Home ownership. The pinnacle of the American Dream. The formula goes something like this: you graduate college with an egregious amount of student debt, you get married, have 2.5 kids, and eventually buy your nice big dream house with your nice big mortgage attached to it. Sound awesome?
Many of you reading this might already be in the “I own a home” category. I might be describing your life and if I am, kudos to you for embracing the ownership mentality. For some, the dream seems lacking, debilitating, suffocating. It’s not that home ownership is bad thing; in fact, I have been a homeowner myself for nearly 10 years. Home ownership has its ups and downs and plays into the ‘ownership mentality’ we need to develop in most areas of our lives. It is very nice to be unburdened by rising rents or home owner association fees.
On the other hand, I am beginning to see the dark side of owning a home. The side that no one tells you about when purchasing your so-called “Dream Home”.
The Downside of Home Ownership
Let’s look at a few of the points I have discovered through my ten years as a homeowner:
- I have made little progress in paying down the actual mortgage. I once read Upton Sinclair’s The Jungle and was appalled at how he described mortgages on homes. Sinclair stated that a mortgage is the fraudsters scheme to keep the poor perpetually poor by creating a note with astounding interest that the individual could never pay off. I found myself wondering how he could attack the pride of home ownership? 10 years and only 21% principal reduction later, I now see what he was getting at.
- Interest costs are staggering. So if I am not paying down my principle, where are those costs going? INTEREST and so much of it. I am paying the banks very handsomely for the right to borrow their money to buy a home. Interest costs take up a staggering amount of your repayments, especially in the beginning years, and all that money is going nowhere except padding a bank’s bottom line. I am not advocating that this is a bad principle as I am for capitalism; rather I am questioning if buying the home via a 30 year mortgage was the right use of my hard-earned capital in the first place.
- You are locked into your home no matter what. Want to leave to take that job across town? If you own a home, your mobility is severely limited. Put it on the market, hope it’s a sellers market and the price has gone up.
- You are in charge of repairs. Like really in charge of repairs. I am handy but not the handiest guy in the world; if there is something wrong with my house the buck stops with me. I either hire someone, fix it myself, or live with it.
- You will be negotiating for a lot of different services. Cable, Water, Trash/Recycling, Lawn mowing, Repair work, Insurance, etc. There are a lot of providers out there and they are happy to help you; for a price.
- Hopefully you like housework. You come home after a long day of work and just want to relax and take it easy. But no, not tonight. The grass needs to be mowed, the garage should be cleaned out, and oh yea, that paint job still needs to get done. I guess no more relaxation is in order?
- You never really truly own your property. Even if you have your mortgage paid down to $0, try not paying your property taxes and see what happens. OK, maybe not because the government can legally repossess your house. You are only a ‘renter’ of your own property in the eyes of the law.
- 30 year mortgages are not a good use of your hard-earned money. If I had to do it over again, I would never take on a 30 year mortgage again. Nothing frustrates me more than that.
- Hidden Fees & Costs. Many homeowners are knowledgeable of the hidden costs of owning a home. Everyone knows about the mortgage payment – principle + interest payments. But then there is the MIP or PMI, which can easily eat into the cost of a home with no extra benefit to the homeowner. There are also the daily, little items that need to be fixed, which are entirely your responsibilty. Does your roof leak? Better call the roofer to get it fixed. Did the furnace go out? Might be time for a new unit for $3-5k. These aren’t necessarily ‘hidden’ in the real meaning of the word, but these aren’t necessarily expenses that homeowners are expecting when they buy their house.
Advantages of Home Ownership
So we’ve explored some negatives of owning a home. To play a little devil’s advocate, let’s explore some instances in which owning a home might be a better investment decision for the astute money manager:
- You take on a smaller mortgage and there is a low-interest environment. Using other people’s money to buy stuff that you need is a fantastic way to use your money so long as the price is right. Smaller mortgages and low interest rates mean a solid ROI.
- You are truly ready to settle down in an area or neighborhood. If you have indeed found your dream home, dream neighborhood, and dream situation, then it is time to make that offer and buy the house of your dreams!
- You have cash to pay down a good portion towards the home. The more cash you can use to pay down your house, the better. Ideally you’d want to pay enough down payment to eliminate Private Mortgage Insurance (PMI) or Mortgage Insurance Premium (MIP) With that being said, you will have to weigh the pros/cons of using cash to eliminate interest costs versus potential stock market returns.
- Local rents are ridiculous. If local rents are through the roof and increasing year-over-year, then perhaps it makes sense to buy that home and lock yourself into routine mortgage payments.
- You like tinkering and working on the house. A few friends that I know are the kind that love the weekend projects and tasks. I am not one of those people. But if you are, then home ownership might be ideal for you!
- You are a family man or family woman. Owning your own home can be a great situation for a family, where being settled down in one location and under one roof can be a great thing.
- The thought of re-negotiating rents sends you for a tailspin. What $1 bought last year doesn’t buy the same dollar worth of goods this year. Same is true with cost of living: Rents do rise in tandem with inflation going up.
- You are utilizing a 15 or 20 year mortgage. If I had to do it over again, I would not do a 30 yr mortgage but would instead have done a 15 year mortgage. Not only do you become debt-free quicker but the interests costs are so much less.
At my heart, I am still geared towards the ownership mentality of life. However, I am seeing that the more I own, the more responsibility and ultimately less freedom I have for other pursuits in my life. I am actively working towards selling my house for the profit I can earn from doing so. I have looked into condos and townhouses but adequate values are hard to find at this present time. Therefore, the wheels are spinning as to my next move and I will keep you all apprised on developments. Be on the lookout for a potential exotic getaway while I sublease an apartment.
Overall, home ownership may be the right move for you. If so, I highly encourage you to complete your due diligence and enjoy the process. If you want to explore other options, the world is wide open, plentiful and abundant. Opportunities are only limited to your imagination.
Onward and Upwards to Financial Freedom!
Disclaimer: (1) All the information above is not a recommendation for or against any investment vehicle or money management strategy. It should not be construed as advice and each individual that invests needs to take up any decision with the utmost care and diligence. Please seek the advice of a competent business professional before making any financial decision.
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