About 14 years ago, after I had moved to Minneapolis, my friend Jo had invited me to a presentation at REI. A young woman in her 30’s had just traveled for 6 months to India and Nepal. I remember her telling the audience that she had just saved enough money for a down payment on a house, but instead of buying a house, something had prompted her to travel instead. This was years before I had acquired the travel bug, and honestly I was there because my friend Jo, a fellow traveler, was looking for ways to satisfy his own wanderlust. I hadn’t thought about it much as I plodded along, working in corporate america, and eventually saving enough money myself where I was comfortable to buy my own home. And in 2005, I finally did buy my first home. And now, upon reflection, I wish I would have payed more attention to the possibilities being created in my life and refrained from buying a house.
People acquire houses for many different reasons. For starters, as young adults, we’re often told that a house is a good investment because a) we’re not throwing our money away on rent every month and b) the house can appreciate over time. Secondly, owning a house is seen as a sign of success in our society. It is considered a major life achievement to own a home. And of course, as a home owner, you can eventually make the leap towards renting out your home if you have those entrepreneurial ambitions. Property is a symbol of your ever-expanding empire, in a sense. Let’s also not forget that it is nice to have our own space, something that you can enhance to your liking and have your own creative space.
Upon entering my 30’s, I too, took the red pill and purchased a home. In trying to be frugal, I finally decided on one half of a small twin home. At 1200 square feet, it was modest, but perfect for my tastes. And while I was extremely happy living in this home for the 8 years after I purchased it, I wish that there were some things that I understood before purchasing a home.
Homes are money pits
If you’ve ever seen the movie “The Money Pit” you’ll understand my reference. While obviously over-the-top in humor and absurdity, the movie does have a good point. All houses require maintenance and upkeep, and it is usually not cheap to maintain a functioning house. Even a house in good condition can easily require a couple thousand dollars a year in maintenance fees. If you’re somewhat savvy as a handyman, you can reduce this cost, but it doesn’t completely disappear. As a first time homeowner, there’s many things that you’ll likely not pay attention to. My home has a sewage ejection system that pumps everything from my house out into the street and up a hill to get to a sewage mainline. When it is functioning, then everything is great. But when it breaks it’s anywhere’s from $700 to $2500 to repair. The pumps usually stay in good condition for 2 to 5 years. Go ahead and do the math and factor that into your monthly costs. On top of those costs, you need to think about big appliances (washers, dryers, etc) breaking, plumbing problems, exterior maintenance (painting, roof, lawn care, etc).
Your mortgage can make or break the situation
I’m somewhat embarrassed to admit that I was one of those individuals that got caught up in the purchasing boom around 2005. Being not sure of how long I wanted to stay in the house, I went with a 3 year Adjustable Rate Mortgage, with no down payment. Anything below 20% down is also subject to mortgage insurance. There are ways to avoid this, but keep in mind a tax will be added to your mortgage which won’t automatically come off after the loan is paid down to 78% of its original value. After 2008 when the value of my home fell almost $70,000 in value, I was unable to refinance due to many different factors. Thankfully, the Adjustable Rate Mortgage (which resets every 6 months) has remained fairly steady and has not increased any. However, I’m always a bit worried about what happens when interest rates start rising again. I’ve ridden out the storm surprisingly well, but the issues surrounding my home are a small annoyance and fear, always in the background.
Buying and Selling homes is expensive (and not easy)
Typically, you can expect to pay between $3000 and $5000 for broker and real-estate fees when purchasing or selling a home. You can get that cost added to your mortgage so that you may pay it off over time, but it’s still something you have to pay. Also, keep in mind that selling a home doesn’t always go as smoothly as you may have it built up in your mind. After you decide to sell, there are appraisal costs and inspections that you have to undergo before you can sell the home. And if the market is soft, depending on how badly you want to rid yourself of your property, you may end up accepting a far lower cost and still owe money on it after you’ve sold it.
Renting your house is not easy, either
If you do decide to travel, you may convince yourself that you’ll just rent out your house. While definitely a viable option (it’s what I did), keep in mind that it’s not as simple as just putting and ad on craigslist or padmapper. You’ll most likely have to acquire a rental license from the city which requires money, inspections, and in my case, a required renter’s orientation class provided by the city. If you’re smart, you’ll also hire someone that will manage the place for you while your gone. Remember, that while you’re hiking the trail to Macchu Piccu, you’ll sometimes have worries about your property in the back of your head. And let us not forget that unless you sell everything you own, you’ll need to find a place to store all your stuff after moving out of your place.
All the stuff that you’ll acquire
Like goldfish expanding to the size of our environments, owning a home (bigger space) can prompt us to acquire more things. This is partly what anchor’s us. All of those possessions that we rarely glimpse and get stowed away somewhere far from regular use. I spent a full year to year and a half emotionally-parting from all of my things, selling them off or giving them away so that I could travel more easily. The process was long and cumbersome. I’ll never go back and am much happier now having gone through that process, but it is painful nonetheless.
Houses are not that great for investment purposes
While houses are known to appreciate over time, there’s ample evidence that suggests that the value of homes increases due to inflation only, and the actual value of the home only increases a mere 0.2%. And let’s not forget the money you’ll be investing in your home for repairs and enhancements. Unless you have the mindset where you like to put in a lot of your own manual labor and turn the houses yourself, I think you’ll be spending far more money and having more frustration hiring professional contractors to repair / upgrade your property. If you’re not sure if you’re ready to settle down, you should instead invest your money in an interest-bearing account that conservatively generates 5%. That’s much better than the 0.2% you’ll see over the long term.
People Change (of course), as does everything else
As much as you’re committed to your vision of settling down, and creating a life for yourself, you don’t really know how your life is going to unfold. At 35, I realized that I wanted to travel the world. You may not have ambitions to travel, but you may lose your job, or cease to enjoy living in the neighborhood where you live, or receive a kick-ass job opportunity out in Portland or Vancouver. Your life is going to change in so many, unexpected ways, and when you’re young(ish), a house is going to make it that much more difficult to flow with the amazing opportunities that are on your horizon.
After my foray into home ownership, I’ve developed a fairly jaded view towards this enterprise. However, I do not believe that one should never own property. In fact, while I’m still a bit raw from my experience with the current property I own, I’m sure that I will buy another property in the future. It’s just that I plan on being much smarter about it the next time around. I will not buy a home unless I have the full 20% to put down. I personally think it’s better to buy a home outright, if you can, as a 30 year mortgage can leave you paying 250% of your home’s value after you have made all payments and paid off the interest and insurance. And, if I was to do a mortgage again, I’d be sure to opt for a 15 year loan, instead. Or better yet, for someone who is single, I’d recommend buying a tiny home for $30,000, save your money and then retire early.
Now, many people reading this may think I’m advocating a nomadic lifestyle of never settling down or making any kind of commitment. That couldn’t be farther from the truth. I’m only advocating taking a moment (or ten) and rethinking your desires to own a home. While the market might look good and you might feel the pressure of getting a good deal, step back and really look at whether you’re ready for a home and whether it will really benefit your lifestyle. I advocate that people be smarter in saving their money. And if your dreams are in owning a home, go for it. Otherwise, hold off and travel the world (or follow whatever other dream you may have).