A man’s home is his Castle – or so they say. That may have been true in the past, and for some, it is probably true today. But there’s a new consciousness about home ownership which has started to pervade the American discourse: a man’s home is a prison.
There was a time – not so very long ago – that owning a house was seen as the cornerstone of middle-class life. Your house was as safe an investment as you could get, one which you would hold and enjoy for decades and experience a handsome build-up of equity which you could draw upon in your golden years if need be.
Rational people, though, need to look past the glitzy marketing spewed out by the likes of the National Association of Realtors. There are a number of very good reasons not to buy a home, in any kind of housing market. Let’s put aside the issue of declining markets, which we have virtually across the entire country at the moment – after all, most people would agree that it’s not great idea to doggedly hold an asset which is declining in value for a prolonged period. The fact is, even in an appreciating market, there is no shortage of good reasons not to own the property you live in.
HomeForSure’s Top Reasons Not To Own Your Home
Lack of Mobility: this is what makes real property “real” property as opposed to personal property: you can’t move it. In fact, in Spanish, real estate is often called inmobiliario – something which is unmovable. That’s all very well and good, but what if you need to move? Or how about, what if you should move, to take advantage of a better job market – or, say, more affordable housing – in some other part of the country? Owning your home is going to tie you down – and hold you back – probably at the moment you very most need flexibility in your life.
High Cost of Sale: When you do eventually go to sell your home, be prepared at the high cost of sale. In many areas of the country, it is common to pay your real estate agent 6% of the sale price. In addition to that 6%, you may have to give the buyer a closing cost credit, and pay for some of the other closing costs (title fees, attorney fees, escrow fees, inspection fees). And that’s not counting the repairs your real estate agent is going to recommend you make – provide Section 1 termite clearance, repaint, spruce up the landscaping, etc. It’s not uncommon for a seller to pay up to 10% of the sale price just to unload the property. That might not sound too bad if you own the property outright – but you probably won’t. When you run the numbers at the time you sell your house, don’t be surprised to see that actually you have lost money on your housing investment – so what’s the point?
Illiquid Investment: for decades it’s been part of the myth spawned by the real estate and mortgage industries: your house is a great investment. Actually, it’s a rotten investment, and one of these reasons is that it is highly illiquid. While it’s easy to lose money in the stock market, one thing that the stock market has going for it is that it’s very easy to sell your stocks. What’s more, you can sell only some of the stocks that you own. If you have a house, it’s an indivisible unit; you typically can’t just sell part of your house to free up some cash. Sure, if you want to get cash out of your house, you can refinance, or take out an equity line of credit – but that assumes you have equity in your house, it assumes you have good enough credit, and it also assumes you can qualify for a cash-out refi or HELOC (home equity line of credit). Taking out a loan – with expensive interest payments – just to free up cash – is not typically a formula for investment success.
Maintenance Costs: the guy who wants to sell you a house will tell you what a great thing it is to be able to hammer a nail into any wall you want without asking the landlord’s permission. That’s true – but then it’s also true that it’s easier to ask for forgiveness rather than permission, wink wink. What they maybe don’t tell you is that when the roof leaks, it’s going to be on you to fix it. That may seem obvious, of course. What is less obvious is how much all those little repairs – from a leaky sink to a leaky roof – are going to cost you. There’s no reliable rule of thumb for this – but many people say that a homeowner can expect to spend about 1% of the home’s value per year on maintenance costs. A lot of people are going to tell you they don’t spend anything like that kind of money on maintenance – but that’s likely because their homes have lots of deferred maintenance which accordingly tamps down the value of the property. No matter how you slice it, maintenance costs are a lot of extra bread you’re going to be paying when you own your own home.
Opportunity Cost: no matter how you look at it, owning a home is going to cost you money. It may be true that renting is the same thing as throwing money away – but as a renter, you have a lot of flexibility in how much rent you pay, since you can move up or down in the class of property you live in, or you can easily change the location to a more or less expensive one. When you own your own home, you have no such freedom. You are making a serious commitment to invest a big chunk of your “disposable” income one way, for decades – even if there might be far more profitable ways to invest that money along the way. In short, there is a huge opportunity cost implied with home ownership – while you are owning that home, you have a lot of your capital tied up in a single big-egg-in-a-bakset investment.
Risk: owning real estate is absolutely fraught with risk. Of course, you can buy insurance against some of that risk – for a price. As a renter, the only insurance you typically need is renter’s insurance, which only covers the value of the possessions you have in the property. As a homeowner, though, you need to have insurance against fire, flood, windstorms, earthquakes – all manner of disasters. What’s more, these insurance policies will all have deductibles – they don’t cover you for 100% of the costs incurred, and will leave you with significant additional costs to rebuild. Beyond these kind of insurable risks, there are of course other acts of God which of course could strike at any time, and these are things you cannot insure against – plane crashes, meteor strikes, and other unlikely occurrences. There are, however, many risks which are quite likely and cannot be insured against. For example, a stalwart employer in your community could close its doors, raising unemployment and decreasing demand – and thus lowering value – of housing in the area. Likewise, your next door neighbor could move out and rent the house to some folks with a penchant for parking their vehicles on the front lawn, and who invite their cousins to live in a RV parked on the property. Or, your well-meaning city council could decide to raise your property tax to pay for improved school infrastructure – on the other side of town. The list of potential risks which accompany homeownership go on and on, and are literally innumerable.
As with anything, homeownership is definitely caveat emptor – buyer beware. This is however especially true when it comes to buying a home. Any sober analysis of the facts will lead many clear-eyed adults to consider that the costs and risks of homeownership far outweigh the few benefits it provides.
Check out these other interesting and informative articles about the folly of home ownership:
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