The advantages of buying and owning a home

Over the past three months, I've written a lot about buying and owning a home. Much of what I've written could be construed as anti-homeownership. Hear are some of the articles I've published recently:

Last week, a GRS reader named Carmine left this comment:

I appreciate this and other recent posts on the perils and difficulties of home ownership, but they’re sort of piling up into a major downer as I read them!…Can’t you write something talking about the payoffs that home ownership can bring?

Challenge accepted!

I can understand how Carmine might view all of this as a downer. And I can see how anyone might think I'm anti-homeownership. But here's the thing: I'm not. After all, I own my home, and I like it.

Today, let's take a look at some of the advantages of homeownership.

Your Home Is a Store of Value

A home is an excellent store of value. Home prices are less volatile than stock prices, so you take on less risk when you put money toward your mortgage than when you buy mutual funds. Plus, your home's value is generally going keep pace with inflation.

My ex-wife and I bought our first home in 1993 for $112,000; we sold it eleven years later for $164,000. That's a gain of $52,000 (46.4%) in eleven years — a little more than inflation during that period. These numbers are typical. They're what you ought to expect when buying a home.

Sometimes, though, a home can provide an excellent return on investment.

For instance, I bought my river condo in 2013 for $342,000; I sold it 52 months later for $530,000 — an increase of $188,000 (or 55%) in just over four years. This is a clear case where homeownership proved profitable. (This was happenstance, however. It wasn't planned. I didn't intend to make big bucks when I bought the condo…but I'm glad I did.)

Last week, I argued that you should not use your home as a primary source of retirement saving. I think this is a bad idea. My condo provides an example of why this is the case. Zillow says that unit has dropped in value by nearly $100,000 since I sold it!

Condo Change in Value

The bottom line? Your home will likely keep its value. There's a chance you could get lucky, though, and enjoy outsized returns on your investment.

Because your home is a store of value, you can access the equity in the future, if needed. Last year, for example, Kim and I came close to buying a rental property on the Oregon coast. To do this, I took out a home equity line of credit on the condo. (This plan never came to fruition, obviously, but it was nice to have the option.)

Your Mortgage Is a Forced Saving Plan

Owning a home offers other financial advantages. For some folks, a mortgage can act as a sort of forced saving plan. Take me, for example.

When I was younger, I didn't have the discipline to set aside money for retirement. I didn't even have the discipline to create an emergency fund!

I did an excellent job, however, of making my mortgage payments. I was very disciplined about paying my bills. In time, I began to realize that although I wasn't putting money into a bank account or the stock market, I was actually building wealth as I was building home equity. (The increased equity came from both market appreciation and payments to the mortgage principle.)

Because of this, I eventually moved from a 30-year mortgage to a 15-year mortgage as a way to force myself to save even more. For people like me, a mortgage can be a way to build wealth when we're unable or unwilling to do so through other methods.

Here's another reason a home can be a good forced saving/investing plan: Some people aren't comfortable investing in the stock market. They feel like it's too complicated or that there's too much risk. In cases like this, a mortgage really can be a way to set money aside for retirement.

You Can Slash or Eliminate Housing Payments (If You Want)

If you choose to rent, you always have a housing payment. Every month, you send money to your landlord. There's no way to escape this expense.

If you choose to buy a home, however, you can — if you wish — eventually slash (or eliminate) your housing payment. You can pay off your mortgage completely. When you do, you get rid of one of your largest monthly expenses, increasing your cash flow and giving you much greater freedom.

Paying off the mortgage doesn't completely eliminate housing costs. That's a common misconception. Depending on where you live, you might still be obligated to pay property taxes, utilities, HOA fees, maintenance costs, and so on. (Even without a mortgage on my condo, I was still on the hook for over $1000 per month in housing costs!)

Still, there are few things in life more liberating than paying off your mortgage.

Your Home (and Yard) Are Yours to Do with As You Please

“You know what I love about owning a home?” Kim asked just now as she came down to my office to see what I was writing. “I love the fact that your home and your yard are yours to do with as you please.”

“What do you mean?” I asked.

“You know what I mean,” she said. “Look what we've done since we bought this place a year ago. You build this writing shed. We put in the back deck and the hot tub. We've been making changes to the landscaping so that it matches what we want instead of what some landlord might want. I've been painting whenever I have time. We're going to build the firepit this fall. We wouldn't do these things if we were renting. We probably couldn't do them.”

Kim thought for a moment. “I feel like owning a home gives me the freedom to express my creativity in the house and the yard.”

When you rent, there are limits on what you can do with the property. When you own, you can do almost anything you want with the place (within the law, of course). Want to tear out your basement and convert it to a bowling alley? You can do that. Want to convert your backyard to a massive fruit and vegetable garden? Go for it! Want to paint your house pink? That's your prerogative.

Your Home Is a Haven

When I talk with people about the choice to rent or buy, one of the top things I hear is that homeowners tend to feel more secure than renters. Their home is a haven.

When you rent, you're subject to the whims of your landlord. Even good landlords make decisions sometimes that are at odds with their renters. They raise rents. They forbid pets. They decide to sell, forcing tenants to find a new place to live.

When you own your home, though, it's yours — especially once you've paid off the mortgage. As long as you meet your financial obligations, the place can't be taken away from you.

This is especially comforting for people approaching retirement. They love the idea that their housing costs are a known quantity (often zero — or close to zero), and that they never ever have to worry again about where to live.

Many families enjoy a sense of security when they own their homes, too. Buying a house gives you a safe, permanent place to raise your children. It gives the kids stability and pleasant memories. A house can become representative of a tight familial bond.

My family was poor. I grew up in a run-down trailer house in the middle of rural Oregon farmland. As trashy as that place was, it felt like a fortress of solitude. When the family was together, I felt safe. As an adult, I've always felt secure in the homes I've owned, as well. A lot of people feel this way.

Is Homeownership Right for You?

There are advantages to homeownership. In fact, I've been a homeowner for 24 out of the past 25 years. (I rented for the first year after my divorce.) I'll likely continue to own my home for the rest of my life.

The articles I've written recently aren't meant to scare people off from buying a house. Instead, I'm trying to be a voice of reason. I want is to instill a sense of caution when it comes to homeownership. I want people to have realistic expectations.

There's far too much propaganda out there designed to convince people that homeownership is a panacea. It's not. Like most financial decisions, it can be a blessing…or a curse. Usually it's both.

My chief concern is that the real-estate industrial complex has created a sort of modern myth that buying a house is an important part of the American Dream. More than that, they encourage prospective buyers to spend as much as possible. Every part of the process incentivizes mortgage brokers, bankers, real estate agents, and everyone else to urge buyers to the high end of their budget…and beyond.

This is very, very dangerous.

Government statistics show that the average American household spends one-third of its budget on housing. Housing is by far the largest single expense for the typical family. If you have the fortitude to keep your housing costs low, that creates margin and slack for the rest of your budget, making it easier to afford everything else in your life.

When deciding where to live — and whether to rent or to buy — ask yourself these questions:

  • How long will you stay in one place? The longer you plan to remain put, the more sense it makes to buy a home. Buying allows you to recover costs and build equity.
  • How do costs compare? Find a good rent vs. buy calculator and crunch the numbers. Sometimes, renting is the clear smart choice. Sometimes, buying is. Most of the time, though, it's a judgment call.
  • How do you feel about homeownership? For some, owning a home is a part of the American Dream. For others, the chores and maintenance are a nightmare. If you hate the work that comes with owning a home, renting is probably a better option.

Ultimately, the choice isn't only about money. It's about your vision for your life, about your goals for you and your family. There's no one right answer in the rent vs. buy debate. You should ignore anyone who tells you there is.

More about...Home & Garden

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lmoot
lmoot
2 years ago

You can also slash or eliminate housing payments by having someone else pay for all or some of it; this works especially well if you’re lucky enough to have paid a good price in a renter popular area. Low mortgage + high rental market value = cashflow out the doh’. This doesn’t get calculated in the “value”, but an extra $8-$10k each year is pretty valuable to most. Jessayin’. For my next house I am specifically looking for at least 3 bedrooms, just so I can get roommates and/or Airbnb it (which in some markets can earn you double per… Read more »

S.G.
S.G.
2 years ago
Reply to  J.D. Roth

Owning a rental is a totally different beast.

lmoot
lmoot
2 years ago
Reply to  J.D. Roth

So far I’ve been managing my tenants for the last 4 years…but I also have known all of my tenants (coworkers and friends). I haven’t tested to typical arrangement of advertising and the whole selection process/ management company. I don’t know if I’m down for that either; maybe as I get more properties and experience. I have a cushy set-up in that my rental pool is consistently full, and within walking distance of the neighborhood so I plan to continue to buy properties here and hopefully never have to advertise. I actually approached 3/4 sets of tenants I’ve had and… Read more »

JKC
JKC
2 years ago
Reply to  J.D. Roth

I don’t know if being a landlord ever “fit my personality”, but at some point I recognized that housing is the single biggest expense in most households. After running the numbers, I decided to move from the *emotional* to the *analytical* (see what I did there), and became a real estate professional. That was 24 years ago, and I have never looked back. If you think you might want to do it, start small. If you hate it, you can always sell the rental. There are lots and lots of different personalities in this business. The personalities tell a story,… Read more »

Accidental FIRE
Accidental FIRE
2 years ago

Your Home (and Yard) Are Yours to Do with As You Please

As a homeowner to me that’s everything. I see the benefits of renting for sure when the time and situation are right. But having my house with my plot of land to do whatever is liberating. There’s something ‘old school’ and traditional about it that’s hard to describe.

Olga
Olga
2 years ago

Ditto that.

Tin Cormorant
Tin Cormorant
2 years ago

I’ve always been interested in gardening, but as a renter, I never had the ability to do anything other than a few container tomatoes on a patio. Rentals with a yard that I can grow my own stuff in are VERY rare and typically expensive. My last apartment had a yard in the back… that was a steep hill, shaded by forest, covered in poison oak; I still carved out a tiny veggie garden on one side anyway. One of my biggest reasons for buying a home was that I could have a big vegetable garden and even plant fruit… Read more »

S.G.
S.G.
2 years ago

One of the most common arguments for owning a home is “you have to live somewhere, it might as well be yours rather than making a landlord rich!” While there are plenty of caveats to that statement, on some level it’s true. Having a mortgage isnt only a benefit when it’s paid off. It’s also stable. You could easily live 20-30 years after retiring, even if you retire at a standard age. Knowing your payment will only adjust for taxes and insurance over that time is a big deal. I understand buying isnt for everyone all the time. But I… Read more »

Mary
Mary
2 years ago

We also have a 15 year mortgage–we’re both great savers but figured we may as well do it for the interest savings as long as we could afford it. We were willing go higher (and for my several month maternity leave were at a high percent of our income) but also knew we would pay a lot less overall. I appreciate noting that perspective, because I often feel like we made a bad choice to have high housing costs despite being able to afford them since they were at times 40% of our take home pay.

Eileen
Eileen
2 years ago

Reading over this it struck me. Owning rental property is often listed as a good/great opportunity for your financial independence goals. Owning your primary home is often listed as a possible negative impact for your financial goals. It’s funny because that alone shows that everything depends on the specific person/property. During a walk just this weekend it struck me that I’ve lived in this home for longer than any other home in my life. I’ve raised my family here, I’ve become part of this specific community (schools/neighborhood). This is the 3rd home we’ve owned and it’s the first time that… Read more »

Kelly
Kelly
2 years ago

One thing that I learned about with estate planning for myself and my parents is that an owned home does not count in the assets list when assessing Medicaid eligibility. This is an important thing to think about when protecting assets- and especially important if one of the married partners has a catastrophic illness that severe drains financial resources. Something to think about as we get older.. It may be a way to preserve a quality of life for a spouse.

GJ
GJ
2 years ago
Reply to  Kelly

On the back end of this, having just experienced it this year, Medicaid can and will come back to reimburse themselves from the estate for a person’s care expenses. The bill for my mother’s care five years ago (before she was eligible for Medicare) was six figures.

It can be circumvented if the other spouse is still living or if the title is transferred to another’s name, but be sure that those things are handled before they pass.

David Manfre
David Manfre
2 years ago

I think it also depends on where you live as well. I have owned homes and rented and both offer advantages and disadvantages. I currently own but I have considered selling my home and renting. I think the main takeaway should be owning a home is personal choice and a form of consumption.. My current home is paid off; if one would consider the opportunity cost having money idle in a house plus tax, insurance and maintenance.. my housing cost is rather high.

Joe
Joe
2 years ago

From my experience, homeowners do pretty well over the long haul. Even with the housing crash in 2008, the homeowners I know are doing well. I think homeowners do better in life in general. It’s not cause and effect, just an observation.
Renters seem to struggle more with life.

S.G.
S.G.
2 years ago
Reply to  Joe

Yeah, it’s Reynold’s Law: people who own homes tend to be better off financially, so the gov’t encourages home ownership so people will be better off, without realizing they have the causation backwards or are simply correlated.

Ris
Ris
2 years ago

I live in a rented apartment in the most expensive neighborhood in Pittsburgh. It’s also the most walkable, the best served by public transit, and only a mile from my husband’s job and four miles from mine. We would never be able to afford a house in the area (and most of the houses are massive–4+ bedrooms–which is NOT something we want) but we live quite nicely in an affordable rented 1-bedroom apartment in an area of town that we love. I have no desire to own in this neighborhood, but renting allows me to live somewhere I really like… Read more »

herman schwartz
herman schwartz
2 years ago

I think if you take the time and make the effort and go around asking homeless people how they came about to be homeless, you will sadly find out that many of them were renters. Their landlords raised the rent so much they couldn’t afford it for one reason or another. At least with a house, if you couldn’t afford to pay for it any longer, they could have sold and made SOME equity to start over somewhere else. Owning a home, was sometimes the ONLY way a person from the middle classes could have made their fortune. The government… Read more »

Zoran
Zoran
2 years ago

One other thing to consider when deciding whether to rent or buy… Renting makes you a lot more mobile. In the past, people would start their career with a company, and then very often finish their career with the same company decades later. Today, this is rarely the case. People tend to work at more companies during their career on average, and renting makes it easier and cheaper to move when your job does.

FoxTesla
FoxTesla
2 years ago

JD – In your Zillow comparison, how did the Zestimate track when you bought and/or sold, i.e. was it tracking well, giving validity to the $100k loss in the past year, or was there a huge offset at those times as well? I’ve never trusted these vague numbers, myself. HOAs – These really eat into the “do what I want with my property” mentality. My current HOA tends towards the stricter side, and had I known the extent beforehand, I would have heavily reconsidered the house. Any improvement to the property must be approved. This ranges from “if painting or… Read more »

Sequentialkady
Sequentialkady
2 years ago
Reply to  FoxTesla

My HOA restricts what you do to the front of your house. They have some (reasonable) guidelines, and beyond that, the people on either side of you and across the street from you must consent.

Your back yard is your affair.

Bernard
Bernard
2 years ago

My wife and I live in one of the nicest areas of the country, Ojai, California. We want to live here, because it’s paradise on Earth, and we need to live here, as I own a business (including the real estate), that could not be transplanted somewhere else. Rental places have always been in high demand in this area. In 2001, I moved to Ventura, found a beautiful 1930 midtown home with a detached 2-car garage for rent for $1,400. The owners never wanted to sell. Eventually the rent was raised to $1,500. I got married. We treated the home… Read more »

Michael
Michael
2 years ago

Great post J.D. I don’t own a home as yet but one day will. There are some benefits to renting especially if you use the money you save on a house and invest it! It works for some people but a house is a great investment not only for the money but for your family. At the end of the day, your house is your home and while it’s great to look at the financial benefits, look at what it can provide your you and your family. I love that you went over this aspect!

Ross Williams
Ross Williams
2 years ago

“Because your home is a store of value, you can access the equity in the future” You mean you can use it as collateral for a loan. Its just a cheaper version of putting it on your credit card. ” Depending on where you live, you might still be obligated to pay property taxes, utilities, HOA fees, maintenance costs, and so on. (Even without a mortgage on my condo, I was still on the hook for over $1000 per month in housing costs!)” Lets be clear, condo’s are rarely good investments in normal real estate markets. They are like buying… Read more »

Sequentialkady
Sequentialkady
2 years ago

I cannot stress enough the importance of buying less house than you can afford and not treating your house as a “four sided ATM”. Every single person I know who found themselves badly burnt by the crash of 2008-2010 bought the maximum they could afford as an “investment”, put 0% down, and ended up underwater and/or kneecapped by trying to pay that mortgage on one (or reduced) salaries or ended up with an unfavorable ARM adjustment, or both. They never stopped to think of all the things that could go wrong, and their plans for profit hinged on everything going… Read more »

Bruce
Bruce
2 years ago

The future is not guaranteed to look like the past. Owning a home that doesn’t represent a majority of your net worth is a hedge and acts as a great diversifier. It offers protection against rising rental prices and also offers protection against a poor performing stock market.

FWIW, I am the anti-JD. I have rented for 24 of 25 years.

Ross Williams
Ross Williams
2 years ago

One last comment. How does a landlord make money renting a place to you for less than it would cost you to own it?

While there are markets where renting becomes cheaper than owning for periods of time and where housing is over-priced, but I don’t see how renting can be cheaper in the long run.

Ross Williams
Ross Williams
2 years ago

“Probably the number one reason is that they have substantial equity in the property. ” Which presumably means they need to get a return on their investment. “Well, if I had paid $112,000 for the property in 1993 — 25 years ago — I’d be happy to rent it for much less than $2000 per month…especially if I no longer had a mortgage on the place.” You have a $295,000 investment on which you are not getting much of a return. While you can afford to lowball the rents, as soon as the property is sold the rents have to… Read more »

Ross Williams
Ross Williams
2 years ago

JD – One more thing. My wife is turning 60 next year and is thinking about retiring. We bought a house in Portland at about the same time you bought that condo. If we had stayed renters, there is no way we would be thinking of retirement now. Admittedly, we got lucky. We sold our house in 2005 and moved to a small town in northern Minnesota where both housing and the cost of living were much lower. So we lost the mortgage and put a lot of the extra equity we had into retirement savings. But home ownership was… Read more »

David Meyers
David Meyers
1 year ago

Additional: The tax-free nature of the “imputed income” — the money you’d have had to spend to pay for housing (ie. rent) which you *don’t* spend — is effectively tax-free. (google “imputed rent” for way more info). More obvious — capital gains are deferred until sale of home, and most people never pay any cap-gains taxes on the gains in their primary homes, given the exclusion ($250k/$500k) and potential step-up basis if inherited. Equity in one’s primary home is generally not considered when applying for college financial aid. In California, Prop 13 breaks the connection between property taxes and property… Read more »

Whirlygig
Whirlygig
1 year ago

I am in the process of buying some investment properties. One of them has a 15 year tenant. They are really nice but since I am paying something more in line with today’s market, I can’t rent to them for what they pay. They are older and will need to move elsewhere. If they had purchased something like what they live in 15 years ago, they wouldn’t have to move. Their monthly payment, if they still had one would probably be about half what they pay for rent. I have owned a home most of my adult life. I bought… Read more »

Kellie
Kellie
1 year ago

Best things about owning a house (ok, some of them): No one can take my parking spot and my “rent” doesn’t go up each year. My rent was going up 3-5% a year when I bought my house. I bought a house I could afford on an “SHTF” budget (Job loss, having to go to $10/hr job, etc.) and am paying it off earlier than the 30 years the bank says I have. Is it cheaper than renting? When you consider the initial outlay (new roof, new plumbing, painting, carpet, etc.), no. However, I don’t have to worry that if… Read more »

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