David Bach is financially misleading millions — and you need to know the truth
David Bach, best known for coining a phrase “The Latte Factor” which is the idea that the small amounts of money you spend can add up to a fortune, believes that homeownership is a “timeless” principle of building wealth. He says it’s boring, but it works. He’s right on one of those — it is boring, but no, it doesn’t work.
“Ultimate financial security comes from buying the home that you live in, paying it down, and getting it debt-free” — David Bach. WRONG.
I think many people believe they’re going to be so happy with mom and dad across town and your cousins in town, and everything’s going to be fine and you’re all going to live here and you’re going to get a little doormat that’s going to say “The Johnsons” with smiley faces and then you’re going to paint the house in your favorite color and have your nice little sofa and your lazy boy, you’re going to have tricycles and then if you stay there for 30 years then one day you too will be rich.
Folks, even if you sell your house, $300,000 is not going to make you rich. Especially after you put 30 years into it and had no options to grow.
Over the past 50 years, a home has returned 1% when adjusting for the rate of inflation. If your 300K house goes up 1% a year — 30% over the next 30 years adjusted for inflation — your $300,000 home will probably be worth four, five, six hundred thousand dollars in 30 years. That’s not a return, that’s dead money. Get involved in multi-family real estate if you want to own a real asset.
You need to prove to yourself that you can produce money. Income is senior to everything and that’s why a house doesn’t make sense. Houses do not produce income and you need flows of money coming to you, not away from you. The house was made so that states like Pennsylvania, Connecticut, New York, and Ohio could depend on your tax dollars. You don’t own the home, the state-owns your house for the next 30 years; you are not in control.
They need you to stay put.
Warren Buffett’s been in one home his entire life and that is not even figured in his net worth. It is not how he makes money. Guys like David Bach give people the idea that you need to skip your Starbucks coffee and save $3 a day, buy a home, and in 50 years you’ll stash away your first million.
I don’t know about you, but I don’t want to slowly and gradually save small amounts of money — I don’t want to hope that, one day, by the time my prostate falls off when I’m 80-years old, if the stock market doesn’t go up in flames, I might scavenge just enough money to never enjoy it.
I can skip my $5 Starbucks every day and save $10,000 over the next 5 years, but if you think $10,000 is going to change your life, you’re not just broke, you’re being stupid. Yes, you should spend less than you earn, but if you make $50,000 a year with a couple of kids, what money is there leftover to save? None. Do the math.
You’re either renting space or you’re renting money, but either way guys you’re renting. You shouldn’t buy a house until you’ve made it big and your wealth is indestructible. Do not buy a house — you lose mobility. It’s a bad deal. On your balance sheet, it actually goes under liability. How do you measure the cost of opportunity? Being able to move to different places is valuable. You’ve been tricked and brainwashed to believe if you own a home one day you’re going be rich. No — one day you’ll be old and you will wish you had that money earning income all that time.
Ben Leybovich in his Bigger Pockets article, said, “Grant Cardone…as far as I know is the only public figure in the personal finance space who calls a spade a spade.” Renting is not throwing money away, it is paying for your freedom and mobility. Every year you own a house, your costs of ownership go up.
Don’t buy a home — rather, invest in yourself and gain some new sales skills and watch who you get your advice from.
Learn to sell and you can start getting paid more and have surpluses to invest in real investments; the kind that pay you rather than cost your every month. You can get access to Cardone University for far less than any down payment on a home. You must learn to increase your income if you ever want to really get rich.
Be great,
GC
