Owning a home is one of those virtues baked into the casserole of the American Dream. It’s one of those things you’re expected to do. It’s a symbol of success. You own a home? Congratulations! You’ve made it. The harsh reality is that it’s not true. We’ve been fed a big spoonful of bad information and it’s time to spit it out.
Whenever the rent vs. buy conversation comes up you typically hear that owning is the way to go because you’re building equity, right? Your mortgage payments are going toward something. If you rent you’re just throwing money away. At least that’s the common rebuttal. But is it accurate?
Let’s say you buy a home for $300,000, and it takes you 30 years to pay it off. At the 30 year mark you sell the house for $600,000 and feel pretty good about yourself because you just made $300,000. But how much of a profit did you actually make?
If it takes you the full 30 years to pay off the mortgage you end up buying the house twice because of what you’ve paid in interest on the loan. So, that $300,000 house ended up costing you $600,000. Instead of making $300,000 on the sale of the house, you actually broke even. But in reality you didn’t break even.
You have to factor in the costs of general maintenance of the home and property over 30 years. Don’t forget to add in upgrades and renovations. About every 10 years or so you need a new roof, furnace, appliances. Those orange formica countertops aren’t in fashion anymore. Looks like you need a whole new kitchen. Over 30 years, this $300,000 home has cost you $1,000,000. You didn’t break even when you sold it for $600,000. You actually lost $400,000. Was buying a home really worth it?
Buying a home would be worth it in a few situations:
1.) Someone else is paying your mortgage.
Mysterious benefactor, rich parents, or the more realistic scenario that you’re renting out part (or all) of the home to someone else. Either way, you’re not handling the full financial burden yourself.
2.) You get an incredible deal on the property.
I’m talking Sheriff’s sale, extremely reduced foreclosure, or it was left to you by a deceased relative and you really want the property.
But on the whole, unless you’re making money each month off the property, real estate does not appear to be a solid investment. If anything, it’s a good way to throw your money away.
When you rent you don’t have the real estate and school taxes, the upkeep of the exterior, the replacing of appliances. If something breaks in your rental, you call the landlord. If something breaks in your house, you better be handy or else you need to call someone to fix it, and repairs aren’t cheap.
Owning a home isn’t all it’s cracked up to be. I’ve owned an old house for the past 5 years and most days I wish I was renting. Almost every year there has been at least one unexpected and costly expense related to the house. Any time I hear a friend talk about wanting to buy a house I try to talk them out of it as nicely as I can without completely crushing their dreams. Instead of investing in a house, save your money and invest in yourself.