Wednesday, September 15, 2010
Renters Win, Home Owners Lose by Tom Graneau -- Book Review
In Renters Win, Home Owners Lose: Revealing the Biggest Scam in America, author and financial management coach, Tom Graneau explains what he sees as the "biggest scam in America"--home ownership. In pursuit of the American Dream, buyers purchase their homes, thinking they're making a good investment. That is, after all, what lenders, the government, and the media have been telling them all these years.
Instead, Graneau says, "...owners lose an enormous amount of money on the deal, driving themselves even deeper into debt as they pour their hard-earned income in mortgage payments and maintenance costs."
Using tables, graphs, and statistics, Graneau attempts to show readers what he believes are the definite advantages renters have over home owners.
This is a challenging review for me to write, for a few reasons. The first is that it is difficult for me to remain objective when I feel I have enough experience as a home buyer to refute, in some cases, the author's claims. In addition, I don't know of anyone who believes purchasing a primary residence is going to make them financially well off. Then again, there were times while reading that I agreed with Graneau. Then there is the assertion that potential buyers have allowed lenders, the government, and the media to bamboozle them into buying homes outside of their means, all in the name of pursuing the American Dream. Finally, the lack of a bibliography, does not allow the reader to fact check easily. If you're going to base many of your arguments on facts and figures, that information is necessary, even when you briefly cite a source within the confines of the text.
Let me begin by highlighting some aspects of the book. Renters Win, Home Owners Lose is well-written and well-organized. It also provides a great deal of information on real estate finance. It is broken down into three sections: The "American Dream," An Illusive Chase, The Solution Creates the Problem, and Recommendations. The last section provides winning strategies for both home buyers and renters.
I can't say I really buy the author's assertion that the majority of us feel obligated to purchase a home because renters are branded as hopeless, but it fuels his logic that we have been brainwashed by the real estate industry, lenders, the government, and the media into purchasing a home at any and all cost.
Graneau presents four advantages that renters have over home owners.
Renters Advantage #1 is that renters don't have to pay property taxes. The author asserts that this roughly $2,000 a year savings will provide a renter with a comfortable lifestyle if invested. While this might be true, having already discussed our cash-poor culture in a previous chapter, where consumers are using credit cards for even the smallest of purchases, who's to say this savings will ever be realized? Why wouldn't Joe just go out and spend his yearly savings on the next toy he desires?
Renters Advantage #2 is that renters don't pay home owner's insurance. Again, this is very true. However, having rented for 11 years before moving into our home, I carried renter's insurance for most of that time. While not as expensive as home owner's insurance, that reduces my potential savings by $150 or so a year. In addition, when I was renting, I was a single parent, working three jobs to make ends meet. I didn't have $5 to put into a savings account, never mind $500. My situation wasn't unique.
Renters Advantage #3 says that renters don't pay home owner's association fees. Also true, but a potential buyer can avoid purchasing a home in a neighborhood that has an association if he chooses, so this doesn't always apply.
Renters Advantage #4 is that renters don't have to pay the cost of repairs and maintenance. I can't argue much here. Within the first nine years of owning our home, we replaced the hot water heater, washing machine, dryer, and microwave. We also had a sump pump installed when a freak weather pattern caused our basement to flood, and had to pay someone to haul away everything we threw out. If we're talking just dollars and cents, then Graneau is right. I just know that during my time as a renter, my car was broken into; my car was hit in the parking lot of my apartment complex; I repeatedly found someone's car parked in my assigned parking spot and was told by the property manager my car would be towed if I parked elsewhere; dealt with obnoxious neighbors; raised my son right alongside gang members; and had no backyard for my son to play in. Some of those things could happen anywhere, but others are specific to renting, and I will never do it again. And some of them cost me money to fix.
My largest criticism, however, is that the flow of money example is based upon an exaggeration. A fictitious family has decided to stop wasting money on renting and begins looking for a home to purchase. Based upon their gross income and the two-and-a-half times gross income formula, the Smiths can afford to purchase a home for $250,000. They have a choice between two homes--one costing $250,000 and the other $500,000. According to Graneau, people who can afford a house like that won't be satisfied with owning the $250,000 home because they have been conditioned not to be for at least one of five reasons. Two of the reasons encourage you to believe that lenders and real estate agents are out to screw you.
Even though the formula indicates that the Smiths can afford a $250,000 home, the greedy lender agrees to lend them $500,000. The equally greedy real estate agent encourages the Smiths to think bigger and better, so the Smiths, who are willing to risk falling into an economic black hole, purchase the more expensive home. My own experience did show that the bank was willing to lend my husband and I more money than we felt comfortable with spending on a home, and the real estate agent did show us several houses that were above the maximum price range we gave her, but we're talking $20,000 to $40,000 dollars, not $250,000. In addition, this asks the reader to believe that lenders are intentionally writing mortgages for people knowing they won't be able to pay them back. While, I'm certain each year they have a figure in mind for loans that will be unpaid, it's not good business sense and not profitable to lend money to people knowing they won't pay it back. That's not greed, it's stupidity. In a later chapter of the book, Graneau admits, if the Smiths had bought the $250,000 house, they would be fine.
One other thing to mention, too, is that while the author discusses government influence on the real estate market, he didn't discuss specific legislation that could have played a role in the housing crisis.
The Community Reinvestment Act of 1977 forced lenders to provide equal opportunities to borrowers that included low- and moderate-income families. These people may not have qualified under normal circumstances. Changes to the law in 1992 also required Fannie Mae and Freddie Mac—two government enterprises—to purchase and securitize mortgages devoted to supporting affordable housing. There has always been pressure on society to close the gap between the haves and the have nots. Was it truly greedy people within the real estate industry that caused the walls to come crumbling down?
How can there be a scam when a consumer knows she can only afford X, and decides to buy Y and Z too? How can there be a scam when since the beginning of time people have wanted more than they have? Is this not really more a societal issue than a scheme foisted upon American consumers by businesses and organizations standing to profit from home sales?
While I don't agree with all of Graneau's arguments, I found Renters Win, Home Owners Lose to be a thought-provoking book. Anyone who is considering the purchase of a home would benefit from reading it, to obtain the real estate finance information found within its pages. I enjoyed this book and will definitely be on the lookout for more books by Tom Graneau in the future.
Title: Renters Win, Home Owners Lose
Author: Tom Graneau