Many people have said to me in the past month, “I’m going to buy a home.” Or, “What do you think of the idea of me buying a home?” I like the second batch of people. They are my friends and it seems like they are sincerely asking for my advice. And I’m going to give it to them. Whether they meant it or not.
I have some stories about owning a home. One of them is here: “What It Feels Like to be Rich” where I describe my complete path into utter depravity and insanity. The other one is still too personal. It is filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up. But, I don’t want to upset anyone in my family, so I’ll leave it out. Oh, I have a fourth story that I just forgot about until this very second. But enough about me. Let’s get right to it.
There are many reasons to not buy a home.
A) Cash Gone. You have to write a big, fat check for a down payment. “But it’s an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1839 to 2004. And that’s just housing prices. It forgets all the other stuff I’m going to mention below. Suffice to say, when you write that check, you’re never going to see that money again. Because even when you sell the house, later you’re just going to take that money and put it into another down payment. So if you buy a $400,000 home, just say goodbye to $100,000 that you worked hard for. You can put a little sign on the front lawn: “$100,000 R.I.P.”
B) Closing costs. I forget what they were the last two times I bought a house. But it was about another 2-3% out the window. Lawyers, title insurance, moving costs, antidepressant medicine. It adds up. 2-3%.
C) Maintenance. No matter what, you’re going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice. Get down on your hands and knees and fix it! And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.
D) Taxes. There’s this myth that you can deduct mortgage payment interest from your taxes. Whatever. That’s a microscopic dot on your tax returns. What’s worse is the taxes you pay. So your kids can get a great education.
E) You’re trapped. Let’s spell out very clearly why the myth of homeownership became religion in the United States. It’s because corporations didn’t want their employees to have many job choices. So they encouraged them to own homes. So they can’t move away and get new jobs. Job salaries is a function of supply and demand. If you can’t move, then your supply of jobs is low. You can’t argue the reverse, since new adults are always competing with you.
F) Ugly. Saying “my house is an investment” forgets the fact that a house has all the qualities of the ugliest type of investment:
- Illiquidity. You can’t cash out whenever you want.
- High leverage. You have to borrow a lot of money in most cases.
- No diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be.
Personal reasons to not own a house.
A) Trapped, part 2. Some people like to have roots. But I like things to change every once in awhile. Starting March 2009 I was renting an apartment directly across the street from the New York Stock Exchange. It was fun. I’d look out the window and see Wall Street. How exciting! Before that I lived in The Chelsea Hotel with Chubb Rock. Last year, we decided to relax and move a little north. Now I look out the window and see the Hudson River. And it’s quiet and I can walk along the river in the morning with no noise. It took us two weeks to pick a place and move. No hassles. I like to live a hassle-free life.
B) Walls. You can’t change the walls when you rent. A lot of people seem to want to tear down walls. Or paint them. Sometimes when you rent you can’t do these things. Well, make sure you have a landlord that lets you tear down walls. There must be some ancient evolutionary tic that makes us want to tear down walls or put nails in them or paint them. I don’t get it. I like the walls to stay right where they are.
C) Rent. People will argue that the price of the mortgage, maintenance taxes, etc is all baked into the price of rent. Sometimes this is true. But usually not.
D) Psychology. Look at your personal reasons for wanting to own. Do you feel like you can’t accomplish something in life until you own a house? Do you feel like it’s part of getting married and “settling down,” i.e. creating a nest for your future children? For you, is it a part of becoming an adult? Is this what your parents taught you? Examine the real reasons why you want to own and make sure they are coming from a good spot in your heart.
E) Your time. Do you really want to spend all that time working on your house? Is this where your time is best spent towards creating a happy and fulfilled life for yourself?
F) Choices. I feel when I rent I always have the choice to leave. To live wherever in the world I want, whenever I want. Adventure becomes a possibility, even if I never take advantage of it.
G) Stress. For me (not for everyone) owning a home equals stress. I saw what my parents went through at their worst moments owning a home. I saw what I and others went through in the Internet bust when I first owned a home. I saw what people went through in 2008. People were killing themselves. I don’t like that sort of stress.
H) Cash is king. I like cash in the bank. I like having access to it. I don’t like it all tied up in one illiquid investment. I want to fill a bathtub with all the dollar bills I would’ve used as a down payment on a house. I want to bathe in that bathtub. I’m going to do that later today in fact.
By the way, this is going to sound like a contradiction: but I think housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here. Suffice to say there are many stocks you can buy, with leverage if you want to take advantage of the rise in housing. But I’m never going to buy a home again and sit there in the middle of the night thinking, “Why did I do this to myself again?”