are now in relation to 7 years ago and make an assessment where they see themselves 7 years from now and make an educated and informed decision and decide for themselves if buying a home now at market rates is worth the investment.

    With all the information regarding the economy which is readily available, I think it’s pretty easy to draw a conclusion what someone should do.

    Like realtors like to keep screaming, that real estate is local…buying a home is an individual decision and it’s solely based upon the objectives of an individual. For me, I’m buying at prices 30-60% below what many consider market value. It’s my hedge, and it is what makes me comfortable and i know the cash flow from tenants will cover what I need and my cushion means I can always liquidate (hopefully) should the market continue to drop.

    If you advise people to buy homes on the hope that 7 years from now they’ll be in a good position…then good luck with that. But hey, you’re entitled to your opinion.

  • Barry… stay focused! I never mentioned the word Realtor, but you are. You seem to have a beef with the industry and that’s fine. However, that doesn’t relate to what I’m discussing or anyone else above. That’s your own personal issue, so stay focused.

    “it is an extremely rare instance where you purchase a property and after 7 years you haven’t “gained” in some way” I didn’t say there wasn’t a loss for a specific neighborhood between 2003 & 2010. I can do that myself Barry. I said, “its rare” and that’s true. Do you have any valid data to disprove my statement which is backed by actual facts? Nope, then let it go. Because you are cherry picking dates. I too can do that. Its why I put that “its rare”… not that it doesn’t happen okay… sheesh!

    This particular time in our history is due to factors that were NEVER present before. Again, (No Doc, at 100% Loan Value, Sub Prime, lender greed, and my personal favorite “Greenspan” who should have spoke up mid 2003 when it was already out of control by that time). It’s proven time and time again that these are the huge factors that lead to the issues. My advise is correct to NOT do these things and approach the market with full focus on all aspects of the community you are buying in.

    “People buy to live in the home and take a look at all the positions of “equity” (not just monetary)” That’s what I said that negates that home ownership is a “scam”. The scam is specific to Banks allowing prices to soar (they could have easily told appraisers not to base pricing on frenzy).

    btw: You must be extremely wealthy at this point since you are buying at 30-60% Below market value. At that pricing you can clearly turn around and sell at a higher price. So since you’re promoting your “expertise” at this point and brought it up, why don’t you publish all the properties you’ve bought and allow us as outsiders to analyze if its true?

    Fort Lauderdale: 72%+ 4 years 48%- 3 years – By the way folks a 10% increase in one year and a 10% decrease the following means you loose money so remember to look at how %’s work.

    2003 14.42%+
    2004 21.74%+
    2005 30.15%+
    2006 7.51%+
    2007 -8.93%
    2008 -27.55%
    2009 -11.34%

  • Hey Michelle, you want data…you just gave all the data. You left off 2010 and with millions of homes still in foreclosure, there will be widespread decline in values. I could site source after source but for some reason you choose to ignore the reality of TODAY’S housing market. The argument is based upon TODAY’S economic realities. This is like arguing with an athoest. It’s harder to believe that there isn’t a God than to believe that there is.

    Yes, we regularly buy homes 30-60% below market. Just about any experienced investor does so. Especially anybody who has been at it for years. Real estate investing 101, for freshmen is to NEVER buy a property at more than 70% of value. You learn that when you are still green behind the ears. Buying at 30% below value is where we all START..it’s entry level info.

    If you’d like to learn how to buy properties at 50-60% or MORE below value, there are plenty of lessons around the web for you to avail yourself of. In fact there are many lessons and videos right here on our site that can show you how to do so. In fact, we felt so confident about it we began offering much about how to do so for free. And yes, there are some videos with actual case studies posted here and on our YouTube channel as well.

    So if you don’t think it’s possible, by all means, take a look. You can also join any investment club that you choose, don’t take my word for it…go to any investment club in the Country. Day 1…you’ll find out that we don’t get out of bed for anything less than 30% below value.

    That being said, I will reiterate…I am bullish on real estate. I believe real estate to be a very good investment…IF..IF…IF…you make sure to hedge your investment by building in equity. Hence buying significantly below current market value.

    The volatility of the market and economic influences worldwide mandate the decision to buy a home to be prudent. I’m not arguing the choice to buy a home…I’m arguing the price at which to pull the trigger.

    By the way…take a look at the new issue of Time Magazine.

  • Barry,

    You didn’t answer the question about the properties you are apparently purchasing at 30-60% below market value. I really dislike when someone “claims” to be an expert at purchasing below market value and then doesn’t actually disclose the property addresses and information to showcase that they have done it. If you’re going to promote yourself in this discussion then I’m going to ask for validation at each juncture.

    I placed the data up to the time that was in my documents. I don’t have an issue with discussing 2010, I know where its at. You’re process won’t work in San Jose, CA or San Francisco unless you buy a very risky property. Location, Location, Location. There’s risk in a lot of the markets out there at different times. The risk of buying in San Jose, CA was Late 2005-2008 as prices where high with all of the rampant greed of Banks. All Bush era errors.

    Awaiting those property addresses for validation of your expertise.

  • Michelle..I get paid A LOT OF MONEY to show people how to buy homes in that manner. How about this. You pay me my $10,000.00 coaching fee and I would GLADLY show you what you need to know. Like I said, there is a library of info on the 6,000 plus articles and videos on this site that back-up that I know what I am talking about. I don’t play the game that you think validates your point. I’ll even let you put your check in escrow with an attorney. Put 10k in escrow subject to verification and you’ll be set.

    You don’t get to play for free. So if you think I’m bluffing, put up the $10,000.00 coaching fee. If I can’t show you the goods then ya got me..I’m exposed as a weenie and full of crap. And you can comment away knowing full well that all will see that ya got me.

    However…on the other hand, when you are shown HUD statements and given data that will help you to learn how to buy properties the way that we do, and PROOF that we regularly buy properties at 30%-60% below market value…I’ll be pocketing $10k.

    Seems pretty easy to me. I’ll let you comment for free but you ain’t getting to take the cow home without paying up.

    And sorry to let you know…you can buy properties at 30-60% below market value ANYWHERE. I have one question…why are you being so naive to think that it’s not possible? In fact, there are some really successful people buying and selling props in San Francisco that youactually may want to talk to.

    Obviously you are somewhat inexperienced in these matters. So before you go too much further in thinking “it won’t work”…you ay want to spend a bit more time educating yourself on these matters.

    But..alas…your last statement explains it all. It’s all Bush’s fault eh? I have to say case closed now… C’mon Michelle…the Kool-Aid is getting real stale right about now.

  • Barry,

    I now know where the real scam is coming from.

    How dare you think that “You” could teach me as well as anyone anything about investments. In your above statements they were:

    1. Not covered by any facts.

    2. Filled with your personal emotional issues (apparently believing I’m a Realtor simply because I joined the conversation and then going off on a tangent about Realtors). We’re talking about investments Barry stay focused. Take some Ritalin. btw: Are you going to throw a tizzy fit when I also say that Alan Greenspan was also responsible? He was and its a fact! Grow up!

    3. Touting your services while everyone else is involved in the conversation at hand. Over promoting much? We know who you are Barry.

    4. Misquoted several of my statements. I never said “It’s all Bush’s fault.” I said, “Bush era errors” which includes people on his administration. You’re not that bright to be taking my words out of context. However, the issues occurred exclusively during his time as President. What’s the Presidents job Barry? To not have this happen. If you don’t understand that why don’t you read the eloquent summary of Time Magazine below (well respected articles and insight since 1923).

    5. Placing your words in CAPS and BOLD TYPE doesn’t make you any brighter.

    “From the start, Bush embraced a governing philosophy of deregulation. That trickled down to federal oversight agencies, which in turn eased off on banks and mortgage brokers. Bush did push early on for tighter controls over Fannie Mae and Freddie Mac, but he failed to move Congress. After the Enron scandal, Bush backed and signed the aggressively regulatory Sarbanes-Oxley Act. But SEC head William Donaldson tried to boost regulation of mutual and hedge funds, he was blocked by Bush’s advisers at the White House as well as other powerful Republicans and quit. Plus, let’s face it, the meltdown happened on Bush’s watch.”

    Again, simply showing the properties you’ve purchased to prove your points is pretty simple. Doesn’t require you to “give away your secrets”. btw: They are not secrets, they’ve been written about for many many years. Some of it bull and some of it realistic.

    With people as angry as I feel you’ve become in this conversation I usually find out years later that people like you were caught in some financial scheme and ended up in jail. Just sayin’!

    “Obviously you are somewhat inexperienced in these matters.” You have no idea who I am so I’m not even going to begin to tell you how ridiculous this statement is. You certainly are not very professional to even make such a brash comment.

    Properties?

Interested In Selling Your House? We're Buying!