Why I Am Never Going To Own A Home Again
Many people have said to me in the past few years, “I’m going to buy a home.” Or, “What do you think of the idea of me buying a home?” I like the second batch of people. They are my friends and it seems like they are sincerely asking for my advice. And I’m going to give it to them. Whether they meant it or not.
I have some stories about owning a home. One of them is here: “What It Feels Like to be Rich” where I describe my complete path into utter depravity and insanity. The other one is still too personal. Its filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up. But I don’t want to upset anyone in my family so I’ll leave it out. Oh, I have a fourth story that I just forgot about until this very second. But enough about me. Lets get right to it.
There are many reasons to not buy a home: [By the way, I also put this in the category of Advice I want to tell my daughters, including my other article: 10 reasons not to send your kids to college.]
Financial:
A) 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.”
B) 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%.
C) Maintenance. 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. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.
D) Taxes. 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.
E) 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 jobsis low. You can’t argue the reverse, since new adults are always competing with you.
F) Ugly. 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.
Personal reasons to not own a house.
A) Trapped, part 2. Some people like to have roots. But I like things to change every once in awhile. Starting March, 2009 I was renting an apartment directly across the street from the New York Stock Exchange. It was fun. I’d look out the window and see Wall Street. How exciting! Before that I lived in The Chelsea Hotel with Chubb Rock. In 2010 we decided to relax and move a little north. Now I look out the window and see the Hudson River. And its quiet and I can walk along the river in the morning with no noise. It took us two weeks to pick a place and move. No hassles. I like to live a hassle-free life.
(click for my favorite Chubb Rock song)
B) Walls. You can’t change the walls when you rent. A lot of people seem to want to tear down walls. Or paint them. Sometimes when you rent you can’t do these things. Well, make sure you have a landlord that lets you tear down walls. There must be some ancient evolutionary tic that makes us want to tear down walls or put nails in them or paint them. I don’t get it. I like the walls to stay right where they are.
C) Rent. People will argue that the price of the mortgage, maintenance taxes, etc is all baked into the price of rent. Sometimes this is true. But usually not.
D) Psychology. Look at your personal reasons for wanting to own. Do you feel like you can’t accomplish something in life until you own a house? Do you feel like its part of getting married and “Settling down”, i.e. creating a nest for your future children? For you, is it a part of becoming an adult. Is this what your parents taught you? Examine the real reasons you want to own and make sure they are coming from a good spot in your heart.
E) Your time. Do you really want to spend all that time working on your house? Is this where your time is best spent towards creating a happy and fulfilled life for yourself?
F) Choices. I feel when I rent I always have the choice to leave. To live wherever in the world I want whenever I want. Adventure becomes a possibility even if I never take advantage of it.
G) Stress. 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. This is how I deal with stress.
H) Cash is king. I like cash in the bank. I like having access to it.I don’t like it all tied up in one illiquid investment. I want to fill a bathtub with all the dollar bills I would’ve used as a downpayment on a house. I want to bathe in that bathtub. I’m going to do that later today in fact.
By the way, this is going to sound like a contradiction: but I think housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here. But I don’t like to write about investing on this blog. Suffice to say there are many stocks you can buy, with leverage if you want to take advantage of the rise in housing. But I’m never going to buy a home again. And sit there in the middle of the night thinking, “why the hell did I do this to myself again.”
This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.This material may not be suitable for all investors and is not intended to be ...
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The advantage of renting is the ability to leave town if the factory moves to India. If you loose your job hit the road.
Yep, there's always that benefit ;-)
I rented a house to live in most of my life and really enjoyed the ease of moving several times when I tired of a place. I paid rent well in advance and usually dealt direct with the landlord. Houses always appreciated but so did other more liquid investment classes. Later I borrowed (seven figures) to buy rental properties (houses). These gave me a six figure income and about a 40% margin after interest but more like 8% after all costs. My bank went jelly knees during the GFC making my 5 year loan rollover impossible. I bought one last house outright, for cash to live in. I also made a New Years resolution to not owe anyone anything, and (eventually) sold the investment properties at a gain. One month, my banker wanted to lend me to buy a Singapore shop house. 3 months later it was only calling for collateral after the banks blew up the financial system. Look at the situation now in places like Vancouver and Melbourne (Australia). Central bank incompetence makes housing look very risky for anyone who needs to borrow to own. Renting is a very safe, flexible approach.
One thing everyone seems to miss is he said "Why I Am Never Going To Own A Home Again" he doesn't say you should not buy! I feel like a lot of you owning is because you are tied to the community or hate seeing underdeveloped overpriced rentals with outdated appliances poorly built and ugly windows and doors which you can in most cases not replace or paint! And the rent overpriced! You might want to do what I did. I bought a house on a street of 16 homes all the same builder and same style mine $171300.00 just over a few months the home across the street sold for $230,000 and the one next door also did the same and then it rented for $1650.00 a month my payment is just over $1100.00 a month so now after 3 years I would theoretically have $19,800 in the bank to fix things with!
Ya one other thing I could not afford $1650.00 a month. I forgot my house is over 200 sq ft bigger and my lot is 5000 sq ft bigger. I may have been fortunate but in most cases rent is more than owning. Unless you want or buy more than you need or can really afford and overextend yourself! If you compare the same rental with what you want in it and it is not a house you can't afford with a rental you can afford you will see the true cost of owning over renting. Did you notice he said one rental he had I believe overlooked the stock exchange. That being true I can't imagine what it must have been also was not a normal rental most of us could afford! So if he can afford that moving every few months does not mean as much to him as it does to us. Sounds like he rents furnished in high end areas and just has to pack a bag or so to move? Also sounds like money is not as much as a concern for him either. I also know that when I do sell I will have as much or more money than went I went in where if you rent most are lucky to get the deposit or part of it when they leave!
I think a major factor when considering housing is the region it's in.
Everyone is different. Personally where I live the cost of renting and owning is the same and in some cases waaaay cheaper. Ex. I can own a home from 800-900(not the best home but a good home and this includes the insurance and taxes) or pay rent on that same home from 1200-1500. If I get a new home I am paying the same exact price. The benefits of not dealing with a landlord and getting to decorate and make my home truly mine is a great trade off to me. Also I plan on making my home a rental property. I'd also like to point out owning a home could be as cheap as having an apartment. There are lots of programs that help with closing cost and down payments assistance.
We got married in our late twenties like we were supposed to, bought a house to populate with kids like we were supposed to, incurred too high property taxes like we were supposed to, but the salaries didn't rise like they were supposed to and no children to speak of. Fast forward 10 years and I'm at that same place in mind. I'll probably never buy a home again. The supposed tos turned into shouldn't haves which led to unemployment, divorce, foreclosure and me relocating to a more affordable state to begin rebuilding my life. And home ownership is definitely not on that list, unless I purchase a multi-family property in the future, but the odds seem against it at this point. I'm enjoying renting an apartment in a college town that offers variable rental terms. So, if I want to live in another part of town, 90 days and I'm there. So without my trusty crystal ball to reference, I really don't see owning a home again in my future. But I am considering owning property for my business.
What a sad story. Glad you found out a solution which works for you.
Great article. Unfortunately most people do not realize these basic principles and continue to brainwashed by the system.
I think the choice between owning and renting is mostly about trade-offs: Owning can give people more security in that they don't have to worry about a landlord's raising the rent, selling, remodeling, changing management or owners, etc. But it also means more responsibility for fixing things and more economic risk in terms of the investment. Renting allows for less responsibility and more mobility, but also a bit less control over one's environment. Renting frees up money for other types of investments. Owning ties up a lot of your money, but it also means your money is in something tangible, that you get to enjoy every day, rather than on a slip of paper whose value is dictated by the whims of the market. Also, if you really do live in the same house for over 30 years, renting might be cheaper in the long run, rather than spending money on high rent for decades and having nothing to show for it. Then there are financial considerations specific to one's location. If an area has high rents, your monthly payment might be lower if you buy (provided you can pay a down payment). Personally, I would be paying at least $300-$900 more in rent if I were renting the house I bought. But if you buy, you have to factor in the cost of maintenance, which can be significant, particularly if you bought a fixer-upper. So, I think it's an individual question where each person needs to consider their specific needs and preferences. I'm also guessing that high locus of control people might prefer to buy. More easy-going types might prefer to rent. People who like to set down roots might prefer to buy, while people who like to move a lot should rent.
I'm a homeowner after years of renting and I much prefer it. First of all, when you rent you are forced to move whether you want to or not because the rent always goes up, so you are always moving to a place you can afford. And moving is both costly and stressful! Meanwhile, my mortgage will always stay the same (just don't be stupid and get a balloon mortgage). As for maintenance, not everyone is so lucky as to have a landlord who will fix things in an effective and timely manner. At least when something is broken I know it will be fixed when I want it fixed, using the level of quality that *I* choose and not some cheapskate landlord.
All I can say is I hope you don't bank with Citibank cause one day you wake up and your money is all gone, and even though its fraud you wont get it back. So stash some in a property ownership at least you can get a rent check every month if you own one!
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