Owning a home is overrated. I’ll quite possibly never own my primary residence again. In my opinion, it was a dumb move to begin with.
I need you to pause, breathe and hold your rotten tomatoes here. Take a second and read why I feel this way, and why I feel you should also reconsider buying your primary residence as an investment.
Click to read more about owning vs. renting — which is better?
The American Dream
When I bought my first home, I was really ambivalent about the whole process and the fact that it is lauded as this great investment. You see, buying a home is considered to be a huge step towards the quintessential “American Dream,” but our grandparents bought their homes for pennies compared to what most of us pay today.
While I felt good about the house itself, as it was beautiful and had all the amenities and features I wanted, I couldn’t shake this feeling deep down that it wasn’t the right move. The numbers just weren’t adding up.
The problem with this aspect of the American Dream is that is all based on emotions designed to hide the fact that you will ultimately lose money — lots of it.
You’re Taking Big Losses
These aren’t the soft numbers you scratch on a paper napkin at dinner as you romanticize the purchase. You have to really look at the numbers: initial down payment, ongoing maintenance costs, principal, interest, homeowners insurance and property taxes. These are all losses once you sign the dotted line.
Now, I can hear you saying, “Well, I get a tax break, so that makes it all good. Right?” Wrong.
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Dissecting the Tax Break Myth
Yes, you can deduct the mortgage interest on your home, but keep in mind that there are better investments you can make with that money. Even with the deductions, the result is more often than not a net loss.
Oh, and let’s not forget, for those that don’t have emergency funds saved up, you have to borrow money for repairs and other maintenance in the form of a home equity line of credit (HELOC) and pay interest there.
Are you picking up what I am putting down yet? In the vast majority of cases, buying a home as your primary residence is a money pit where your hard-earned money goes to die and never multiply.
Don’t believe me? Ask your local municipality if you’ll ever be able to stop paying your property taxes and your HOA if your dues are optional. In fact, both HOA dues and property taxes can and do increase with a frequency that diminishes your gains on the investment you think you have in that home.
So, what is the alternative to buying a home? That’s simple: Pick an investment vehicle where you’ll realize better gains.
Renting Is the Better Option
You may be thinking that you’re just throwing away money by renting, but you’re actually on the right side of the equation if you do so.
The home I live in now is what most would define as a luxury condo: hardwood floors, stainless steel appliances, fancy lighting system and community amenities that cost the owner a pretty penny. Sure, you could argue that I am paying his mortgage, but I have to pay to live somewhere, right? The difference is that I don’t have to sink my money into the following expenses that come up a few times per year — he does.
- Heating and AC repairs
- Appliance repair/replacements
- Maintenance fees and other dues issued by the HOA
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These are all costs he’s forced to assume, since increasing my rent would result in a vacant unit. Why? Adding these costs to the rent would far outweigh the market rents in the neighborhood. This means he’s stuck with them until he decides to sell, which would be at a loss.
It’s important that you run all the numbers because they all matter. Don’t get caught up in the fancy commercials pulling at your heartstrings because they’re designed to suck you into the American Dream — one that no longer makes sense.
Click to read more about easy ways to get into real estate investing.
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