May 3, 2016 by Jeff Lowen
Three years ago, John Paulson gave a keynote address at the CNBC/Institutional Investor Conference. In his speech, he told those in attendance that he believes housing will continue its strong recovery for the next 4 to 7 years, saying that:
“The housing market has bottomed. It’s not too late to get involved. I still think buying a home is the best investment any individual can make. Affordability is still at an all-time high.”
When asked how the average person could take advantage of the current real estate market at the time, Paulson said:
“Buy a home and, if you can, buy a second home.”
Two years ago, Paulson reiterated his statement, saying:
“I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you’re the owner-occupier of.”
Who is John Paulson and why should you listen to him?
Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell.
What do others think of Paulson?
According to Forbes, John Paulson is:
“A multibillionaire hedge fund operator and the investment genius.”
According to the Wall Street Journal, Paulson is:
“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”
So… Is what he said still true?
The core reasons behind Paulson’s statements still ring true today, but why does he believe homeownership is such a great investment?
Paulson broke down the math of homeownership as an investment:
1. “Today financing costs are extraordinarily low.”
The latest numbers from Freddie Mac show us that you can still get a 30-year mortgage at historically low rates of under 4%.
2. “And if you put down, let’s say, 10 percent and the house is up 5 percent,” as many experts predict, “then you would be up 50 percent on your investment.”
How many are seeing a 50% return on a cash investment right now?
Paulson goes on to compare the long term financial benefits of owning versus renting:
3. “And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”
The moral of the story…
Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.
As far as buying the second one, talk with your lender about what that would look like. If you would like more information or want to look at the home purchase scenario or home and rental property scenario, just reach out! We use a comprehensive income property analysis approach that takes all factors into consideration to help you make a better, more informed decision.
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