I know we all have heard that home ownership is the American dream. I think there are some good reasons not to buy a house. Americans have been indoctrinated to believe that home ownership is something everyone should do. I think there is a solid a valid agreement against home ownership. I am just going to use my experience to formulate the agreement. I think it might be useful to some and help other make their decision about home ownership.
I am not trying to discourage anyone, but I think this might help a potential homeowner understand what they are getting into. It might be another source of guidance for better decision making.
1.Maintenance costs is high.
A house is a constant cash outflow. After you finish buying your home your expense for that house just begin. I remember after we bought our home in Marietta, GA a neighbor came by to say hello and doing our conversation he said “welcome to the neighborhood guys this house you guys buy is a big house “ Now let the work begin”. We have been spending on the house since then. Every few months a small thing here and there need to be repaired or replaced.
Many people buy homeowners warranties to help them with these expenses. A homeowners policy that covers everything can be $700 to $1000. The amazing thing is that the home owners warranty companies expect you to perform a list of annual maintenance on your home. These maintenances are not cheap. If you can’t show proof that you did those maintenances, when you need coverage the home warranty company might deny the coverage. Here is a list of maintenance required by home owners warranty companies:
2.It takes a while to break even
They always advise homebuyers not to buy if they will not be living the home for more than five years. In 2009 we bought a house in North Carolina, three years later we tried to sell it. We discover to sell this house we would have to come out of pocket with more than $5000.
If you run into a life situation and you have to sell your home that you bought just a few years ago, you are most likely going to incur a loss. There was a period of rapid real estate appreciation, If you’re lucky to find yourself in a rising market like that then it’s your luck. Rapid rise in price like that unfortunately always come with a crash, like we saw 2008.
If you buy a home as a first time home buyer using FHA and making the standard 3%( +-) down payment. You can take care of this home for ten years and barely break even depending on the market.
3.Property value does not always appreciate
In the mind of many people real estate value always increase over time. There are many situations where that is not true at all. For many people who bought their home between 2005 and 2007 their value of the home depreciate drastically in front of their eyes when the market crash.
A market crash is not the only reason why property value may depreciate. Some neighborhoods continue to depreciate because the people are moving away due to lack of work. Neighborhoods in Pittsburgh, Pennsylvania at a point in the past experienced depreciation when the coal mining industry went away. Just a few years ago we heard of a similar situation in Detroit when the automobile industry star to move their operations in other parts of the country and overseas.
If you buy a home a few year before a real estate market correction you might lost your investment on that home. If the areas you buy experience a serious increase in unemployment due to changes in local industry you might have been better off now owning.
4.A house Make it hard to pick up and go
If you are the type who want to be in California for two years than New York the next three years it might not be a good idea to become a homeowner. The mortgage on a typical home is 30 years. If you sell too soon you might have to come out of pocket to close the deal.
Many people rent their home when they move away. Dealing with tenants is not for everyone. Managing a rental units when you’re not around is very hard. The rent you collect might not be enough to cover the monthly expenses for the home. When you are not around all your expenses increase, for example:
- Contractor will charge you more if you are not there to negotiate with them for repairs
- In town you could evict a tenant on your own, if you are not around you have to hire a lawyer
- Some tenants take their time to pay their rent when their know the landlord is not around
5.It’s an easy asset for creditors to put a lien on
If you’re young or you plan on taking some business risk in the future your home will be an easy asset for your creditors to grab if you default on your loan. In this overly leverage society all of us find yourself in situations where unsecured debt or business debt become a burden if our venture fail. There are some safe place to keep our money like a 401K or 403B. In our home our savings is very accessible to creditors.
I am sure there are many more reasons why some people should not become homeowners. For the purpose of this blog post these are the five reasons that are more relevant. There might be more reason why Americans should become homeowners. I am sure there is a gazillion blog post on that topic.
Please feel free to share this post others might learn from it. If you have something to add to it please feel free to add a comment below.