Buying a home, like getting a college education, is a right of passage that’s deeply part of the American Dream. Friends and family egg you on — and so do financial advisors, employers and real estate agents.
But what if the conventional wisdom about home ownership is a bunch of BS that saddles you with debt while depriving you of your freedom? You could be screwed for the next 50 or 60 years. Yes, the myths about being the king (or queen) of your very own castle are powerful and often hard to resist. But here are five reasons that buying a house could be the worst decision you ever make.
1. Owning a home encourages you to become a hoarder
There is something romantic about the idea of signing on the dotted line and carrying your beloved across the threshold of your new abode. Okay, it does make for a great night. But chances are you and your significant other will spend the next couple of decades accumulating crap you don’t need.
Recently, my fiance and I had to clean out the family house where she lived for more than 50 years. By the time we got half the contents of the attic onto the lawn, it looked like an airplane had crashed in the front yard.
I’ve helped several friends and family move (including my parents) and it’s always the same — nosy neighbors sifting through your rental dumpster as they look for hidden treasures among the junk you’ve managed to accumulate. The process is both humiliating and never ending, but you can usually avoid it by renting a small apartment.
2. Home ownership is not a great investment
Real estate agents will tell you that buying your own home is one of the best investments you’ll ever make. I’m not sure, but the standard commission on a home sale, which stands at five to six percent (split equally between the buying and selling agents), may have something to do with their dubious advice.
In fact, historically the return on homes has averaged 0.4 percent per year between 1890 and 2004. That figure doesn’t even include factors like maintenance, closing costs and other little surprises that are sure to keep you awake at night.
In contrast, the average stock market return over the last 60 years has been six to seven percent. That’s right, even with all the ups and downs, equities have generated seven percent interest on average from 1950 to 2009. In most cases, you’d be a lot better off investing that $100,000 down payment in a hedge fund than a homestead (presuming you manager is someone like Warren Buffet rather than Bernie Madoff).
It’s also worth noting, by the way, that home ownership has all the characteristics that savvy investors try an avoid:
- Illiquid: It can be exceedingly hard to find a buyer for your home, particularly if housing markets turn south or cool.
- High leverage: You typically have to put up a lot of your money, which you’ll never see again.
- Not diversified: A home usually represents a very high percentage of your assets. Putting all your eggs in one basket, so to speak, can be very risky.
3. Home maintenance is really, really expensive
So, you’ve had the requisite inspection. There are no cracks in the foundation, the septic tank isn’t leaking and termites are not feasting on important structures.
Still, at some point your roof will start leaking, the furnace will conk out and your dishwasher will need to be replaced. If you are lucky, you’ll get that hefty plumbing repair estimate in time to recoup your deposit on the dream vacation package you’d been planning, but which you now need to cancel because you can longer afford it.
In fact, home maintenance costs exceed $1,204 per month for the average U.S. home. That includes things like insurance fees, snow removal and general repairs. However, if you rent an apartment, then your landlord takes cares of those things.
4. You’re trapped in your house
If you own your own home, then you have a lot less freedom when it comes to employment opportunities. Let’s say you are in a low-paying, boring and soul-crushing job and want to explore different opportunities in other regions of the country. Sure, you could try selling your house and moving, but that could take months (even years). The sad truth is that when you are tethered to a house, you have a lot fewer options when it comes to employment.
5. Taking care of your house is a full-time job
When you own a home, property taxes, mortgage payments and cleaning services are going to eat up a huge portion of your income. To save a little cash, you’ll probably end up cutting the lawn, opening the pool and trying to repave the driveway yourself (usually a really bad idea). As a result, you are very likely to find yourself both stressed and overworked. Thankfully, you can avoid this nightmare scenario by either renting or camping out.
It’s not all it’s cracked up to be
The idea of homeownership — like going to college or having kids — still appeals to many people. Yet, many of the reasons for owning a home never add up. For instance, most homebuyers do not profit or come out ahead because they bought their abode. If you do decide to take the plunge, then just make sure you know what you are getting into and that you explore other options as well.
— Scott O’Reilly