For all that I’ve written on this blog over the past few years, I really haven’t said much about home ownership. Frankly, it’s a tricky topic. Not the least because it’s one of America’s sacred cows, and to even suggest that buying a house might not always be the best decision is likely to attract the ire and wrath of a decent portion of your home-owning friends, who will inevitably interpret this suggestion as an assault on their existence. It’s like eating a chicken sandwich in front of a radical vegan: how dare you.
While I’m kidding, I’m also not. If you don’t want to buy a house, nobody really wants to hear about it.
I will first mention, there are good reasons for buying a house, and bad reasons for buying a house. That’s right, good and bad reasons. Sometimes it makes sense and sometimes it doesn’t. I’m not going to go too far into “the debate”, because you can find some really good ones all over the internet. But I will touch a few bases and follow these up with some personal explanations.
Buying a House is a Big Deal
Home ownership is an established right-of-passage in American lore. You graduate from college, you start your career, you get settled in, and at some point you buy your first slice of the American Dream: a house! You can paint the walls purple, knock holes in whatever you want, and record little junior’s height on the kitchen entrance. It’s all sunshine and puppies.
More often, you see celebratory pictures on Facebook. A couple, usually, standing beside a “Sold” sign in the front yard of a mysterious location. “Pics please!!!” Or maybe a set of keys with a caption. And there’s nothing wrong with that. Don’t get me wrong. But have you ever seen that with people who are renting? I certainly haven’t. No, buying a house is treated as an extremely special occasion.
I can’t tell you how many groups of a people I’ve been around where, at this age, someone is talking about wanting a house so bad, or finally buying a house, etc. That our culture is biased toward home ownership should be very clear.
Historical Thoughts
I suspect home ownership is very close to the heart of the United States because land was so plentiful when it was first colonized. It is still is plentiful. Seriously, consider the size of Britain. Now consider the size of just the Easter seaboard, minus maybe Florida (damn Spain!). Insane. After independence, we made a huge purchase from France, killed a bunch of Native Americans, and much later, after shooting some Nazis and Japanese, we established ourselves as a global superpower with probably the most strategic geography in the world. So, from sea to shining sea, why the hell wouldn’t you own a house??? (I’ve heard rumor that the story is very different in Europe, where renting is very widespread, but I’m far too lazy to look into this)
The American dream is the whole “chicken in every pot and car in every garage”, a quote tied to Herbert Hoover’s 1928 presidential campaign, with the latent assumption that everyone would have their own house, a sign of independence and general prosperity.
I may be jumping ahead of myself here, but I think the strong anti-rent bias in the United States may also be linked to the British aristocracy. After all, the wealthy owned land. Peasants rented. I suspect this may actually be at the heart of some of the land-owning bias we still see today. Ever heard of the “landed gentry”?
In the 1950s through the 1970s, home ownership became associated with the white middle class in the suburbs, while renting became associated with the crime and violence of the predominantly black inner cities. There were a lot of horrible things that happened during that time, but fortunately, the Civil Rights movement made a lot of progress toward improving those things. It’s fair to say there’s still a long way to go.
My History
As I’ve shared on this blog before, my parents lost their house in the Great Recession. They were not buying boats and bubba trucks. They were not going to expensive clubs or drinking their worries away. They were not buying enormous televisions or fancy electronics. They made mistakes. They also suffered some terrible setbacks. There was a transmission rebuild. A few lost jobs. One to making two mistakes in too short a period of time, one to racism and a hostile work environment (and yes, we are white). They were maybe too proud to seek help, or to really bring the subject up with us kids. But it all fell apart.
When people tell me I should buy a house because that’s the only proper thing to do…I want to punch them in the face. I want to say, “Listen, you fucking idiot, do you even remember what happened in 2007? Do you have any concept of history at all?” Okay, I don’t actually want to punch them, but that’s the best way to describe the emotion. “Oh, dur, houses always go up!” Until they don’t. Until they don’t! Until you lose your job and can’t pay your bills!
The challenge for me is accepting that most people will not go through what my parents went through. It is accepting the fact that I don’t want anyone to experience that, even if they think they’re financial geniuses for buying a house. Some time ago, I really had to come to term with this. “Is your goal to be right…or to challenge people to think more about money so they can prosper?”
“…Prosper. Of course. This shouldn’t be about me being right.” As much as I love feeling right….
Yes, buying a house can be a good thing. It can also be a bad thing under some circumstances. I have nothing against people when they can accept this. I shouldn’t have anything against people anyway, but I’m not that good.
So Why Haven’t I Bought a House?
Oh, right. The real purpose of this post.
Can I be honest, here? I hate paperwork. I also hate liabilities. I hate doing things simply because society tells me to do them. I don’t think houses are anywhere near the good investment they are often touted as. I also don’t have kids, or a wife. In fact, I have no prospects, either. I don’t exactly need the space.
I am a certain brand of minimalist. I do not covet great spaces because I have no use for them. Nor do I covet the ability to paint my walls whatever color I want. I am debt free, and I have no interest in debt, not even the so-called “good debt”. Although I try to steward my friend’s house well, it is not ultimately my responsibility, and this is a great freedom, in my opinion.
None of these may apply to you. These are just my reasons.
Many times a year, I hear the phrase, “Renting is just throwing money away”. It’s nothing against those friends who say this, but I would disagree. It is not throwing money away. In fact, you are paying for a place to live. You are paying for something and getting something in return; you are not throwing money out. A house, in theory, will go up in value, but that does not mean that it does not cost. In fact, it costs in maintenance, in property tax, in TIME. It may also cost in stress, in customization, in heating, in cooling, and it is always and ever subject to physical degradation. That doesn’t mean there is no value in owning a house; of course not. There can be some really great things about owning a house. But by the same rationale as “rent is throwing money”, you could also say that “maintenance is throwing money away”, or “property tax is throwing money away”. Or, dear god, “Paying interest on $400,000 is throwing money away”, or “Paying a 5% commission to a realtor is throwing money away”.
I’m not interested in paying $20,000 just for the privilege of paying slightly less per month on a mortgage than on rent. One should calculate the differential: how many years will it take in money saved on a house to equal the amount made as a down payment? Then, how much interest will you pay over the life of the mortgage?
Since the average house price in Colorado right now is around $400,000, that means that the 20% down payment needed to avoid mortgage insurance would be $80,000. I’m a big fan of saving up the 20% if you’re going to buy a house, but I’d have some serious, serious cold feet over plunking $80k down on a house that could have issues shortly thereafter. Now hopefully it won’t. Often it doesn’t. But I’d feel more comfortable have $20k extra in savings for the house before I buried that $80k. In fact, I’d recommend that. Never buy a house if you don’t have an emergency fund.
Now, I don’t want to get too carried away. You can still certainly do this if you want. But you also have to realize that I’m not really interested in getting established in the United States. I hope to travel and volunteer internationally. I’m also shooting to have $300,000+ invested to aid in this process. In my situation, it makes sense not to buy a house. The last thing I need is a major $10,000 repair fucking things up or disrupting my cash flow. This may not apply to you. The last thing I need, when hoping to launch out five years from now, is real estate keeping me on a leash. Most people are not trying to do what I plan to do. And that’s fine. I’m not going to be the one to tell you you shouldn’t buy a house. I just don’t want people telling me that I should. That doesn’t make sense for my life vision right now.
As a single person right now, I have three options as far as housing is concerned:
- Buy a house
- Buy a house and rent out the extra rooms
- Rent
Option #1 doesn’t make any sense. What the hell does a minimalist single person do with a whole house? It could be done, but it would be slightly ridiculous, and it would cost an arm and a leg for something I clearly don’t need. Not a smart way to win financially.
Option #2 is better. For someone in a position similar to mine, this might make sense. I don’t need the house for a family because I don’t have one. But renting out the extra rooms would allow me to generate income that helps pay off the house. But as mentioned before, I, personally, have no desire to assume the responsibility for a whole house. I’m also not interested in screening renters. You can definitely get good renters (I try to be good for my friends’ sake), but it will often take effort and there is always the possibility you may not get along well or the renter does not really take care of things well. That sounds like a lot of work that isn’t necessary for my purposes.
Option #3…makes sense! Surprise. The relative consistency of expenses means I get to sock money away every month for my goals. Also, by renting a room from a house, I get a sweet deal on rent that is both less than an individual apartment and the mortgage on a house. Which means I get to put even more money away. This is a huge factor in how I’ve been able to save over $100,000 in less than 3 years. Maybe that’s not your goal. Perfectly fine. But I hope that rationale makes sense.
Anecdotes
A good friend from my last job is several decades older than me. He has expressed on several occasions that, for whatever reason, he was always able to save more when he was renting. What kills me is that he shares many of my desires to do hiking and travel, but at this point in his life, he doesn’t have many options, and most of his weekends have been spent “doing stuff around the house”. Some people love that work, and those people should definitely consider buying a house. But I hate seeing someone like me who has a desire for adventure just have to shove that adventure aside in order to do the responsible thing and “take care of the house”. Kills me.
His house is very unusual in that it has two furnaces. Both died in the same year. He may have mentioned it cost around $8,000 total. For comparison, the annual IRA contribution limit is currently $6,000, so that money could have maxed out an IRA and then some. And that wasn’t for new features or new fun. That was just to maintain the existing structure and not freeze to death in the winter. Most people won’t encounter this because most houses only have one furnace, but dang.
Another guy at that job went through a month-long period of time in which I secretly started thinking of him as “captain middle-class”. Every day it seemed he was on the phone arguing with contractors who were working on his house or arguing with the dealership over this terrible rust issue with the car he bought from them. They didn’t want to honor the warranty he paid for. Sometimes the new house and new car aren’t as magical as you think. Being on the phone constantly with contractors sounds like a level of hell to me.
(Oh, and with a house, you can paint the walls whatever color you want…until you want to sell it. You can knock holes wherever you want…until you want to sell it. You can design and decorate and furnish it however you want…until you want to sell it. You are never really free to do with it what you want unless you plan to keep it forever, which means it’s not much of a financial vehicle because there’s really no point to building equity otherwise. Of course, buying a house doesn’t have to be done for financial reasons, but then why are so many people preaching home-ownership specifically for financial reasons?)
The Good About Houses
- Per square foot, buying a house is typically cheaper than renting, so if you have a large family or you need the space for some reason, you’ll probably find space cheaper if you buy.
- Hosting is usually easier, if that’s a big priority in your life.
- Once you pay off the mortgage, there is only maintenance and property tax to worry about, and they are usually pretty manageable if you were doing fine paying the mortgage. Probably best to pay the mortgage off in 15 years rather than 30 if you can, though. You wouldn’t want to…throw too much money out 😉
- I’m sure there is a sense of pride to having a place you can really call your own. That’s worth something. I won’t fault anybody for that.
Can I share another secret? It is a goal of mine to eventually own a house. Probably later in life. And the hope is to pay for it in cash. Even I can appreciate the benefits of owning a house outright, it’s the 30-year loan thing that leaves a sour taste in my mouth. Pass.
So there you have it. I could talk much more about this subject, and someday I might, but I will have to be sure I can survive any potential litany of hate that may come my way just for daring to say this much. Personal finance is full of big decisions and important considerations. Just because you or your parents bought a house and did fine with it doesn’t mean they are financial geniuses. Buying tons of mutual fund shares doesn’t make you a genius, either. Don’t be one of those survivorship bias d-bags who thinks you hold the keys to the universe just because you did a thing that worked. There are many paths out there; let’s make sure we’re careful which way we choose.