Posted on 03/19/2011 1:03:32 PM PDT by SeekAndFind
Many people have said to me in the past month, “I’m going to buy a home.” Or, “What do you think of the idea of me buying a home?” I like the second batch of people. They are my friends and it seems like they are sincerely asking for my advice. And I’m going to give it to them. Whether they meant it or not.
I have some stories about owning a home. One of them is here: “What It Feels Like to be Rich” where I describe my complete path into utter depravity and insanity. The other one is still too personal. Its filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up. But I don’t want to upset anyone in my family so I’ll leave it out. Oh, I have a fourth story that I just forgot about until this very second. But enough about me. Lets get right to it.
There are many reasons to not buy a home: [By the way, I also put this in the category of Advice I want to tell my daughters, including my other article: 10 reasons not to send your kids to college.]
Financial:
A) Cash Gone. You have to write a big fat check for a downpayment. “But its an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004. And that’s just housing prices. It forgets all the other stuff I’m going to mention below. Suffice to say, when you write that check, you’re never going to see that money again. Because even when you sell the house later you’re just going to take that money and put it into another downpayment. So if you buy a $400,000 home, just say goodbye to $100,000 that you worked hard for. You can put a little sign on the front lawn: “$100,000 R.I.P.”
B) Closing costs. I forget what they were the last two times I bought a house. But it was about another 2-3% out the window. Lawyers, title insurance, moving costs, antidepressant medicine. It adds up. 2-3%.
C) Maintenance. No matter what, you’re going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice. Get down on your hands and knees and fix it! And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.
D) Taxes. There’s this myth that you can deduct mortgage payment interest from your taxes. Whatever. That’s a microscopic dot on your tax returns. Whats worse is the taxes you pay. So your kids can get a great education. Whatever.
E) You’re trapped. Lets spell out very clearly why the myth of homeownership became religion in the United States. Its because corporations didn’t want their employees to have many job choices. So they encouraged them to own homes. So they can’t move away and get new jobs. Job salaries is a function of supply and demand. If you can’t move, then your supply of jobs is low. You can’t argue the reverse, since new adults are always competing with you.
F) Ugly. Saying “my house is an investment” forgets the fact that a house has all the qualities of the ugliest type of investment:
Illiquidity. You can’t cash out whenever you want. High leverage. You have to borrow a lot of money in most cases.
No diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be. Personal reasons to not own a house.
A) Trapped, part 2. Some people like to have roots. But I like things to change every once in awhile. Starting March, 2009 I was renting an apartment directly across the street from the New York Stock Exchange. It was fun. I’d look out the window and see Wall Street. How exciting! Before that I lived in The Chelsea Hotel with Chubb Rock. Last year we decided to relax and move a little north. Now I look out the window and see the Hudson River. And its quiet and I can walk along the river in the morning with no noise. It took us two weeks to pick a place and move. No hassles. I like to live a hassle-free life.
B) Walls. You can’t change the walls when you rent. A lot of people seem to want to tear down walls. Or paint them. Sometimes when you rent you can’t do these things. Well, make sure you have a landlord that lets you tear down walls. There must be some ancient evolutionary tic that makes us want to tear down walls or put nails in them or paint them. I don’t get it. I like the walls to stay right where they are.
C) Rent. People will argue that the price of the mortgage, maintenance taxes, etc is all baked into the price of rent. Sometimes this is true. But usually not.
D) Psychology. Look at your personal reasons for wanting to own. Do you feel like you can’t accomplish something in life until you own a house? Do you feel like its part of getting married and “Settling down”, i.e. creating a nest for your future children? For you, is it a part of becoming an adult. Is this what your parents taught you? Examine the real reasons you want to own and make sure they are coming from a good spot in your heart.
E) Your time. Do you really want to spend all that time working on your house? Is this where your time is best spent towards creating a happy and fulfilled life for yourself?
F) Choices. I feel when I rent I always have the choice to leave. To live wherever in the world I want whenever I want. Adventure becomes a possibility even if I never take advantage of it.
G) Stress. For me (not for everyone) owning a home equals stress. I saw what my parents went through at their worst moments owning a home. I saw what I and others went through in the Internet bust when I first owned a home. I saw what people went through in 2008. People were killing themselves. I don’t like that sort of stress. This is how I deal with stress.
H) Cash is king. I like cash in the bank. I like having access to it. I don’t like it all tied up in one illiquid investment. I want to fill a bathtub with all the dollar bills I would’ve used as a downpayment on a house. I want to bathe in that bathtub. I’m going to do that later today in fact.
By the way, this is going to sound like a contradiction: but I think housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here. But I don’t like to write about investing on this blog. Suffice to say there are many stocks you can buy, with leverage if you want to take advantage of the rise in housing. But I’m never going to buy a home again. And sit there in the middle of the night thinking, “why the hell did I do this to myself again.”
At the end of 30 years, he has the down payment that he did not make, plus the savings from rent over mortgage and repairs.
Have them insure the mortgage and live life.
I simply don't care personally what the value of my houses are right now, as I don't intend to sell anything.
I have never in my life seen where renting costs more than owning. Ever. I’m almost 50 and I’ve lived in TX, NC, and VA. Who knows, maybe those places are bizarre somehow.
If I were in a stable situation and could afford it, I’d rather own a home. You can do a lot more with a home when you own it then when you rent.
To each his own, I guess.
Little do those tenants realize, they are actually paying for the house/apts, the damages, and the taxes through the rents and we still have enough to keep as profit for ourselves.
Home purchasing is an investment, and one of the best you can get.
For those who do not agree. I purchased these rentals about 15 yrs ago, after Carter's mess.
Some of you will laugh, but I paid around $15K to 26K per house. Rents at $400 to 650 per month. Now you have to do the numbers on what that same money in the bank (price per home), will net you each month as compaired to rentals.
Cement homes can last 200 years, easily.
Being a landlord is a huge headache.
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My husband and I thought of it as a small business. It is a job.
We owned 3 apartments for about 10 years. For the most part we had very nice tenants. Only twice were the apartments left in poor condition ( dirty but not damaged).
These three apartments worked out very well for us financially since they were built on the same land as our residence. We did not have have to pay extra for the land. We only had the cost of building the apartments.
Different strokes for different folks. Having a paid up in full home with no mortgage with resonable property taxes and extra cash to live on is a good scenario IMHO.
Yeah, me too. The value of my home can’t be put into dollars- to me.
One more thing about being a landlord.
We were able to give our young children meaningful work and pay them a fair wage. We also contributed the maximum allowed by law to their IRAs.
My daughter is in the process of buying a home this week. She will use some of that money to put a down payment on her home.
I have lived in rented places and I have lived in my own COndo and single family homes.
My Condo sold at 250% what I paid for it. My current home also has a juicy profit over my purchase price even with the drop in house values. And I saved paying $1500-1800 rent for a similar house, not to mention tax deductions for mortgage. I am getting ready to sell this house and it will have paid me to live in it for 12 years!
The key rule is do not buy unless you can live there for 7 years plus. And my cash in bank is paying 1%..hardly a king when inflation id eating away at its purchasing power at a much higher clip. And I have to pay income tax on that lousy 1% interest! My increase in home value is tax free!
Or if you know you are going to have to move with your job every 3-6 years.
The ONLY people I know who have been burned did it to themselves. Actually, they burned their relative who held the mortgage while they partied hardy. They bought the land and house off a relative about 20 years ago. They rarely made the payments because they couldn't live without new vehicles and booze. Heck, they couldn't make payments on the vehicles and had to file bankruptcy a few months ago. As for the burning, throw in the rest of us who know have to foot their bills. The relative finally got fed up and kicked their rears out (never go into business or loan money with relatives). So, yeah, I do know someone but they have no clue about money or responsibility.
I've been racking my brain and I can't think of anyone (other than the above) we know who aren't home owners.
The guy doesn’t have a wife and kids
If it is not, your landlord is going out of business. If all that is not covered in the rent, it is only for a temporary time.
Typical starter ranch here in NC, three bedroom two bath about 1400 sq ft or so, rents for $825 to $875, same or similar sells for $120K to $130K, 30 year mortgage including PITI $725 to $775.
Why would people buy rental houses with negative cashflow from the very outset? It’s untenable.
Don’t think so. Maybe in Europe where people are living in apartments that were built in the 1700’s. Here in the US, if it’s over 50yo, tear it down and build something newer. We had this restaurant in Seattle. The building was built in the late 1800’s. It survived the Seattle fire of the 1880’s. It became a world class restaurant. The floors were heavy planks, beautiful. Located in the entertainment section across from the opera house. It got torn down and a QFC market built. Totally out of character of the area.
All but a handful of the houses around here were built in the 50s or 60s. Sure, many have been remodeled and updated. There are only three that are falling down. An elderly couple lives in one and the other has been tied up since the guy died decades ago and then there’s the questionable house (you know, every neighborhood has one of those). The sizes vary but somewhere in the slightly less than 2000 to 4000 range. Styles and building materials also vary - brick, stone, wood. Some of the smaller wooden ones are those finish it yourself jobs but they’re all kept up. All have jumped in price and despite the burst bubble are still selling like hot cakes.
In Michigan, we got screwed when the prices dropped while we were trying to sell our home. We would have liked to stayed in Michigan but there were no jobs and we had to move to the west coast because it was one of the few areas of the country where my husband could get a good job. After years of investing in our Michigan home, we lost everything. So, I guess this article makes sense for people like myself. But for others, it wouldn’t.
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