A home is always a good investment, right? That’s what we’re told anyway by real estate agents, mortgage brokers, lenders and even our own family and friends. On the surface, this looks to be true. But upon further inspection (pun intended), it turns out that owning a home can put a strain on us both financially and emotionally.
A woman I know—I’ll call her Lily—bought a modest home well within her budget. Overall, the home was in pretty good condition but, according to the home inspection, it needed some minor repairs. She started on those minor repairs soon after the purchase but over time, the list of repairs grew. She also had to buy furniture to fill the rooms, plants and flowers for the yard as well as garden tools, and to pay for taxes and insurance.
Before Lily knew it, she was spending most of her free time dealing with her house, as well as struggling to pay for it all. She decided to sell the home two and half years after she had purchased it. What made it worse is all of those costs, along with the down payment she used to buy the house, left her in a much worse financial condition. Before buying the home, she had saved up 55K. Now she was left with just 10K, which is the profit she made when she sold the house.
Unfortunately, this story is not unique. Most of us remember the housing meltdown that started in 2007. It left many people bankrupt. I, too, lost money in that debacle—60K to be exact. What I went through with that, and seeing how so many other people suffered, led me to the conclusion that purchasing a home is not all its cracked up to be. More often than not, it actually seems to cost us exponentially, in terms of money, time and stress.
The Real Price of Home Ownership
Let’s say you’re paying $1,300 for a 1,200 square foot rental. Your local real estate agent tells you she can get you into a 2,400 square foot home for $1,100 a month. She paints a picture of you having your friends and family over for barbecues and the dog running around in the yard. Besides, she says, you’ll be getting more space for a lower monthly payment and, hey, one day you’ll be able to sell it for a profit. All you have to do is take 15K out of your savings for a down payment. Since you have 22K saved up, it sounds like the right financial move.
The problem is in the calculations: What most homeowners forget—and what most lenders and real estate brokers gloss over—is the additional costs of home ownership: property taxes, insurance, repairs, maintenance and the increase in utilities since you’re now heating and cooling 2,400 square feet instead of 1,200. And wait, there’s more: Now that you have more space, you need more furniture and “stuff” to fill up the extra rooms. You will probably also have to buy items to maintain the yard, such as garden tools, flowers and plants and maybe even a lawnmower. Oh, and by the way, you’re going to need a new roof in seven years and a new dryer in five.
So the downward spiral begins: You start spending more and more on this house and unfortunately, all of your spare cash went towards the down payment. You start putting more and more on your credit card to keep up. And now you don’t just have a mortgage (which, let’s not forget, is a type of debt) but you also have maxed out your credit cards.
On top of that, I must point out that, unless you have more than 50% equity in your home, you don’t actually own it. That’s an illusion. You most likely borrowed money from a bank to purchase the home and, until you pay off more than 50% of the value of the home, you aren’t really the owner; the bank is your landlord. While they don’t tell you you can’t paint or change out your appliances, they still can “kick you out”–a i.e. foreclose on you—should you decide to stop paying your mortgage. And even if you do own majority share or pay it off, you will still have to pay for all of the repairs and maintenance as well as taxes and insurance.
What about appreciation? With homes only appreciating an average of 4% per year, you can make more investing in the stock market. Author Diana Olick wrote in her article “It’s Better to Rent Than to Buy in Today’s Housing Market” (cnbc.com): “Renting and reinvesting the savings from renting, on average, will outperform owning and building home equity, in terms of wealth creation.”
Creating Memories Is Much Better Than Pulling Weeds
I used to own a very lovely home with my ex-boyfriend. It had an indoor hot tub, movie screen and more. I admit I sometimes miss that home. But when we had lived in an apartment, we had spent our weekends hanging out with friends, taking day trips and exploring hobbies. Once we got the house, we were spending our weekends painting, buying furniture and walking laps around Home Depot. The work never seemed to end.
While being in a home can feel comforting—because it feels like it belongs to you (even if doesn’t because you owe too much)–it can also take up so much of your time that there is little left for fun. How many home owners spend their weekends pulling weeds or making a repair instead of creating fond memories? I feel that modern adults have way too much responsibility and not enough fun and owning a home is part of the cause.
As I discuss in How to Bring More Money and Fun Into Your Life, the more you own, the more you have to manage. People tend to buy bigger homes these days and then fill them up with more and more stuff. Downsizing in your residence and your belongings can be really freeing. Even better, when someone else is handling the management of your residence, which occurs when you rent, it can give you back your life.
Renting Frees Up Both Your Cash and Time
Owning a home is a huge responsibility. If you have owned a home for more than a few years, I want you to think about all of the time and money you have spent on it, as well as any stress that it has caused. All of this could have been avoided by renting. While I’m not saying renting is always the best option, if you were to rent, you would have less to manage and therefore, less to worry about.
The advantage of renting is that someone else takes care of the mortgage, interest, taxes and repairs. Renting gives you the advantage of having one flat flee to pay every month and not having to worry about any financial surprises that could pop up (at least in regards to your residence).
Imagine not having to spend your weekends mowing the lawn, painting walls, pulling weeds and fixing broken items. Instead, you can spend your time going to the zoo with your family or going on weekend getaways, creating priceless memories along the way.
It can also make you feel like you’re living a life of luxury. Many apartment complexes these days are like resorts—and you don’t have to spend a fortune to live in one. As stated in the article “Reasons Renting is Better Than Buying” on investopedia.com: “Another financial benefit to renting, over buying a house of your own is having access to amenities that would otherwise be an enormous expense. Luxuries such as an in-ground pool or a fitness center come standard at many mid-scale to upscale apartment complexes with no additional charge to tenants.”
Where I live, we have a beautiful pool, hot tub with waterfall, ping-pong tables, vintage video games, bocce ball, grills, fire pits and a stunning club house with meeting rooms, a business center with computers and printers, and a coffee bar. What’s even better is that should something break in my place, I simply call the front office to put in a request for repairs. It’s like having my own personal concierge service. I don’t have to worry about finding someone to do the repairs or pay for them (unless I caused the damage beyond normal wear and tear). I love my place and feel like I’m living at a boutique hotel year-round. It frees up so much of my time and makes me feel like I’m on vacation.
Renting also gives you the advantage of staying somewhat mobile. Most neighborhoods go downhill over time and the home you buy now could be old and outdated in 10 years, before you’ve even paid off the mortgage. By renting, you can move to a nicer area with relative ease should your neighborhood start to disintegrate. It also keeps you mobile should you switch jobs and need to move to a different area of town or even to another state.
And don’t buy into the notion that you must own a home (which, like I mentioned, you probably don’t actually own because the bank most likely has majority equity in it) in order to be “an adult” or to provide a nice childhood for your kids. The best thing for your kids, marriage or relationship is to not be stressed out because a home is sucking up all of your time and money.
Self-made millionaire Grant Cardonne wrote this on his blog regarding home ownership: “Sold as the American dream is more like the American nightmare where people can’t move, don’t ever truly own and must continue to spend to keep.”
I agree. Don’t fall for this trap. It’s a fallacy. Cardonne goes on to write, “Unless you have 20 million bucks in the bank, in cash, you have no business buying a house.” I concur. Don’t buy a home just to impress other people. Live life on your terms. Find fun and joy in the people around you. Go on a trip with some friends or family and create lasting memories. And don’t worry—with the money you save by NOT owning a home, you can afford it:)