A week ago I shared that Girl Ninja and I plan to take the plunge and buy our first home in 2013. If you’ve been reading PDITF for more than a day or two, you’ll know I’m not a huge fan of the concept of home ownership. With this post I plan to summarize the primary reasons I think owning a home sucks, but why I’ll likely buy one anyway. If you are a renter, save this post, and email it to the next stupid person that tries to tell you renting is dumb.
“Renters throw their money away:”
I hate when people who own their home try to tell me my rent payments are like throwing money away. Is filling up my gas tank “like throwing money away”? How about buying a gallon of milk? No, it’s not. I pay rent, and in return get a roof over my head. It’s not rocket science.
If you have a $1,200 mortgage payment you aren’t making a $1,200/month investment. About $360/month goes to lowering your principal and $840 goes to interest (note: mortgage interest is deductible on taxes). Add another couple hundred a month for property taxes, $50 or so a month for Homeowners Insurance, and $120/month for PMI since MOST first time buyers don’t put 20% down.
All in, your house is costing you upwards of $1,700/month, of which only $360 is actually an investment, everything else is an expense. Oh, and don’t forget we didn’t even take maintenance in to account (word on the street has it appliances, roofs, and plumbing aint cheap).
You can tell me I throw my money away each month, only after you’ve recognized that you throw yours away too.
“It’s an investment:”
Sure. But at least be willing to admit it’s kind of a crappy one. Ben Stein says it best,
“[M]y wife and I bought our house in Malibu for $600,000 in 1990. It might have gone up by 150 percent since then, but in that span, the stock market has more than tripled on the Dow, counting dividends. Other indexes such as foreign stock indexes have gone up vastly more than that… [O]ver very long periods homes barely keep pace with inflation. Stocks, over very long periods, beat inflation by a large margin…”
Real estate just isn’t that great of an investment, it’s as simple as that. And I think it’s hilarious when people claim buying a house helps them diversify their portfolio Ummm, excuse me…. when did tying up a huge chunk of your net worth in to a single asset qualify as diversification? You ever put $200,000 in to a single stock? No, then why do you think putting $200,000 in to one house is any different?
“At least with a home you own something:”
Is that really true? Do you own your home, or does your home own you? Could you move tomorrow if you got a sweet job? Could you find a new place if your roof started leaking?
What’s more, sixty-six percent of home owners have a mortgage. That means 66% of home owners don’t own their homes, their lenders do. Thirty-one percent of homeowners are underwater; they couldn’t even sell their place for what they owe. The average length of owning a residence is seven years, not long enough for them to pay their mortgage off, and definitely not long enough to guarantee an increase in property values (::cough:: 2005-Present ::cough::).
As a renter, I have zero temptation to put more money in to my residence. As nice (and expensive) as hardwood floors might be, I couldn’t put them in even if I wanted them. If I owned the place, the only thing stopping me from upgrading anything/everything would be my wallet. Renting takes the temptation of renovating completely away. Forced savings for the win!
If you are a renter, hear this:
You aren’t dumb. Don’t let home owners make you think otherwise!!!!
Okay so now that I’ve gotten that off my chest let me share with you the two reasons I’ll still likely end up buying a house.
1) You can pay your mortgage off. When we buy a house we don’t plan to sell it (we might, but that’s not our intention when we purchase it). Whether it takes us 10 years, or 30, eventually we wont have a mortgage. When retirement comes, I’ll be able to breathe easier knowing I don’t have a huge house/rent payment each month.
2a) You can rent out all, or part, of your home. If we put enough down, our monthly payment would be small enough that the rent we could collect for the property would cover all the properties expenses. I pay $70,000 up front, but could have strangers pay off the remaining balance for me. And ten years from now, when rent prices have gone up, but my mortgage hasn’t, we would be making money . Passive income is sexy.
2b) I’m also fascinated by properties with Mother In Law units. Our landlord paid cash for his house and built a mother in law unit up top (where we live). The rent he collects from us covers ALL of his housing expenses on our place and his (taxes, insurance, and utilities)!!!!. Our 600sqft rental allows him to live in his 3,000sqft house for free.
In sum, a home is a home first, an investment second. And renting isn’t dumb, so quit saying it is.