Sometimes, a piece of financial advice gets transformed into a near-religious shibboleth.
Owning is better than renting, for instance.
Not so, according to Rich Arzaga, an investor and finance professor at UC Berkeley. From Reuters:
"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.
Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor inpersonal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."
That's right: 100 percent.
Bold words. Especially about something that's often conflated with the "American Dream." Here's how he breaks it down:
While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs - what's needed to hold and maintain the asset - range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.
"I don't have the emotions a lot of people do surrounding real estate," Arzaga says. "I have steely eyes for how investing in real estate works, and I'd better be a prudent investor for my clients."
Owning a dream home, he says, creates a drain on other financial priorities, causing homeowners "not to meet their financial goals. They were going to fail."
Of course, others disagree:
"Our lifetimes are a long time, and when we look over the long term, real estate and other investments tend to have a positive return," says Jed Kolko, chief economist at Trulia.com,
a real estate search and research website. "But when it comes to real estate, changing your mind is expensive. There are a lot of costs involved in buying, selling and moving. If you move every two years, it's probably a bad investment for you. It also depends on your job market. If you're in a one-company town and the company goes down, there goes your job and there goes your home value."
Greg McBride, a senior analyst at Bankrate.com, agrees with one point of Arzaga's. "Home ownership is not so much a creator of wealth as a store of wealth," he says. "The promise of home ownership is that over the long haul, it can rebate many or perhaps all of your costs, unlike rent, which doesn't rebate a dime."
The trouble, he says, is that many Americans want a home so badly, they neglect other ways to grow wealth and financial security.
So if you think you might have to move -- for personal or career reasons -- you're better off renting and investing or saving the money you'd otherwise spend on homeowner annoyances. But what sentient American who is paying attention to economic trends doesn't think he or she is going to have to move?
So if homeownership is no longer a central component of the American Dream, what is? Not lifetime employment in a large company. Not multi-generations of a family living in the same community. There must be something, right?