Homeownership, good idea/bad idea?
@easymoneyme had a thought provoking list with several negatives of homeownership and a couple of positives. The argument against gained a lot of traction as part of the fallout from the Financial Crisis 14 years ago. We've owned homes since 1993, moving into our current home in 2012. https://notepd.com/idea/10-negatives-to-owning-a-home-x25kk
1. Yard work
Depending on where you live, yes, there will be yard work. I grew up mowing the lawn and as a kid I did not like it. Our first home, in Scottsdale, AZ 1993-2001, had a lawn that I mowed and there were some other tasks to it. Having lived on top of a mountain, in an area with a bunch of mountains for the last 20 years, we have different yard work that needs doing. I get a tremendous sense of satisfaction from completing a project.
This may not resonate with you, it wouldn't resonate with the much younger version of myself either. We don't have constant work like in a neighborhood which might be part of it but most recently I did a lot of fire mitigation type of cleanup as the Crooks Fire threatened us. I probably don't need to do this same work again for at least a couple of years but doing it resulted in us being more protected from a creeping ground fire and I feel fantastic about the steps I took with this project to prevent a potential problem or at least greatly lower the odds of that problem.
2. Monthly expenses
Are there negatives with monthly expenses? Of course but our expenses are about to drop dramatically. Our mortgage balance is down to $3900 and will be paid off this summer. We've been here ten years, we got a 15 year mortgage and we made some extra payments early on which will allow us to be mortgage free for hopefully a long time. We were mortgage-free for about 7 years at our old house until we moved to the current one. It was a great time to accumulate more optionality and by optionality I mean more savings to increase our self-sufficiency as well as our optionality.
Get a 15 year mortgage, you'll be mortgage free pretty early which is great for a bunch reasons I've touched on in other posts.
The expectation of always needing to update something or fix something or add convenience is a pretty good one to have, it's going to happen. A few years ago we replaced our roof (easymoney used that specific example in his list) because we had to and in a couple of weeks we are having a dual vent minisplit installed which is more about convenience for us but probably adds value to the house for whenever it comes time to sell. The upside to these is we are improving the thing we own.
4. Are you handy
easymoney concedes he is not handy. I am far from gifted on this front but you will learn a few things by necessity. Fixing something yourself is very satisfying but you also need to know when you're in over your head too.
5. Taxes and insurance
Yes, you will pay them. Taxes here are cheap. All in, I think it will be about $250/mo for taxes and insurance combined. Obviously that is very favorable versus rent (once the mortgage is paid off).
6. Lose flexibility?
He says you can't just pick up and move. I think the opposite is true actually. Once you buy a house, you have an asset that can generate income. I've written tons of blog posts about alternative retirement ideas. One idea is for people who are little behind on where they should be retirement savings-wise is to go live in another, cheaper country for a few years, keep your paid off house here and rent it out. In the right circumstance, the cash flow from the house could cover all expenses in that foreign country while your portfolio (hopefully) goes up in value and your Social Security benefit also goes up. Then come back from your adventure to your same house of firmer financial footing and with a fantastic life experience under your belt.
7. Home price crashes
If you buy high, then you might be vulnerable here, sure. Or maybe not. If you make $10,000/mo and you buy a house you love for $2000/mo how vulnerable are you? The places where prices went down the most 14 years ago, snapped back the fastest. Areas, notably the midwest, that were least vulnerable (went down the least), also recovered but with far less volatility in both directions. If you're buying to flip, then yeah, a crash could certainly blow you up.
8. Is it an investment?
There's good debate here. Our first home almost doubled in nominal terms during the eight years we owned it 1993-2001 which lagged the stock market by a little, would have lagged by a lot if we'd sold one year earlier. Our second home almost doubled in value in nominal terms during a lousy decade for stocks so the house outperformed. Our current house has more than doubled in value but we'll see what havoc comes from the current economic event.
I don't think of a home you live in first and foremost as an investment. It may benefit you like an investment but that's not my priority. If by the time we sell, we're here for 35 years, regardless of whether it does better than the stock market some other asset class, we will have a piece of money that we will realize from that sale that serves as optionality.
One form of optionality again ties into a slightly undersaved retirement plan. Sell a bigger house that maybe you raised a family in for $500,000 and downsize into something that costs $250,000 or $300,000 and add the leftover cash to retirement funds.