Is buying a home right for me?
Over the past 126 years, home prices in the United States have experienced an average annual increase of only 0.37 percent after accounting for inflation. If you’ve found your forever home, and it makes sense financially, do it. Otherwise, don’t get caught in the “I have to buy a home” narrative.
Some Millennials have discovered that buying a home doesn’t make financial sense. I want to break down some common thoughts and myths around renting vs. buying a home.
To begin, let’s be very clear, there’s a difference between buying a home because you’re “supposed to,” you think it’s a good investment, or you’ve found your forever home.
Isn’t renting throwing money away?
Nope! Unless you’ve somehow got a sweet rent-free situation, you’ll spend money on a place to live no matter what. Buying a home is ‘throwing away money’ too, and sometimes even more. If you think putting your monthly rent costs toward a mortgage is an investment, think again. Much of the money you’re spending when you pay your mortgage isn’t money you’ll get back—even if you sell your home for a reasonable price.
When you buy a home, your mortgage isn’t just paying off the value of your home. In the first fifteen years of your mortgage (and sometimes even longer), much of your money goes toward paying off stuff that isn’t your home’s equity.
Homeownership can be expensive AF
Owning your home comes with taxes, interest, and insurance, just to start.
You also bear the burden of fixing and replacing things when they break. Major appliances like refrigerators and washing machines don’t come cheap. The Balance suggests using the “Square Foot Rule” and budgeting $1 per square foot per year for maintenance. That would be $75k over 30 years on a 2,500-square-foot home. OUCH.
Paying toward your home’s equity
Why does it take more than 15 years to start paying toward your home’s equity? This breakdown by Afford Anything gets into the nitty gritty details. Renting may feel like an endless money pit, but you get a lot for your money. Yes, even in New York City and San Francisco, it feels like rental prices are a cosmic f*cking joke.
Buying locks you into a location and long-term financial commitment
Here are a few things people take for granted when they rent:
Finding a home in a location you actually want to live in
Repairs and maintenance aren’t your problems.
The freedom to move with little to no lag time (waiting for a one-year lease to end is a helluva lot different than selling a house).
That last one is a big one. Buying a house locks you into both a location and a mortgage payment. So if you want to say “f*** it!” and quit your job or move to a less expensive area to pursue your passion, you might be sh*t out of luck — at least for a while.
So wait, is home ownership an investment or not?
Real estate investing and buying your primary residence are two different decisions. If you’re buying a primary residence, you shouldn’t assume it will go up in value and shouldn’t consider it an investment. For your home to be an investment, two things have to happen:
It needs to go up in value a lot.
You have to sell it.
This is a key point that many HENRYs™ who are considering buying a home seem to stubbornly misunderstand. If you’ve found your forever home and never plan on selling, you shouldn’t consider it an investment. Any investment decisions should be based on the goals you want to use the money for eventually.
Do all homes go up in value?
As reported in the New York Times, “It may be hard for people living in bubbly markets to believe, but, overall, home prices in the United States have risen just 0.37 percent annualized, after inflation, for the last 126 years.”
I’m not saying don’t ever invest in real estate. I’m saying don’t buy your primary residence just because you think it’s a good investment. If you want to buy a vacation property as an investment with the intention of selling it in a few years or start using extra cash to flip homes in up-and-coming neighborhoods as a side hustle, those are entirely different circumstances with a whole different set of considerations.
But I’m a grown-up. I should own a home.
Just because your parents bought a house at your age (or even younger) doesn’t mean you should. The financial advice that worked for your parents isn’t working for young people today. If the pressure to buy a house comes from anyone other than you, question it. Just because your parents bought their home doesn’t mean you should. Homeownership might not make sense for young professionals today.
But what if I just want to buy a house?
Setting financial realities aside, there are emotional and aesthetic reasons you might want to own your home. Did you grow up in the same house your parents still live in? Do you get warm and fuzzy when you think about ticking away the years as you watch your kids grow, etching their heights into the kitchen door frame? Do you want to be able to paint the walls crazy colors and install blinds instead of drapes?
The homeownership equation changes if you truly think you’ve found your forever home. The difference here is that you should consider the home an asset rather than an investment.
Remember, investment requires you to sell
I also want you to think realistically about whether your lifestyle is one in which homeownership really makes sense. Are you being driven by nostalgia and idealism, being pressured by your parents to “grow up,” or are you making a solid, financially and emotionally grounded decision about how and where you want to live for many years to come?
Buying a home is a big decision
I’m not saying Millennials shouldn’t ever buy homes, but I challenge you to think clearly about why you want to buy a home. If it’s because you think renting is wasting money or you’re just “supposed to,” I urge you to think again. If you’ve found your forever home, it makes sense financially, and you have a stable job you love, that’s a different ball game.
You should put your hard-earned money to work and spend it on what you want most. If that’s a house, we’ll be the first ones at your new doorstep with a bottle of bubbly.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.
