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:
- A brief history of U.S. homeownership.
- The high cost of homeownership.
- Does the American Dream require a big American home? (Spoiler alert: No.)
- Is your home a better investment than the stock market? (Spoiler alert: No.)
- Is it better to rent or to buy? (Spoiler alert: It depends.)
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?
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!
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.