For an opposite point of view, check out the post titled Be Logical and Never Buy a Home.
Buying a home is one of those major events in life that everyone wants to experience. If we consider everyone we know, it will be apparent that people who own a house generally has a more comfortable life. There’s a sense of family and accomplish when we live in our own home. Here’s a couple more reasons why we all want to buy a house.
30 Years and We Are Done Paying for the Majority of the Expenses
There are situations when renting makes sense, but renting also means that we will be paying rent our entire lives, but getting a 30 year loan means that we will be done paying for our mortgages in 30 years. Once the 30 year hits, our expenses will go way down, which will give us more freedom to consider early retirement.
Leverage
Those who already own a house during the early part of the latest housing cycle saw their net worth grow tremendously. For example, I just saw a house on sale for $1.8 million today that was bought in 1998 for $700,000 and the original buyer bought the house with a 5% down payment. This meant that their original $35,000 investment in 1998 turned into more than $1 million dollars in profit 10 years later. There aren’t that many investments with such a high return, and the only way it was possible with a house is because of the degree that companies allow us to leverage when purchasing a home.
The buyer in our example only put down $35,000 for a $700,000 house. This means that they are borrowing $20 for every dollar that they put in. In the stock market, the most we can borrow is $4 for every dollar that we own.
Buying a House Forces Us to Save
There is no better way to get us to save than having a big mortgage payment. The good thing is that our mortgage payment is partly used to build our net worth over time as the money is put into our house. It’s the same theory as “pay yourself first” because bills usually take precedence over spending. Through time, those payments that we’ve been dreading becomes a ton of equity.
The Needed Pressure to Make More Money
With high bills actually comes pressure for us to work harder and make more money. It’s another psychological trick but it definitely works. If we don’t need the money, we wouldn’t really be working to earn it. I remember my boss once told me that having expensive tastes is a good sign for a sales person since it meant that the lavish spending will drive them to work harder. Like the saying goes, “if we need it, we will find a way” and having a big mortgage payment due every month definitely creates this “need”.
It is Not About The Money
Many people will echo this, because buying a house is not always about making money. The joy of owning a home, having a place we can call our own and giving our children a place to grow up in cannot be measured in dollars. The uncertainty of renting and the need to move every few years because of unforeseen circumstances can only mean more energy wasted on something that can be avoided.
Conclusion
We can be logical all we want but all logical approaches assumes that a good deal of all the assumptions will play out. If we are human, we should make sure that we will live a happier life and just buy a home.
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{ 10 comments… read them below or add one }
I am so glad you are pointing out both sides… not everyone should own a home. If people paid more attention to their real needs, fewer people would be in foreclosure today.
Purely financially speaking NOBODY should own a home (they should instead invest exactly the same amount externally & reap the benefits).
However, practically speaking EVERYBODY should own a home (because they probably WON’T otherwise invest all the money that they would ‘save’ by renting).
For most people (90%+0 OWNING their own home (as long as they don’t break the 20% Rule) is the ONLY way that they will ever becoe financially free.
Thanks for the post/s.
Great post David.
I couldn’t agree more.
I think a lot of people who advocate renting over buying are either looking at owning a home as a short term investment only, or aren’t at a point in their life where owning a house would make sense anyway.
As I`m a realtor somebody would expect me to agree with the opinion that owning a house is the best thing in your life, however time has changed and they are more and more alternative options of living which also can be favourable. I think that it`s better to rent a house than taking huge mortgage, after failing to pay it back it leads to foreclosure. The Toronto condos for example are the most tempting living options for so many couples buying their first home. I think that we should always consider our present situation and take steps forward according to this.
I think having your own home is a good idea and good for you too. At least you know that you will never be somewhere when you get old.
I agree with the real estate agent, I am sure that luxurious condos or downtown Toronto lofts are always a savvy investment and a great way to go enjoy urban living.
The whole housing thing is one huge racket. It’s ridiculous how expensive housing is. Everybody these days thinks they have to live in a “mini-mansion”, and an ongoing rent expense is a total waste of money. The only way to really take advantage of “owing” a home is to actually own it, not “share” it with a lending institution.
My parents didn’t have a mortgage. Not having a mortgage can effectively almost double one’s income, tax free. Granted, their circumstances were unusual. We lived in rural Alaska on 5 acres of land leased from the state for $250 a year. We had a 2000+ square foot house, but it was paid for a bit at a time, because it was built just a bit at a time. Yes, it was an unusual house, not one of these overpriced things you see in “Home” magazine, but it did the job of keeping us warm and dry, which is really all the primary function of a house is. It wasn’t built “to code”, it wasn’t designed by some “expert”, but it housed our family for a good 20 years, and went on to house at least two other families for another 10-15 years. Eventually, it burned down, probably because of lack of maintenance.
If some of the more “unconventional” housing methods, such as straw bale, rammed earth, papercrete, etc. were to become more widely accepted; if, instead of buying some overpriced, stick built, sheetrock festooned monstrosity, people were allowed to build their own houses (rather than having to pay for some so-called “expert” to build it for them), we’d all have more affordable, and individual, living spaces, instead of vast tracts of housing that are “all made out of ticky tacky and all look just the same.” How people can stand to live in such housing developments is beyond me.
i have to agree with alot of people . I think it all depends on your circumstances . We bought our house in97 and just spent to much . we had to buy cars and stuff. but we also lost our jobs. WE didn’t forclose but did a short sale. But on the other hand i think that owning a house is a scam because no matter what loss of job divorce etc you never really own a home unless you do pay it off. It was not totally our fault. You never own your house unless you pay it off. And with this economy the way it is , I will never trust anything our gov’t or business tells me anymore in America. This country is nothing more than a scam. I am not going to kill myself working just to pay off a house, I don’t have kids and I didn’t have my parents help me buy one either, So when I am dead and gone I am not leaving anybody anything.
I think if you are able to own a home, do it as long as you dont over extend yourself. As a Toronto Realtor Ive seen many clients make a nice profit from buying and selling real estate – Toronto condos espeically. Real estate is like the stock market – prices go up and down but in the end its just a cycle and prices come back around eventually.
In some areas its practically impossible to buy a home due to the prices of the house and the cost of living. If instance if you live in Los Angeles county and make less than 6 figures – your most likely not going to be able to afford to buy a home. There are some low-income housing but those usually go to people via lottery and only to minorities. Non-minorities who are middle-class are pretty much being left out of the housing market.