Homeownership, good idea/bad idea?
Branched from RandomRoger's post. I'm making my list before viewing his. (Although I saw "Yardwork" on his).
Despite all I say, below, though, I own a house. Reason below.
1. 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.”
Now, you can say, "well, I owned a house and sold it and made money." That's great. Some do, some don't. It's very hard to predict. I do think you can make money in the long run with the right real estate decisions. I, unfortunately, have not (so far) done that.
2. 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%.
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. Maintenance costs per year are unpredictable. The true price of your house has to include the added up cost of the unpredictable maintenance.
People say landlords pass down maintenance costs via rent to the tenants but this is not always true since maintenance is so unpredictable.
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.
5. 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.
6. If it's an investment, it breaks all the rules of good investing.
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.
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
8. Cash is King
This is just me. But I like having cash in the bank.
9. Nevertheless, I OWN A HOUSE
I moved in last September. Because my first rule: Happy wife, happy life.