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5 Reasons Renting Still Beats Buying



March 09, 2009 – Comments (28)

Despite all the news today, there still seems to be a disconnect in perspectives between current homeowners and renters like me.  This essay explains some pretty good reasons why I am not buying right now. 



5 Reasons Renting Still Beats Buying

By Jack Hough

Mar 6th, 2009

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This weekend I’ll throw $1,100 down the drain. That is to say, I’ll pay my rent. Pop-finance pundits have long used the drain cliché to describe how renters like me waste money, while homeowners with mortgages “pay themselves” and “build equity.”

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In April 2007 I argued something different: Renting Makes More Financial Sense Than Homeownership. Basically, houses produce poor returns over long time periods while stocks and other investments produce good ones, and the outlook for houses is especially poor now, so I’d rather rent cheaply and funnel my extra cash into something other than a house.

Even though house prices have plunged and I have enough money to buy one, I’m still not nearly tempted. In what follows I’ll give five reasons. (The first two form the core of my original argument.) Before all this starts to sound too self-congratulatory, I’ll also explain the one big thing my essay got wrong.

Reason 1: Houses produce lousy returns, while stocks produce good ones

Houses looked like smart investments in 2007. They had returned 9.3% a year for a decade, while stocks had returned just 5.9%. This year, with investors fleeing both houses and stocks, both probably look like a waste of money. But be careful about succumbing to what psychologists call recency bias — the tendency to form beliefs based largely on the most recent observations in a long series of data. For U.S. investors, reliable data on stocks and houses goes back well further than 10, 20 or even 50 years.

Stocks returned 7% a year for 200 years ended 2004, according to Wharton professor Jeremy Siegel. That’s after subtracting an average of 3% a year for inflation, or the gradual rise in prices of ordinary goods. The plunge in stock prices over the past 16 months makes me all the more sure that shares are poised to deliver good returns over the next decade or two. Houses returned 0.4% a year over 114 years ended 2004, according to Yale professor Robert Shiller, co-creator of the most widely used index for house prices. That number is suspiciously close to zero. Indeed, it might have been zero, reckons Shiller, if not for two periods of aggressive house buying, one spurred by government incentives following World War II and another created by the Federal Reserve’s drastic interest rate cuts in 2002 and 2003.

A zero return for houses might sound odd. An editor who re-published my original essay at another web site stuck the word “virtually” before zero, I suppose to soften the message. I made him take it out. If you think about it, zero is the only logical answer, so long as we’re talking about a single-family house and not, say, a rental building built to maximize income. Inflation, recall, is the gradual price rise of ordinary goods. What’s a house if not an ordinary good? Houses don’t spend their days thinking about ways to make themselves more valuable. They just sit there. Subtract inflation from their long-term price increases and there’s nothing left.

Apply heaps of leverage to the numbers if you like, but the outcome only worsens. Mortgage rates now are about as low as they’ve ever been, thanks to more government efforts to, among other things, spur house buying. But you’ll still pay 5.2% to capture long-term price increases that merely match inflation. And today, you’ll tie up a bundle of cash with a down payment. I’d rather pay cheap rent instead of an expensive mortgage and put the monthly cash I save into stocks and other investments. And rent is still plenty cheap, because . . .

Reason 2: House prices have further to fall

Price matters. Few stock investors would think about buying shares of a company before looking at some measure of how expensive it is relative to the value it creates. They might look at the price/earnings ratio, for example. Houses have a price/earnings ratio of sorts — the ratio of their price to the yearly income they could generate if rented out. In April 2007 I noted that price/earnings ratios for stocks were only slightly above their historic average, while price/rent ratios for houses were double their average.

Stock prices were the thing I got wrong. The price/earnings ratio I gave was correct, but the earnings on which it was based were far from ordinary. The fierce housing boom was ringing cash registers at furniture stores, employing heaps of real estate agents, padding the profit statements of lenders and, thanks to home equity loans, puffing up buying power for just about everything. I should have realized that America’s corporate profit was close to a third above normal levels as a percentage of gross domestic product. Profits have reverted to average levels, and stocks have fallen to around 14 times earnings. I recently cautioned readers that, even though stocks are fairly priced, it’s natural to assume that after a long period of above-average prices we can enter a few years of below-average ones.

Houses still seem expensive, though. One recent survey by Moody’s found that the price/rent ratio in major markets had fallen to 20 from 24 three years ago, but that for 16 years ended 1999, before the house-buying spree began in earnest, it had stayed below 15.

Numbers like those should inform not only house-buying decisions, but public policy. If a citizen is being made poor by the debt they carry on the house they bought, and if a government policy keeps them tied to that house instead of separated from it into more affordable housing, are we really helping them?

Reason 3: Many houses for sale today seem designed to waste money

“Most men appear never to have considered what a house is, and are actually though needlessly poor all their lives because they think that they must have such a one as their neighbors have.” Henry David Thoreau wrote that about 160 years ago in a long, somewhat preachy but also poignant treatise called "Walden," which argued against materialism and for simplicity. I’d imagine it applies to today’s houses even more than to ones in Thoreau’s day.

Commercial real estate investors seek to maximize the amount of use tenants can get out of a building, while minimizing the operating expenses. Single-family house buyers have lately done almost the opposite, by buying far larger houses than single families need. From the 1950s to 2006, the average American house size doubled, even as the size of families shrank. U.S. tax policy rewards house buyers who borrow, not renters, and not house buyers who pay cash. So naturally, Americans responded by borrowing, which inflated their buying power and ultimately caused dwellings themselves to balloon. The “dream of homeownership” became more of an entitlement to mansion-ownership. But all those mansions on the market do little for me, financially speaking. They’re expensive to heat and cool, and to fill with a respectable amount of stuff.

Reason 4: Big houses are targets for future taxes

This year, U.S. government debt will increase by the largest amount relative to the size of the economy since World War II. Assuming the country will eventually right its financial course, at least some of that money will have to be paid back. That means higher taxes in the future, and taxes come mostly from people with a proven ability to pay — people with high incomes and people with large, expensive, easy-to-find assets. There’s only muted talk of states raising property taxes now, since the federal government is working to support house prices. I’m worried that property taxes will rise sharply in coming years. Of course, renters pay taxes too, if you figure that landlords merely pass along taxes to tenants. But renters live in smaller spaces.

I might have titled this reason, "Few people truly own their house, anyway." To me, owning something is defined in part by not having to pay anymore. Condo owners are really renters, if we consider their endless maintenance fees. But house owners, too, must pay rent to the government in the form of taxes, and must pay for plenty of ongoing maintenance besides.

Reason 5: Neighborhoods are changing in unpredictable ways

In March 2008, The Atlantic published a frightening vision of what might happen to America’s suburbs. Low-density suburbs, it theorized, may become what inner cities became in the 1960s and '70s — "slums characterized by poverty, crime and decay.” I’ve no idea whether anything like that will come to pass. But the popping of America’s giant housing bubble, and a corresponding shift in where people find jobs, seems sure to reshape how and where we live in coming years. For rural folks that might not matter much. (For them, in fact, little of this might apply, since house prices in rural America have stayed pretty sane.) But anyone considering a move to the suburbs should do some careful forecasting before sinking a large portion of their wealth into a house.

I hope all this doesn’t sound alarmist. I’ll surely buy a house one day, when prices are low enough, and I’ll probably even buy one that’s a little bigger than I need. But I’ll do so knowing that I’m spending on luxury, not investing. Also, I hope this doesn’t further the anxiety of readers with mortgage troubles. The trend of the day seems to be to take an angry tone with people who’ve gotten in over their heads -- one fellow columnist referred to them the other day as “deadbeats.” But two other parties deserve a full measure of blame, and I don’t mean lenders. First, lawmakers have for decades trumpeted house affordability initiatives like tax breaks, while leaving supply in choice markets constrained. That inflated demand and ultimately produced the opposite of affordability. Second, too many people who do what I do for a living spent most of the housing boom cheerleading instead of doing math. It’s time to stop lecturing renters — and maybe to ask why public policy treats them as less-worthy citizens than buyers.

28 Comments – Post Your Own

#1) On March 09, 2009 at 3:57 PM, mverna82 (72.67) wrote:

I'm 26 and looking to buy a house in the next few months in the San Francisco Bay Area  with my fiance.  Nothing in this article has changed my mind.


This is the best time in my lifetime to buy.... I think anyone who dosn't take advantage in the next few years is a fool.

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#2) On March 09, 2009 at 4:01 PM, outoffocus (22.84) wrote:

You are in san fran, an area that has undoubtedly overcorrected at this point.  Where I live on the other hand (East coast), houses are still way over priced in many areas.

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#3) On March 09, 2009 at 5:09 PM, BradAllenton (31.63) wrote:

"overcorrected" really? so if something goes up 800% and then pulls back 30-40% you call that an overcorrection?

#6 reason home ownevship is over rated. You never truly own it. You are still renting it from the government through the real estate tax.

Also see where real estate prices came from before making price projections. We are still in an equity and real estate bubble.

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#4) On March 09, 2009 at 5:22 PM, KamranatUCLA (29.48) wrote:

You can buy the house but you will never own it! I wrote about this in many of my posts. Ownership has lost its meaning in this country and ownership is the basis for capitalism. We critisize many countries around the world but sometimes it is neccessary to look around what other countries are doing right.

I am originally from Iran, grew up in Germany and have Iranian/Persian friends all over the world. Many of them are extremly educated: heart surgents, nano engineers, software engineers, and so on. I have noticed many of them are returning to Iran. Many of them used to live here (USA), some in Canada and few in Austrailia and in Europe.

When I talk to them they say they had it with Western system. When you buy a house in Iran, you buy it cash and it's yours forever and ever and ever. Taxes are already included in the price so you will never worry about losing your home for tax reasons, and forget about mortgages because everybody pays cash for their house.

This is really good because of several reasons:

Once you know this is your house and can never be taken away from you, you will start investing in it. You make it look better, more energy efficient, nicer. The community will be stronger because people are calmer, they can make decisions in a calm matter. People don't have to make last minute decisions because they are about to lose their homes. Ownership is the corner stone of capitalism. And in this country ownership has become meaningless. To the kid who said he is in his 20's and happy to "buy" a home. Kid, wake up and smell the coffee...that home is never yours. If you fall behind ONE payment, it's gone! If you don't pay your taxesit's gone. So don't fool yourself that you OWN it. You own it if you pay it cash and if government doesn't tax you for being a home owner.

Surprisingly back in Iran house prices make sense, here it doesn't. I make 12/bucks an hour and live in Los Angeles. I rent and I pay $1450 in rent. I live in a 1 bedroom appartment. If I wanted to buy this place it would cost me $720,000. The way I see it I could pay rent for almost 700 years and it still doesn't come close to the price of the house. In Iran we don't have many renters but the monthly rent represents about 1/50 of the price of the home. So in 50 months you could have owned that home. 50 months vs 700 years...u do the math. The home prices are out of wack!!!!! If the min. wage was 200 bucks/hour that would make sense.

We have to be scared. It is scarry enough when our most educated people go to live in Iran, but it is scarrier when uneducated, poor, clueless, Mexican immigrants also are heading back to Mexico.

I say let house prices go down to thousands rather than millions and then people will do better, our society will do better. We call Iran a third world country but it's easier to maintain a home in Iran than in this country. Here, even our most educated citizens have to work like a dog so they can have a roof??!!! Why?? we don't have enough land???!!!! We don't have enough building materials??!!! I didn't know we are running out of bricks!!!

It's really sad that the Pilot who landed the plane in the Hudson had to come out and say he is struggeling to maintain his middle class life style. We are talking about a Jet pilot!!! do you know how much efforts, education, experience is needed to be a Airline pilot. And he can't maintain his life without a second job???!!!

Meanwhile some investment banker in Malibu Colony is thinking to upgrade his $50,000 mattress to a $120,000 matress, the one that King and Queen of Sweden use.

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#5) On March 09, 2009 at 5:30 PM, BradAllenton (31.63) wrote:

KamranatUCLA  You are dead on in your response. I love when people make points that include examples of other countries using a better idea or system. Especially when most people in the US look down on any system that is not made in the USA. Who knew we could learn something by looking outward? and from Iran? imagine that!!!! I guess we don't know as much as we think.

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#6) On March 09, 2009 at 5:31 PM, DemonDoug (31.42) wrote:

you guys are out of your mind. San Fran was the #1 most bubbled up place in the whole USA.  It was in a bubble in 2002, before things got really crazy.

600k?  For a city whose median income is

"The San Francisco median household income in 2007 was $65,519, with the median family income at $81,136."

81,136 x 3 = 243408.

Add a "sunshine tax" of about 10-15%, and you get about 270k range.

Still look "undoubtedly overcorrected"?  Still seem like "the best time in my lifetime to buy?"  It's only the best time now because we are not 2 years into the future when it will be an even better "best time in my lifttime to buy."

Stop watching the NAR commercials.  They put Russians and Middle East despots to shame when it comes to misinformation.

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#7) On March 09, 2009 at 5:42 PM, starvimnarvin (< 20) wrote:

Not to mention other costs such as insurance maintainence costs, HOA fees, and yes the aforementioned Taxes.

But homeownership does have its advantages in that you have more flexibility in how you want it to be, tax deductions, and no one can ever kick you out or raise your rent. It is somewhat of an inflation hedge (historically)

But I agree prices have to come down to a reasonable level for owning a house to make any sense. The faster this happens the faster the banking sector can recover and the faster the financial system and the economy can then recover. It seems as if the Obama and Co is doing everything to prevent this.

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#8) On March 09, 2009 at 5:42 PM, starvimnarvin (< 20) wrote:

Not to mention other costs such as insurance maintainence costs, HOA fees, and yes the aforementioned Taxes.

But homeownership does have its advantages in that you have more flexibility in how you want it to be, tax deductions, and no one can ever kick you out or raise your rent. It is somewhat of an inflation hedge (historically)

But I agree prices have to come down to a reasonable level for owning a house to make any sense. The faster this happens the faster the banking sector can recover and the faster the financial system and the economy can then recover. It seems as if the Obama and Co is doing everything to prevent this.

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#9) On March 09, 2009 at 5:46 PM, outoffocus (22.84) wrote:

DemonDoug & BradAllenton

Point taken.  The guy was so confident his decision I just figured he must be finding good deals out there in California.  Honestly I do not track housing prices on the West Coast but I do track them on the East Coast; and despite a high number of foreclosures and growing unemployment, housing prices are still ridiculously high .  It is virtually impossible for a single person making the median income to afford a reasonable house in a good neighborhood.   When I check housing prices the only houses I can afford are in neighborhoods I rather not live in.  These residents in these neighborhoods do not make the same income that I do nor do they care about the things that I care about (like keeping the neighborhood safe).  I currently rent an apartment in a good quiet neighborhood with people of my same demographic.  Yet it is virtually impossible for me to afford a house in this neighborhood.

So please understand that I'm in agreement with you that housing is still way overpriced.  It would be nice to see with reality finally hits housing prices.

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#10) On March 09, 2009 at 6:25 PM, DemonDoug (31.42) wrote:

you guys are out of your mind. San Fran was the #1 most bubbled up place in the whole USA.  It was in a bubble in 2002, before things got really crazy.

600k?  For a city whose median income is

"The San Francisco median household income in 2007 was $65,519, with the median family income at $81,136."

81,136 x 3 = 243408.

Add a "sunshine tax" of about 10-15%, and you get about 270k range.

Still look "undoubtedly overcorrected"?  Still seem like "the best time in my lifetime to buy?"  It's only the best time now because we are not 2 years into the future when it will be an even better "best time in my lifttime to buy."

Stop watching the NAR commercials.  They put Russians and Middle East despots to shame when it comes to misinformation.

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#11) On March 10, 2009 at 12:51 PM, KamranatUCLA (29.48) wrote:

hey, thanks for reading my blog and thanks for your comment. I think you missed by bigger point.

I work for a company that prepares students for the CPA exam. So I am fairly familiar with the number of people who become CPAs each year. It's a staggering number. My estimate is that each year atleast 20,000 people become CPAs. I work in Southern California and I see thousands of people getting their CPAs here each year. And the company I work for has like 200 other classrooms all over the U.S. and even internationally in Hong Kong, Singapore, Phillipines, etc.

I see everyday A LOT of people who go into accounting, half of them eventually become CPAs. 

You said you don't see machines doing their job. Just think about Turbo Tax and other softwares and what they have done to CPAs. The new generation softwares can easily replace CPAs who only do taxes and this is just the start.

I see masses of people, mostly lower class, and lower middle class people who are going into nursing. In 2-3 years supply will be more than demand, and nursing won't pay as much as it is paying now. They always say there is a shortage of nurses, but witho so many people getting into nursing and with healthcare costs problems I don't see a good future for a person who starts now to be a nurse.

You said you don't see machines turning back patients and taking their temperature. This is actually happening right now in West Germany. I lived there for 7 years in late 80s and early 90s and they had those robots in some hospitals. Poeple were actually happy. Machines are more reliable and cheaper. I am not saying this is gonna happen here too in teh next year, but I am just agaist it. Because of the reasons I just said I don't see future in those fields, but i see tons and tons of people going into it because they don't do the research of what is actually a good field to get into. 

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#12) On March 10, 2009 at 4:21 PM, Bupp (27.89) wrote:

Don't forget that you are not paying for the home upfront, so inflation is your friend as your loan remains a constant nominal value while its real value declines.  So you are making money from inflation not treading water:

The house mortgage is a constant value while the home price rises with inflation.  Since you are leveraged in purchasing the home you are able to capture a positive return from owning the home.

Of course, I would only buy a home if the cost of carrying the house is comparable to renting a similar home.

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#13) On March 10, 2009 at 8:34 PM, tonylogan1 (27.49) wrote:

KamranatUCLA - Lot of good points, I like the Iranian (other country) perspective.

My response got too long, so I also posted it here...

Some people like mverna82 will just never be convinced until they personally suffer. Even then, they may continue to delude themselves.

I advised at least 10 close friends to not buy in California in the last 4 years and all but one listened. The 9 friends have become part of a tight knot group of rational renters. In fact one person even convinced a friend to sell their place and start renting (He is the happiest of us all).

The renters are very happy to have not lost over $200k on average on the houses they would have bought, while the one friend that refused to listen does not talk to us much anymore.

I do not consider myself smart for doing this, it honestly was beyond easy to see here in Southern California (Rent $2500, Buy $750,000 ... Hmmm)

Places a CAPS player would actually want to live in California are still way overpriced and its future downfall can be closely tracked by the unemployment rate, which will absolutely increase, and take with it even more people who could barely (if they even ever could) afford their mortgages.

The big wave of foreclosures has hit here in the least desirable areas where people never had a shot of paying off their $600k home on a two income take-home of $40k a year, but coming now is the wave of option-arm resets and people who must start actually paying down principal on their homes.

There is no program that Obama can put in place that will not result in all out civil war that will save the average California buyer from 2004-2007 who earns roughly $55k per year and lives in a house they paid $550k.

Look at what happened in the last boom-bust housing cycle where California lost jobs in the defense sector (will happen again now). Prices dropped everywhere (including "nice" areas), and many people moved to places like Colorado, Oregon, Texas and others where the tax rates are / were much more reasonable.

Look at the recent budget passed and you'll see that what is coming for California is a combined sales tax, state tax, federal tax, property tax, Medicare and social security tax of over 70 percent for someone earning "only" $249k. Never mind the rates on a small business owner earning over $250k.

This is not sustainable, and I would recommend to anyone considering buying a home to research the population demographics of your desired area before you commit to 30 years of your life in a place that may more resemble a third world country than the USA by the time you have paid off the loan.

That said, good luck mverna82. Hopefully you join the rational renter category, instead of the newly debt enslaved masses.

Note that all of this rant being said, eventually there will be turnarounds, and there are perhaps locations that are poised to turnaround faster. Look for these areas with sustainable growth and low taxes and you may just find a place you can consider a real investment.


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#14) On March 11, 2009 at 4:11 AM, KamranatUCLA (29.48) wrote:

Did you go to Becker CPA review to prepare for your CPA tests? You know they changed the exam few years ago, right? Now you can take the exam in any of the 4 parts you want.

I see a huge influx. In one classroom all students started to laugh when the teacher said CPAs make 6 digit incomes. That's not the reality and things will get worst for CPAs.

You know it that still many go to CPAs for taxes, so that hopefully they can save on taxes.

The CPAs professional judgment is bunuch of BS. Like those auditors at Anderson who audited Enron, most were CPAs.

My bigger point is: we have way too many people in Finance/Accouting field than we need and would need. I believe soon people who actually do work for living would make more money: doctors, techniciens, specialists.

CPA has just become too much of a common thing. Anyone whop is confused gets into accounting and many of them become CPAs. There is only so much CPAs that the system can digest. I blame the company I work for, for this huge influx. They have done a good job of expanding, marketing, etc... Becker became part of Devry many years ago and Devry is a 50 billion dollar (market cap) company. All they care is getting students money and produce CPAs.

I would say CPA will be as meaningless as MBA in 2 years or so.

I still have respect for CFAs though. At least those guys know what ponzi scheme most companies are running.

You said you are a CPA and yet you rent! I don't know if you are aware but CPA used to be something and most CPAs used to make good money, so that they could afford to buy a house in LA. These days that's less possible.

I think the flux of CPA and nurses is the result of aggressive marketing ( TV, Campus events, etc....) Many clueless students believe the hype and really get into it.

I can say this because I know CFAs make way more money than CPAs...almost double but I see less students in CFA courses. I contribute that only to 1 thing: Marketing. Many CPA students don't even know what CFA is. Most CFA candidates are very smart and I have talked to them and they agree with my analysis. 

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#15) On March 11, 2009 at 11:36 AM, outoffocus (22.84) wrote:

Well, I guess we are going to have to agree to disagree.

Personally I could have done without the condescending tone of you reply because its counterproductive in a civil debate.  You spent so much time being condescending that you made alot of you points moot with your erroneous assumptions. 

1.As I stated before I do not live on the West Coast, but where I live on the East Coast I don't see the influx that you see. 

2.I never said anything about the CPA exam.  What I alluded to was maintaining the license itself. Yes I am aware that the test has changed.  I took the computerized exam.

What I dont see happening in the future is people maintaining their CPAs in the long term.  They may have jumped into the accounting major thinking that it was easy money, but once again, when reality hits most of these excess CPAs will jump ship.  I know the requirements of obtaining and maintaining a CPA, its way too much work for most people.  If these people only got their CPA just to pad their resume, eventually the cost of maintaining the license will exceed the benefit from putting it on your resume.  If anything, thats probably the only thing we fully agree on.

I see alot of certifications being worth in the future what the bachelors degree is worth now; mainly because you can get a certification in practically anything now.  You can be a Certified Basket Weaver (and put CBW behind your name) if a basket weaving company sponsors basket weaving review course at an educational institution.  The thing is, 90% of the certifications currently available aren't regulated by any external bodies, making them worthless.  The CPA, however, is regulated by the SEC, AICPA, NASBA, as well as the individual state boards.

3. I'm in my mid 20s, making your comments regarding renting moot.  I rent because I choose to; and since I live by myself I'm in no particular rush to buy.  Also I still believe houses are way overpriced (hence the point of this blog). I dont care if you are a CPA making a half million a year, you still shouldn't be forced to buy a home that is overpriced.

In summary, I still believe CPA profession is here to stay.  If there is this influx of CPAs, I believe the cost to maintain the license will naturally weed out all the fluff from the system.

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#16) On March 11, 2009 at 12:04 PM, tonylogan1 (27.49) wrote:

outoffocus -

That always makes me laugh, when/if people figure out how much I earn, then ask... Why are you renting? (Said with that derogatory tone indicating they think you are like a homeless person)

This is why I rant on housing... becuase I have taken this abuse from "home owners" for years now as this bubble built and now has started busting.

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#17) On March 11, 2009 at 12:25 PM, TrailerParkJawa (< 20) wrote:

Housing the SF Bay Area has come down a lot in the last 8-10 months. Its a big region so you can't alwasy compare San Francisco to say San Jose. But I think the entire region has room to fall. The easy credit which propped up prices is gone and even the best neighborhoods now are under a lot of pressure.

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#18) On March 11, 2009 at 12:47 PM, SteveTheInvestor (< 20) wrote:

All I know is that we were actually reasonable when we bought our house.  Just 1200 s.f. and it suits my wife and I just fine.  Low maintenance, low utility bills, low taxes.  No greatroom, no obnoxiously large TV's and no SUV's in the driveway. 

Our mortgage, which will be paid in full within 3 years, is $475/month.  Add taxes/insurance, you're talking maybe $750.00 month.  Go see what kind of apartment you can get around my neck of the woods for $750/month then compare it to our house.  Guess who wins?  In three years when it is paid for, guess who wins by a BIG margin?  

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#19) On March 11, 2009 at 1:26 PM, KamranatUCLA (29.48) wrote:

Steve...where is your neck of the woods?

Outoffocus, i didn't mean to seem condescending. I get your point about maintaining the CPA. And you kindda agreed with what I was saying. If someone goes through all that trouble and gets the CPA and later drops it, why did that person get into it in the first place? So basically it means it didn't pay off.

That was my whole point to start with, that for thousands of new CPAs, CPA designation won't pay off. I was just warning people not to get into it.

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#20) On March 11, 2009 at 1:29 PM, outoffocus (22.84) wrote:


You definitely got a good deal on your home.  I will buy as soon as I start seeing deals like that. Unfortunately those deals are few and far between where I am.  Here I'm more likely to fine a 1200 sq ft home for $220k.  Thats approximately $1200 to $1300 per month mortgage plus tax and insurance, maintenance, water,and other utilities.  Whereas in the same neighborhood you can get a nice 2 bedroom (2 bath) 1200 sq ft apartment for approximately $1000 to $1200 per month with the following perks: no maintenance, less utilities, no property taxes, no lawn mowing, swimming pool, so on and so forth.   Not to mention you get to keep the $25000 needed for the down payment.

Everytime I drive past a new development and see signs such as "From the low 600s" I laugh.  Maybe someday they will figure it out.  

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#21) On March 11, 2009 at 2:07 PM, tonylogan1 (27.49) wrote:

SteveTheInvestor -

Assuming you are not living in Detroit or some other war zone, put me down for 3 of those houses you bought.

1200sqft by me is now "Down" from ~750k to ~500K.

 KamranatUCLA -

If we would just move to something more resembling a flat tax we could really put a hurt on the "need" for CPAs.

As a small business owner, I can tell you that even those without CPAs spend way too much time on tax compliance / optimization compare to being productive.

For that reason alone, I advise kids to never get into fields that could be replaced by a computer or foreign worker within a year, nevermind by the time they graduate. Report this comment
#22) On March 11, 2009 at 3:13 PM, outoffocus (22.84) wrote:

Well as long as everyone seems to think that the only service CPAs make money off of is tax preparation (my least favorite of all accounting services),  then I still have a chance to profit from my certification.

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#23) On April 06, 2009 at 4:32 PM, seaflo (< 20) wrote:

I'm a little surprised at the congratulations for SteveTheInvestor.  Mortgage payments always seem sweet near the end of a mortgage, but, at 3.4% inflation, his $475 payment would have looked like about $1200 in 2009 dollars 27 years ago.  That's basically exactly the same price point outoffocus is seeing for similar properties in his own market today.

Meanwhile, a renter 27 years ago probably could have rented a similar place for less than $475 a month and certainly would not be paying property taxes and insurance.  Investing the difference, he/she'd have pretty sizable savings now (albeit a lot less than a year ago) with which to pay for the increased rent.

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#24) On April 06, 2009 at 4:49 PM, KamranatUCLA (29.48) wrote:

Flat tax would be great..or what about no tax at all and just have an increased sales Tax. In L.A. our sales tax is 9% already...lets bring it to 20% and get rid of the whole IRS thing. Im sick of paying taxes that goes to people whose jobs are collecting taxes, get the Irony here?


Look, i know what CPAs do. I also know many CEOs are CPAs or have to be in oreder to be competative. I am not saying CPA is bad bad thing. I am just saying is not for 99% of people who enter that field because of Technical schools advertisments or because they think accounting is easy (and it is compared o other fields). I took tons of accounting classes and in hinsight I should have taken biology or engineering and be a doctor or an engineer. Sure the beginging is harder than some easy accouting class but it pays off better,

And like I said before I think CFA designation is way better than CPA.

So in short, yes CPA designation is good if combined with other degrees. (Engineer and CPA= CEO) but CPA alone is not that good and 90% of your work will be replaced by accountants overseas and computers. Don't deny it. 

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#25) On April 06, 2009 at 4:56 PM, cvillav (61.60) wrote:

This is only valid if you invest in a housing price index. You can buy a cheap home and have a home run or could buy one and lose all your equity. So if you say renting is better than buying just because the AVERAGE of all houses earned less than the S&P, I can tell you that you can drown in a river with 1/2 inch of AVERAGE depth. DO NOT INVEST IN AVERAGES

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#26) On April 06, 2009 at 5:02 PM, outoffocus (22.84) wrote:

Well considering that you seem to think most of the work we do is tax based (which is not true), you still havent convinced me of your argument.  If you can show me how all of the services that CPAs provide will be replaced by computers/outsourced, then and only then will I be convinced.

As far as the CEOs who are CPAs are concerned, it always takes a few bad apples to spoil it for the rest of us.  But not all bad CEOs are CPAs and not all CPAs are bad CEOs.  Lets  Rick Wagoner is a prime example.  All CPAs should know how to read a balance sheet.  He, being a CPA, should have prevented GMs balance sheet from getting as bad as it did.  Any competent CPA would not have let GM get into all that debt.  Further, a CPA, like many other designations does not necessarily mean the person holding the designation has common sense.  I think that is evident all over society.  Hence this economic crisis.  With all the education we have in this country, it still seems like the majority of the people in this country lack common sense.  But that discussion is for another blog post.

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#27) On April 06, 2009 at 5:11 PM, bejeweledfool (71.56) wrote:

I bought a house I could easily afford even on one income, on a quiet street that was big enough to grow with my family. I bought it last year because the interest rates were low and so were housing prices. The thing I didn't like about renting was that in the end I wouldn't have anything to show for it. In buying a house, I will own it. It is mine. I can change it however I want. If I want a dog, I can have a dog. If I want to paint one of the bathrooms puke yellow I can. It's mine. And I can leave it to my kids or sell it when it's time to retire to the ocean.

The one good thing about renting if there is one, is that if you don't like your neighbors you can move. I lucked out with my neighbors.

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#28) On April 06, 2009 at 5:17 PM, outoffocus (22.84) wrote:


May I ask where you live?

My point being that where I live houses are still relatively expensive. I'm constantly watching housing prices.  And yes prices have come down a bit but I still think they are a bit overpriced (cant buy on 1 income).  When I see houses come down to the point where I can buy it on 1 income and not live in a bad neighborhood I will definitely buy.

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