Today I’m going to tear apart a long-told story. It’s a story about how everyone must hunker down into a two-story home with a white picket fence and a wrap-around porch, as soon as possible.
The Fairy Tale
We are constantly told throughout our youth that we are to follow a certain path. Grow up, got to college, graduate, get a job, get married, buy a house, have kids, live happily ever after. But we all know this isn’t a linear path and life has a funny way of throwing you curve balls when you least expect it. (For more, see: To Rent Or Buy? There's More to It Than Money.)
I’m in my early 30s and I still haven’t bought a home (I do own real estate. We’ll get to that another time). I’d like to say this was entirely by design, but it wasn’t. After graduating from college I was dealing with student debt, job relocation, helping to support my mother and the idea of starting my own business.
Boy, am I happy I put off the American dream. Buying a home can be a good thing, but it can also be another shackle that holds you back from pursuing your dreams. Here are three reasons why you should hold off on the largest purchase of your life.
Lack of Mobility
Your 20s are filled with excitement of the unknown (well, maybe your entire life is). You’ve just finished close to 20 years of schooling, you’re heading out into the workforce and you’re on your own for the first time, unless you’ve moved back in with Mom and Dad. Not only is this a time for excitement, it’s a time for decision-making. Do you stay in your college city? Do you move back home? Do you follow your dream of chasing the endless summer? Buying a house at this point in your life certainly does one thing - it plants your butt firmly in one location and gives you a heck of a lot of responsibility.
You: But Jared, I can sell the house at any time if I choose to move.
Me: Well, yes. But then you have to deal with closing costs, paying a broker, etc. I’ve known people who have moved several times shortly after buying homes and they took it on the chin with fees and expenses. In fact, one former colleague of mine was relocated several times over the span of five years. Each time they had purchased a home in their new location and each time they had to sell shortly after. It’s not a fun experience to go through.
You also have to deal with maintenance, property taxes, insurance, your roof developing a leak and the kid down the street that keeps egging your house. Do yourself a favor. Keep yourself mobile and your options open.
Increased Debt Burden
As I hinted at earlier, you will be taking on one of the largest purchases of your life and a mountain of debt. If you read my previous article on debt you know that I view debt as a sure-fire way of hindering your future progress. (For more from this author, see: Easy Steps to Start Paying Down Your Debt.)
Debt is a shackle that will hold you back from taking flight and can impair your ability to make decisions. When you have 30 years of debt payments (i.e., a mortgage), you can’t pack up and leave for that trip-of-a-lifetime to Thailand. There is also your debt-to-income ratio that is important to consider. When this ratio gets too far out of whack, it will get more difficult to obtain loans for things like a car, credit cards, etc.
If you already purchased a home, don’t worry. There are a couple of steps you can take to help minimize the negative impact your debt will have. I’ll be posting an article about this in the coming weeks, so stay tuned.
The Buy Versus Rent Debate
Whether you knew it or not, there has been a long-standing debate on the financial benefits of buying a home versus renting. The recession in 2008 that sent the real estate market swooning was painful for those that owned property. But even over the long term, the benefits of owning property can be argued against.
This video, Is Buying A Home Always Better, by Sal Khan of the “Khan Academy” gives a run down of why he isn’t a fan of buying a home. We’re not going to go deep into the numbers, but if you watch the videos you can see there are a lot more expenses than people think.
Just to be clear, I don’t believe owning real estate is a bad thing. I am actually a big fan of owning rental properties to help you build up passive income and wealth. But that isn’t what we’re discussing, is it? The numbers don’t lie. Buying a single-family home is not as great an investment as some would have you believe.
When You Should Consider Buying a Home
Not all decisions in life should be driven by numbers. You need to consider your quality of life as well. If you are looking to get married and start a family, you and your spouse might prefer hunkering down somewhere and planting your roots. There is nothing wrong with this. Just make sure that when you’re buying a home, you are doing it for the right reasons.
A Final Point
The fact is you can make money through buying a single-family home. Plenty of people are profiting by flipping homes, buying foreclosures at a great price, and there are a number of other strategies that are beneficial.
However, the vast majority of people don’t get into these types of activities, nor would I recommend them to just anyone. There is a lot of added risk and you need to know what you’re doing. If you are considering them, make sure you do your homework. (For more, see: Renting vs. Owning a Home: Pros and Cons.)