This post is by staff writer Sarah Gilbert.I asked, as I sometimes do, what personal finance question my friends and Twitter followers had for me. It was a slow day on the internet and the responses flooded in.
My friend Neil asked, “what do you think about real estate?” A broad question, indeed, and I got him to clarify. “You know… should I buy a house? Why not just rent?”
Why not indeed.
The Dream of Home Ownership
I too bit off and gulped down the dream of home ownership when just a small lass. When I graduated from college, I moved to a Southern U.S. city — Charlotte, North Carolina — and like any young professional often in the company of older, established professionals — saw immediately that they all owned houses. And that this was very good.
What they had, I wanted: the houses with the staircases and the pretty backyard decks and the grand old trees in the back and the guest bathrooms with bowls of little coloured soaps. I wanted a kitchen, with wide countertops and an arching clamp-hose faucet over the deep sinks and big drawers for flour and pot lids and recycling bins. And art on the walls, and a king-sized bed, and a walk-in closet, and a master bath.
My dream was only made more intense while shopping for condos in New York City, then in Reston, Virginia, with my 20s-era boyfriend. When he went to sign his first title, I went too, and we went out to lunch afterward at a restaurant on 54th street; we spent $112 and when I ate the tiny plate of tiny after-lunch sweets (a little cheesecake, a little truffle, a little gelee), I felt I’d arrived.
Years later, after the boyfriend, I became pregnant and my now-husband and I shopped for homes. My stories of those searches are intense and full of longing and stress; but by my fourth month of pregnancy I was living in house all my own. I vowed to never move.
Other People’s Dreams
I am — I was — the classic case for home ownership. I live in a small city and, when I bought the house, prices were reasonable; my mortgage payment is now less than many pay for renting an apartment. I love working on the yard and painting walls and I even tiled my bathroom myself (with lots of structural help from my father and husband). My husband is handy, and can run wiring and solder plumbing and he built a whole room in the basement. We’re the home ownership success story (though admittedly we have a lot more work to do, and no walk-in closet, no master bath).
But for many people, home ownership should remain the stuff of other people’s dreams.
I think my friend Neil is a good example. His ex-wife longed to buy a home in Los Angeles, where they had made a home after Neil’s upbringing in New York City. The situation was probably even more intense for her than for me in Charlotte; their friends and colleagues owned expansive ranch-style show-homes and sweet artsy bungalows, in neighborhoods where the price-per-square foot probably neared four digits at the peak of the market. The mortgage on those homes would require all of one middle-class salary.
Even for the more economic choices, prices were high and there was no clear benefit to buying over renting; in fact, most mortgages would be more than the cost to rent a nice (and low-maintenance) apartment.
Neil wasn’t good with a hammer or a chop saw, nor did his wife have any desire to keep a fine vegetable garden. There was no dad around to rip out old bathroom floors or teach Neil to solder copper pipes. Neil had no dreams of living in his home forever with his growing family; to date, he has no children and he’s now divorced; he’s not sure if he’ll stay in LA for the rest of the year, let alone the decade. For him, home ownership is someone else’s dream.
Should I Buy a Home?
For me, Neil’s question was easy. “No,” I said finally. “I don’t think you should buy a home.”
“But isn’t that the goal?” he asked me. “Isn’t that what you’re supposed to do?”
Well, maybe. But I’ve found my own definition of “getting rich slowly” is often made up of doing few things that one is “supposed” to do; for me, living a double income, office job lifestyle is one such “supposed to” I’ve discarded. For Neil, I prescribed letting go of that “supposed to” of buying a home.
How to Know When You’re Neil
Are you Neil? That is to say, should you too avoid adopting the dream of home ownership? Here are a few signs you may be Neil:
You are still a transient. Of course, we know I don’t mean “homeless person.” I believe many of us today graduate college (or high school, if college wasn’t the path for you) as transients, expecting to live in one place for a few years before trying out another, and another, and another, until one feels like home (or until you fall in love with someone who’s rooted to a place, giving you a graft and rooting you, too). If you’re not sure yet if this place is going to be your home for more than the next few years, home ownership is not for you. With closing costs and the uncertainties of the real estate market, it’s very difficult to come out of a two-year home ownership transaction without losing money as compared to renting.
You have no desire to engage in home and garden upkeep. While some such people might hire gardeners and contractors to fill in the holes in their handy skills and passions, most of those who don’t care to pick weeds or fix fences or mow lawns or plant apple trees are better off with an apartment. Purchasing a condo might be an option, if you don’t say “yes” to any of the other items in the “are you Neil” list.
The market in your favourite neighbourhood doesn’t make sense. If the cost of a monthly payment on a mortgage would be greatly higher than the price of a two-bedroom apartment or other rental suitable for your family’s needs — say, more than 25 or 30% higher — it’s probably not a good time to buy. While indeed mortgage interest deductions and home buyer credits and the time value of money might be squished around to make the comparative cost similar, do remember that life is uncertain and markets fluctuate and maybe you should wait a bit — or look around for a more sensible neighbourhood — before buying something.
You’re not sure about your career or your job. Maybe you’re considering going back to school to become a sommelier. Maybe you’re pretty sure your boss wants to retire and sell the company. Maybe you just don’t love your job and you’re looking around for something new. If you’re not fairly confident your next few years won’t include a significant change in income, it’s probably not a good time to engage with the home ownership dream.
Your relationship with your partner is rocky. I’ve been watching several of my friends deal with the tough decision over what to do with the family home when a relationship is over. In one case that worked out for the best — the family made a nice profit from the sale. But that was a rarity. If you’re married, you might end up having to sell and take a significant loss, even if you’d rather stay in the house solo; if you’re not married, things could be even more wonky. One woman I know lost her grandmother’s home after a pre-marriage breakup (with someone who obviously turned out to be enough of a jerk to keep her grandmother’s home, though that analysis is one-sided and second-hand, so take it with salt). Be honest with yourself, and know that, much like puppies and babies, houses do not fix broken relationships.
You would have to cash in retirement or emergency savings to buy the house. A home buying fund should be separate from those savings for emergencies and retirement. You’ll have more emergencies, in all likelihood, with a home than without. And you know how we feel about retirement savings. If your dream is that intense, then you can use your intensity to fuel your frugality while you save up for the down payment.
Have you struggled with the decision to rent or buy? Where did you come out on the Neil/not Neil spectrum?