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From $500,000 to $1 million?

Given the rise in America’s home prices over the years, if you bought a house many years ago and sell it today, chances are you will receive more than the purchase price.

However, Schiff cautions that such examples often have significant caveats.

“Even if somebody tells you, ‘Oh, here's this house that I sold for $1 million and I bought it, whatever 10, 20 years ago for $500,000.’ If you think about all the money they put into that house over that period of time, they may not have made any money,” he said.

He explained that houses can require significant upgrades, which can be costly.

“A lot of the houses too that were bought back then, if you don't redo the kitchens, redo the bathroom, put on a new roof, you know, your audio, visual systems are all obsolete, the wiring — a lot of stuff has to be brought up to date in order to sell it for the million dollars,” he said.

He added that many of these houses, if not updated over the years, would be considered teardowns.

“A teardown means a house that was once brand new and had a lot of value, now has zero value. It's going to be torn down. The only thing that has value is the land itself. The house is worthless,” he said.

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Buying vs renting

The decision between buying and renting a home depends on a variety of factors, such as financial circumstances, lifestyle preferences, market conditions and interest rates.

Schiff acknowledged the individual nature of this choice but believes that for many, one option stands out.

“It depends on your circumstances and where the home is located, but for a lot of people — and this has been the case for a long time — renting is a better option,” he stated. He said money saved this way should be invested.

He also criticized government policies for distorting the housing market with tax incentives.

“Now another thing that the government has done to push people into homeownership, which has helped screw up the market, is the tax consequences. The government gives you a tax write off: If you buy a home, you can deduct your mortgage interest, but you can't deduct your rent,” he explained.

Schiff further pointed out that interest rates are another factor skewing the market. He said, “A lot of people are better off renting. A lot of people who own homes, the only reason they're better off staying where they are is because their mortgage rate is so low, their mortgage rate may be so low that if they sold their home and rent it, their rent would be higher than what their current mortgage is.”

He also emphasized that homeowners are responsible for maintenance, insurance, and property taxes, and noted how these costs have been sharply rising.

Mortgage rates have indeed risen sharply in recent years. Three years ago, the average interest rate on a 30-year fixed rate mortgage was around 3%. Today, it stands at 6.87%.

Elevated home prices, along with high interest rates, can make purchasing a house unaffordable for many. However, if you're interested in investing in income-producing real estate, there are alternatives to buying a house, such as real estate investment trusts (REITs) and crowdfunding platforms.


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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.


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