Best example ever: http://www.mrmoneymustache.com/2015/05/20/what-im-teaching-m...
He can teach his kid to be a rentier by borrowing long and taking advantage of the separation between the value of labour vs assets when fiat money is over-issued by private banks.
And how to run a web-site about being frugal whilst deriving rental income from three families who cannot save because they are busy working hard to keep MMM pumping out half-truths on the internet.
Can we all take up three times as many houses as we need and live off the rental income siphoned off from the labour of others? No.
"MMM can teach his kid how to make money on investments in real estate and make profits from renting his owned (financed) assets.
He can also teach his kid how to share what he's learned about not over-spending on depreciating assets."
Then there's something in there about people who choose to rent being taken advantage of by people who choose to be landlords, but I don't understand it well enough to take your meaning.
The reason why we are all suffering is because of rentiers. It's not because we have slightly expensive data plans on our phone. Rentiers are using this to explain away the real problem. This guy is along for the ride for the web-clicks.
Go on his site and ask a question that gives the info that he has two rental properties and see if he lets it through moderation. Be polite as you can. He won't. MMM knows where it's at.
Read some Henry George and get over my side of the fence :-)
It's not being evil per se, but being an economic leech of sorts. The only reason people need to rent is because of the requirements to own (down payments, emergency funds to cover your mortgage in tough times so you don't lose your equity). Its an arbitrage between someone on financially sound footing versus someone not so.
Disclaimer: My family has a landlord or two in it. I make my disdain for what they do known. If I had Facebook money, I'd create a B Corp to provide housing to people that gave them a non-transferable equity stake, co-op style. A small amount would be "off the top" for management of the organization and for upkeep of the properties. I would make the org fully transparent ("Buffer Style") and ruthlessly accountable.
So, in other words, the landlord is selling a service? In exchange for a monthly fee, you don't have to do any of the crap (down payments, mortgages, property taxes, maintenance) it takes to own a home?
Do you view farmers the same way? If it weren't for the fact that you need to eat to survive, you wouldn't have to buy their product! And what do they do anyway? Just plant some seeds in the ground and wait for them to grow! Those damn leeches!
Providing food for free is next on my list. I don't need labor. I just need clean energy and automation.
If they refuse to condemn themselves to such, you can always call them evil.
People complain we shouldn't subsidize people buying homes who can't afford them. Then why the f____ are we subsidizing landlords instead?
I'm not sure from where this kind of thinking arises. Any investment is supposed to be a vehicle where your money increases without you having to directly work for it.
By that definition, all investments are wrong.
http://www.mrmoneymustache.com/2011/05/23/get-rich-with-owni...
http://www.mrmoneymustache.com/2011/06/29/good-times-for-lan...
It seems like you are being reductive and misleading in characterising his position - First you argue he won't dare talk about rental income, then when examples emerge of him doing so you say that he is exhorting everyone to do it!
MMM talks at length about other sources of income generation too, but let's just ignore those:
* Stocks: http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
* Peer-to-peer lending: http://www.mrmoneymustache.com/2013/08/26/the-lending-club-e...
* Carpentry: http://www.mrmoneymustache.com/2012/04/27/nicer-legs-and-som...
As for frugality this may not be a path to financial security for many but it sure is a refreshing departure from the "more, more, more" of modern life.
God he does p2p lending also. Yuk.
However let's get this straight, there are plenty worse than him out there but I do hate to see his holier-than-tho "be frugal" when in fact he's a rentier who can be "frugal" because he's a rentier.
Following his advice and sticking to a budget has gotten me from saving nothing every month to saving at least half of my take home on the same salary. Most people spend their money without thinking and then look for external sources to blame when they run out.
These guys hiding in the grey area are very damaging. Maybe you were a total fool with your money, but for most people they are on the breadline not because houses are expensive to construct, not because fuel is expensive but because they have to pay a significant portion of their labour to rentiers.
People like this put the blame on the individual. No - it rests with the rentier.
And of course landlords (since you're obviously using rentier as a pejorative) DO provide a valuable service: housing to people who either value the flexibility of renting or don't have the finances to buy housing where they live.
Your apparent disagreement with the entire system of rental property around the world is certainly principled, but singling out Mr. Money Mustache as some kind of hypocrite for earning money off his investments is absurd on its face. Are you also opposed to people buying dividend-issuing stocks?
Maybe. Or maybe they're spending their paycheck on things that they do need because they have to work for a living, they can't live by renting out their assets like MMM can. Example from the other branch: MMM can say "buy a bike instead of a new car" because he had the privilege of putting his "job" (rental properties) as close as he liked to his house. Most people don't have that option.
Also, if you've read more of his stuff you'd know he worked for a decade before he retired, saving up a significant portion of his income by staying frugal. He didn't just magically have two houses to rent out.
I'm not sure where the insane hatred towards renting out a property is coming from. A lot of the time the landlord doesn't actually make much money off of it. Even if the rent covers their mortgage payment (which it often doesn't), if something serious breaks or needs to be repaired, they're on the hook for that and may end up losing money on it that year.
Sub-prime hurt the poor, since 2008 with QE we've seen the gap widen as more banker credit is created and flows into land prices.
No doubt much of his advice is correct, and all of it well-intended. But one has to be careful about advice from people in very different circumstances. They can get it disasterously wrong.
Landlords absolutely do make large, unearned amounts of money. Think about it for a minute: MMM is a finance expert, why would he put his money there if it didn't generate the best return. The idle rich (rentiers) in general are hated, but landlords in particular make additional money through sharp practices. The profession inherently involves (legal) tax avoidance, because a landlord makes a lot of their money through appreciation of their properties which is not taxed, and their rental income is usually taxed at a lower rate than ordinary earnings. Finally, while it's unfair to pin this on MMM, many landlords take advantage (wittingly or not) of their tenants' ignorance of their rights.
Finally, when a rich person says "it's easy to make money", it's a very small step from there to "the reason I have more money than you is that I'm smarter/more self-controlled/etc." Which is often a lie; often inherited privilege has a much bigger impact than personal qualities.
So circumstances are everything, that part rings true. We're born into a good bit of that, and trained into the rest. From accent, to attitudes about race and religion we spend our lives accumulating advantages and albatrosses.
Not in the US. Rental income is income. I think you may be referring to deductions, which exist, but are not nearly as advantageous as taxing rental income at a lower rate outright.
If your point is that it doesn't scale because its literally impossible for everyone to have two investment properties -- well, yeah. Frugality doesn't scale well. If everyone else stopped buying shit they don't need and working more than they needed to, production would go down and yields of all investments would suffer. So it's not actually a good idea to persuade everyone to quit buying shit they don't need, but it's advantageous for every individual to do so.
BTW: I currently rent. It's the financially prudent thing to do in my situation, and I certainly don't begrudge my landlords for it -- they're the ones locked into an illiquid, overvalued asset.
1. bankers issuing insane amounts of debt that out-pace wages
2. speculators borrowing from said banks to "invest" in pushing up living costs for families (ie people like MMM)
The media loves to portray people as feckless idiots but the real problem is economic rent extraction by people who are adding zero value to society. That is the rentier - they generate no wealth merely appropriate it.
Sorry to break the bad news to you, but rampant consumerism actually is the issue.
>>Most families are responsible with their money.
No, in fact their spending decision don't even remotely reflect any sense of responsibility.
>>Their greatest expense?
If you think, smaller delta spending doesn't matter. Alas, I'm sorry that's the whole point behind indulging into consumerism without even realizing you are.
>>Rent/mortgage which is pushed up by
Demands.
>>bankers issuing insane amounts of debt that out-pace wages
You always have the option to move to the city outskirts, where houses are affordable. It will take more effort to commute and all, but cheap has to count for something. And you could save money to borrow less.
>>real problem is economic rent extraction by people who are adding zero value to society.
Houses don't get build out of fairies dropping suitcases full of money outside people's houses. They earn it, work for it. And make investments.
You are all welcome to invest and grow. But just because you don't want to, it doesn't make others greedy and evil.
Land speculators and money men capture all productivity growth.
Price of a house apart from the raw materials depends on various thing like supply-demand factors. But that is the case with any investment.
If you are having problems with investments in general where people can get rich by starting small but growing non-linear with time, then you are literally ruled out to ever be rich.
MMM hasn't come within ten grand of frugality in his life.
It doesn't strictly invalidate his message but it's a grain of salt that should not be forgotten.
Land value tax now. Do away with income tax and let people keep the value they add.
I've read most of his posts. He harps on things like biking instead of buying a new car. Or "why spend $150/mo on a cellphone bill when you can use Google Fi for half that?" Using that latter example, that's a difference of $900/yr -- or 8% of your Target family's net annual income; enough to make a downpayment after just a few years.
To be honest: It seems like y'all are taking away the wrong message. The problems you see are legit, but directing your animosity at a guy providing free, online insights and advise seems misguided. YMMV.
MMM has never claimed to be frugal -- indeed, he likes to talk about the "extravagance" of his $25K pa spend for a family of four.
And imagine how well that sarcasm goes with those of us who have never seen 25,000.
not always true.. I know quite a few who still smoke, own a car even if they don't really need it, buy the extra expensive, small can of coke, and generally follow convenience over financial planning.
these things do add up. will they help them buy 3 houses and live on the passive income? don't think so, but it definitely would help them pay for their home faster
I'm sure many families renting would love to "build stuff out of wood" but most have to have both parents working to pay the rent and bills. If only they had no mortgage. Still it's tough what with all the speculators in the market feeding off basic human needs so back to work for them.
The man worked, earned money, and bought things with it. Not everyone has these opportunities, true. He got lucky. None of this comes to bear on his present situation. Regardless of whether he has rental income, MMM's managed to whittle his spending down to a level affordable by the median household income in the U.S. On that merit alone, I consider his advice worth listening to (if not taken with a grain of salt to my own personal circumstances).
I've been considering buying rental properties to supplement my income, but something deep inside somewhere, based on living close to people well below my income level as one of a 4-unit building, prevented me from doing it.
When I tried to compute how much rent I would charge, I realized I would be profiting simply by taking money from them because they have been unable to accumulate capital at the pace I have been. While that does indicate some skill on my part - hey, I scrimp and shop wisely - I don't feel it morally qualifies me to skim from others. That would be paying myself twice. When I scrimp and shop wisely, I benefit from having extra savings, but using that savings to get more from others without adding more value is something I don't feel right doing.
I could morally accept money as a landlord based on my labor doing maintenance and time spent bookkeeping, I suppose. That - speaking as a current tenant - does have some value, but I just don't think it would be much, approximately that of a day laborer or accountant for several hours a week. So screw it, i'll make a lot more money creating something of real value.
Thank you for helping me recognize and articulate this, branchless.
Good for you for having some back-bone.
Deriving income by adding value is fine. The rentier just takes.
Do you feel you would owe people the freedom to use your property free-of-charge? What about the mortgage payments you endure? The maintenance/upkeep (roofs, siding, carpet, plumbing, electrical, all amortized over the life of the building)? Should this be a loss you take in order to let someone else sleep in your house?
Disclosure of bias: In Seattle where I live, the cost of real estate is higher than the prevailing rents, when you factor mortgage payments, maintenance, utilities, HOA, etc. This makes it a little easier for me to see the equity in pricing between rentals and owned homes. It may be different in your parts of the world.
Your allusion to a market that would correct the price doesn't account for a market which no tenants can enter because none of them can afford the entrance (a 20% down payment).
They'll get the benefit of housing no matter how much I would charge, but if I charge more than the value of the maintenance and accounting them I would be exploiting them, taking advantage of their inability to produce capital in the time it's taken me to produce it. And everyone else who is in the position I am could exploit them just as easily so the market doesn't help there.
It's like gas prices: if so many gas stations can compete, how come they prices aren't driven down to nothing? Because of the entrance cost to the market. You can't start a well and refinery, so you have to go to one of the established ones.
For luxury items like phones, art, fancy cars, etc., I don't care about charging people a lot of money. But for water, air, food, medical and housing, which people have no choice to acquire or consume I'm not going to gouge them.
This is not some rational choice about what a person or market theory can or should do, this is my personal code of ethics.
I did want to call attention to your gas prices example... Gas prices are driven down to approximately the cost of getting more oil out of the ground, refining it into gasoline, and transporting it to your local Chevron. These are costs inherent to "making gas" - it's not free. The same goes for housing, so whether you'd have renters pay it or have the government pay it for them, someone's going to have to cut down trees, pour concrete, level land, install plumbing, etc.
This is this "value" of the housing I'm talking about, which is separate from the moral right to shelter that seems to guide your judgement on the issue. Thanks for being willing to engage me in the discussion!
There is a very unfortunate problem with this line of thinking. It takes a lot of effort/money to build a house. You need to procure raw materials, pay for human labor and various other expenses, this is apart from acquiring land.
And the problem with this kind of 'equality for all' argument towards housing is you are assuming, that a good quality home should either come at a cheap price or some one being ready to pay and make up for everybody else. Both of them are problematic, why should every single economic link in the chain related to building a house suffer? Or why are we expecting some people to pay taxes and have houses built for every one else?
You don't have the right to anything unless the cost of achieving that is literally free or negligible.
"The average construction cost of a single-family home in the 2013 survey is $246,453. This average is significantly higher than the 2011 average construction cost of $184,125, and is the highest it has been since 1998. Although the cost of construction per square foot remained relatively stable in 2009 and 2011 ($82 per square foot, and $80 per square foot, respectively), it jumped to $95 per square foot in 2013."
Also, regarding the relative impact of land cost vs construction costs:
"NAHB’s most recent construction cost survey (conducted in August and September of 2013) shows that although lot sizes are shrinking, both the cost and size of the home are on the rise. The average home in our survey was built on 14,359 square feet (about a third of an acre) of land, had 2,607 square feet of finished area, and sold for $399,532. The average share of the home’s sales price which goes to construction cost jumped from 59 percent in both 2009 and 2011 to 62 percent in 2013. Finished lot costs, accounting for the second largest share of the sales price, dropped from 22 percent in 2011 to 19 percent in 2013."
The situation might have changed since this survey in 2013, but this is the most recent information I was able to find.
EDIT: Source - http://nahbclassic.org/generic.aspx?genericContentID=221388
Hmm, not sure if you are serious, but this ain't great.