My husband and I have disagreed on this subject for a long time. He thinks buying a home is more of a burden than a good thing. We rent a nice house, and if something breaks we call property management to fix. ...no money out of pocket. Also, we do not have to pay property taxes. Can you give me some pros to owning a home, besides the usual "feel a sense of pride" and stability. I know we will eventually own it and might be considered an investment, but that would be 15-30 years in the future. Nobody really owns a home until they pay their last mortgage payment.
IF the price of the property (1) increases A LOT,
you will just break even, on the huge expenses of home owning.
IF the price of the property (2) increases A HUGE AMOUNT,
you will make lots of money, due to the leverage.
IF the price of the property (3) stays even, you will LOSE a tremendous amount of money. It's much like owning a car - constant expenses.
That's all there is to it.
It's well worth bearing in mind that property prices for your area / your property need to be constantly increasing for you to merely break even.
Note that over long periods of time prices tend to go up (most anywhere - but not everywhere). Many people basically base their thinking on that. It will be OK "in the long run". Which is fair enough.
I believe one huge factor is that it is enforced saving. That is the number one advantage for most.
Note too that in most/all jurisdictions, there are tremendous tax advantages, even if it turns out to be situation (1) (i.e. a waste of time, you only break-even).
Note finally that there are, indeed, tremendous social/financial advantages to having the equity: it gets incredibly easy to get other loans (for business or the like) once you own a house; this is undeniably an advantage (perhaps press your husband on that one).
Buying a house may save you money compared with renting, depending on the area and specifics of the transaction (including the purchase price, interest rates, comparable rent, etc.). In addition, buying a house may provide you with intangibles that fit your lifestyle goals (permanence in a community, ability to renovate, pride of ownership, etc.). These factors have been discussed in other answers here and in other questions. However there is one other way I think potential home buyers should consider the financial impact of home ownership:
Buying a house provides you with a natural 'hedge' against possible future changes in your cost of living. Assume the following:
(1) You want to live in a particular community for an extended period of time; and (2) Accommodations represent a significant part of your living expenses.
If these two items are true, then buying a home allows you to guarantee today that your monthly living expenses will be mostly* fixed, as long as you live in that community. In 2 years, if there is an explosion of new residents in your community and housing costs skyrocket - doesn't affect you, your mortgage payment [or if you paid cash, the lack of mortgage payment] is fixed. In 3 years, if there are 20 new apartment buildings built beside you and housing costs plummet - doesn't affect you, your mortgage payment is fixed. If you know that you want to live in a particular place 20 years from now, then buying a house in that area today may be a way of ensuring that you can afford to live there in the future.
*Remember that while your mortgage payment will be fixed, other costs of home ownership will be variable. See below.
You may or may not save money compared with rent over the period you live in your house, but by putting your money into a house, you have protected yourself against catastrophic rent increases.
What is the cost of hedging yourself against this risk?
(A) The known costs of ownership [closing costs on purchase, mortgage interest, property tax, condo fees, home insurance, etc.];
(B) The unknown costs of ownership [annual and periodic maintenance, closing costs on a future sale, etc.];
(C) The potential earnings lost on your down payment / mortgage principal payments [whether it is low-risk interest or higher risk equity];
(D) You may have reduced savings for a long period of time which would limit your ability to cover emergencies (such as medical costs, unexpected unemployment, etc.)
(E) You may have a reduced ability to look for a better job based on being locked into a particular location (though I have assumed above that you want to live in a particular community for an extended period of time, that desire may change); and
(F) You can't reap the benefits of a rental market that decreases in real dollars, if that happens in your market over time.
In short, purchasing a home should be a lifestyle-motivated decision. It financially reduces some the fluctuation in your long-term living costs, with the trade-off of committed principal dollars and additional ownership risks including limited mobility.
The New York Times offer a remarkably detailed Buy vs Rent calculator.
You enter -
- home price
- time you plan to stay in home
- all mortgage details
- future projection for home price growth, inflation, rent inflation
- taxes, etc
From all of this, it advises the break-even rent, when monetarily, it's equal.
I'd suggest you keep a few things in mind when using such a tool. Logic, common sense, and a Nobel prize winner named Robert Shiller all indicate that housing will follow inflation over the long term. Short term, even 20 years, the graphs will hint at something else, but the real long term, the cost of housing can't exceed inflation.
The other major point I'd add is that I see you wrote "We rent a nice house." Most often, people are looking to buy what they feel they can't easily rent. Whether it's the yard, room number or sizes, etc. This also leads to the purchase of too big a house. You can find that you can afford the extra bedroom, family room in addition to living room, etc, and then buy a house 50% bigger than what you need or planned on. In my opinion, getting the smallest house you can imagine living in, no bigger than what you live in now, and plan to get on a faster than 30 year repayment. Even with transaction costs, in 10 years, you'll have saved enough to make the bump up to a larger house if you wish.
A home actually IS a terrible investment. It has all the traits of something you would NEVER want to plunge your hard-earned money into.
- It does not generate any income or cash flow
- Buying/Selling them takes large amounts of money, time, and stress
- The commissions on a house are insanely high
- When you do want to sell, you can only sell it to one tiny group of people (they want that type of house, in that location, for that price)
- It requires constant input of more cash to keep its value from going down
- The land is what appreciates in value in most cases, not the house itself (see previous bullet point)
The only way that buying a house makes good money sense is if you pay cash for it and get a really good deal. It should also be a house you can see yourself keeping for decades or until you're older and want something easier to take care of. Of course, nothing can replace "sense of ownership" or "sense of pride" other than owning a house. And your local realtor is banking (really, laughing all the way to the bank) on your emotions overcoming your smart money savvy.
This post really goes to work listing all the reasons why a house is a horrible investment. Should be required reading for everyone about to buy a house. Why your house is a terrible investment - jlcollinsnh.com
TLDR; - You must decide what is more important, the money or the feelings. But you can't have both. If you read the article linked and still want to buy a house...then you probably should.
It certainly seems like you are focusing on the emotional factors. That's your blind spot, and it's the surest path to a situation where your husband gets to say "I told you so".
I recommend you steer straight into that blind spot, and focus your studies on the business aspects of buying and owning homes. You should be able to do spreadsheets 6 ways from Sunday, be able to recite every tax deduction you'll get as a homeowner, know the resale impacts of 1 bathroom vs 2, tell a dirty house from a broken house, etc. Everybody's got their favorites, mine are a bit dated but I like Robert Irwin and Robert Allen's books.
For instance: a philosophy of Allen's that I really like: never sell. This avoids several problems, like the considerable costs of money, time and nerves of actually selling a house, stress about house prices, mistaking your house's equity for an ATM machine, and byzantine rules for capital gains tax mainly if you rent out the house, which vary dramatically by nation. In fact the whole area of taxes needs careful study.
There's another side to the business of home ownership, and that's renting to others. There's a whole set of economics there - and that is a factor in what you buy. Now AirBNB adds a new wrinkle because there's some real money there. Come to understand that market well enough to gauge whether a duplex or triplex will be a money maker. Many regular folk like you have retired early and live off the rental income from their properties.
JoeTaxpayer has an interesting way of looking at the finances of housing: if a house doesn't make sense as a a rental unit, maybe it doesn't make sense as a live-in either.
So learn how to identify those fundamentals - the numbers. And get in the habit of evaluating houses. Work it regularly until it's second nature. Then, yes, you'll see houses you fall in love with, partly because the numbers work.
It also helps to be handy. It really, really changes the economics if you can do your own quality work, because you don't need to spend any money on labor to convert a dirty house into a clean house. And lots of people do, and there's a whole SE just for that. There is a huge difference between going down to the local building supply and getting the water pipe you need, vs. having to call a plumber. And please deal with local businesses, please don't go to the Big Box stores, their service is abominable, they will cheerfully sell you a gadget salad of junk that doesn't work together, and I can't imagine a colder and less inviting scene to come up as a handy person.