I don’t know why, but there is a weird stigma around buying a home — especially when you are young.
Dave and I have owned a few homes over the years, and we actually bought our first when we were both in our early 20s. Let me tell you, people had things to say about that. Negative things. People told us we were making a huge mistake. They told us we would lose money. One person even went so far as to say we’d end up bankrupt and homeless.
I honestly have no idea why people were so negative about that decision. Maybe they had PTSD from the 2008 housing crash? Or maybe they allowed themselves to become house poor, and assumed we’d do the same? Maybe they took “debt is dumb, cash is king” way too far? I’m not sure. What I am sure about, is those naysayers were dead wrong. Buying has been a very fiscally responsible solution for us, and becoming homeowners so young gave us a huge advantage over our peers that rented for a decade or more.
Now, of course, there are some valid reasons not to buy — and I’ll talk about those reasons at the end. But let’s start off by looking at some faulty logic behind not buying a home. And why those reasons can really come back to bite you down the road.
- “You shouldn’t go into debt, just rent until you can afford to buy a home outright.”
This is one of the most illogical excuses for not buying a home. How on earth is it fiscally responsible to pay off someone else’s mortgage, rather than your own? Let’s say you are somehow, miraculously, able to get your hands on a rent-controlled apartment for $1,400 a month. And you live very frugally, and bank $30,000 a year. After 10 years, you can afford a $300,000 house. Yay you! But over the last decade, you have essentially given away $168,00 to your landlord. Wouldn’t it make more sense to buy a home right off the bat, live frugally, and sink all your extra money into paying off your mortgage early? If you did that, you’d own your home in 10 years, and only pay $55,000 in interest (assuming a 300k house at 3.5% interest). That’s a heck of a lot less than $168,000 in rent you’ll never get back.
Another option is to begin with a little starter home, sell it for a profit, apply the proceeds to the next house, then sell that for a greater profit, etc. until you have enough saved up for your dream home. That’s what Dave and I are doing. When we sold our first house, we got back more than double what we put into it. And then again with our second home. The same will probably happen when we sell our current home. The way I see it, not only did we end up living for free in each of our homes, we got paid to live in them. I think that’s a far more responsible way to do things. Plus, the sooner you buy your home, the sooner you’ll have skin in the game by way of equity.
- “Owning a home is so expensive, and maintenance will be a nightmare.”
Sure, owning a home comes with more maintenance, but owning is far less expensive in the long run, and not nearly as big a headache as people think. Over the course of 30 years, you will naturally have to pay interest. A 300k house at 3.5% will end up being 185k in interest spread out over 30 years. So your 300k house will really cost you $485,000. That’s not insignificant. But thinking back to my rent-control example: $1,400/month in rent over 30 years is $504,000. That’s almost 20k more than if you’d just bought the house…and that’s with the nearly impossible situation of having rent control. In all likelihood you’ll end up paying more and more in rent every year, whereas homeowners have hedged against inflation and their monthly payments will never go up. Then at the end of the 30 year period, buyers own their house outright. They can live there for the rest of their days with no housing payment. Or they can sell for a massive profit. What will renters have to show at the end of three decades? Nothing. Just loss.
As far as maintenance, it’s really not as bad as people think. Sure, if you buy a 100-year-old homd, you’ll probably have some bad times. But most things that happen with a house are easy enough to deal with — and if they aren’t, that’s where homeowners insurance comes into play. Dave and I also try to purchase new builds whenever possible, because they typically have warranties. Most builders offer a year-long end-to-end warranty, 5 year appliance warranties, and 10+ year structural warranties. Are there still things we need to deal with? Of course. But it’s never anything major. Just a little bit of extra effort.
- “We probably won’t live here for very long, it doesn’t make sense to buy.”
Even if you think you’re only going to live somewhere for a year, you should still consider buying. Houses are (for the most part) an appreciating asset. If you make smart decisions about location, price, and interest, you can probably sell the house for a decent profit within just a few months of purchasing. And if the market isn’t ideal for selling, you can find a reputable property management group and rent it out for a monthly profit until it does make sense to sell. Either way you’re probably going to make money.
Our trick is to buy a new build-home whenever possible, because those have a ton of instant equity. We get assumable interest rates, and pick houses in top school districts. We also try to be the “most affordable house on the most expensive street.” And so far we have succeeded in that goal. Despite being the median in our community as far as home size and finishes, we got one of the lowest sale prices in the community. We aren’t sure yet what we will do when we move next year — we got this house for a steal of a deal, and it’s already appreciated a ton. Not to mention we have an assumable interest rate in the 2s, so people would be lined up down the street for a chance to buy it. But on the other hand, we are in one of the most desirable communities in the top school district. We could rent it out for a significant profit, and then if we ever get orders back to Ohio, we could move right back in. Either option seems like a winner. So while we haven’t decided what to do, it’s a great dilemma to have.
- “It’s too much of a gamble, we don’t want to lose money in the event of a housing crisis.”
If you already have a mortgage with a fixed interest rate, you’re far safer than you would be renting a home. Sure, if there is some catastrophic housing collapse and you have to move across the country immediately, it might not be an ideal time to sell your house or buy a new one. But it would be a golden opportunity for you to rent your property out and turn a profit. And, sorry to beat this to death, but like I mentioned above: it’s unlikely you’ll lose money when it comes to buying/selling (unless you make stupid housing decisions). But you ARE guaranteed to lose money if you rent.
Dave and I only lived in our first home for about a year, and we could have sold it right away for a decent profit. But we felt like the market would get even better, so we held onto it for a few extra years as a rental. We made a nice profit each month, and when the housing market entered a bubble, we sold and pocketed a significant amount of money. We’d planned to rent out our Virginia house too, but when interest rates plunged to the low 2s in 2021, we knew it was the right time to sell. So we offloaded that house and invested the proceeds.
So there you have it, buying a home is actually a really good idea. Especially when you are young. I’m not saying that it’s ever “too late” to buy a home — there’s plenty of people that wait until their 30s or 40s and make out just fine. But from an investment and wealth management perspective, it’s obviously better to start as soon as you can.
Now, of course, there are some valid reasons not to buy — let’s take a look, shall we?
- The market isn’t right.
We should really have a moment of silence for first-time buyers in 2022. It was a bad year. House prices were artificially inflated to the extreme, and interest rates doubled from the low 2s up into the 4s and 5s virtually overnight, then kept climbing. But demand didn’t decline — people realized interest rates were going to skyrocket, so they felt pressured to buy ASAP to lock in the lowest rates they could find. That meant house prices remained dramatically overpriced because of demand. As a result, most people purchased homes for far more than they were worth. Houses that were barely worth 3000k the previous year were suddenly getting sold for half a million. And when the housing market eventually calms down, those people will be in a really rough situation should they want or need to sell. Panic buying is never a good idea.
We were fortunate that we locked in on a house and interest rate back in 2021 — so even though we closed in 2022, we got a rock bottom sale price with an interest rate in the low 2’s. So we are sitting pretty. But other people weren’t so lucky, and we actually got to experience a bit of an “alternative timeline” to see what might have been. The house built directly behind us is the identical floorplan to ours but without any of our square footage upgrades. Ours is 4 bed, 4 bath, 3500 sq ft. Theirs is 3 bed, 3 bath, 2100 sq ft. Another important distinction is that we contracted the full build of our house, and the one behind us was a “market home” — it was never promised to a particular person at a particular price. Once the construction was complete, it was listed for sale for anybody to make an offer. And even though we closed on our house the same week as the neighbors behind us, they ended up paying 70k more than we did, for a significantly smaller home without any of the bells and whistles. Not to mention their interest rate is more than double ours.
Long story short: don’t ever feel pressured to buy if the market isn’t right. You do not want to be the person overpaying for a house. You can always refinance if interest rates drop — but you can’t shave six figures off the sale price of your home.
- You don’t have enough money for a down payment.
This one is pretty obvious. You need money for a down payment. We are eligible for the VA loan, so we can put less down without penalty or having to pay mortgage insurance. So if you’re military, this point is not a valid excuse for you. But if you’re a civilian, I get it. Coughing up 20% isn’t always easy, especially when it seems like the second you get a nice nest egg going, something pops up, and you have to dip into it. So I feel for you. But I’d suggest that instead of trying to scrape up 20% for your “dream home,” (which could take a decade or more), buy a nice little starter home in a decent area as soon as the market is right. Getting 20% for a half-a-million-dollar house might take a really long time, but 20% on a $200,000 house is much more feasible. Then you can live in that house for a while, allow it to appreciate, then sell it for $250,000. Then you can pocket the extra, and buy a $300,000 house. Then rinse and repeat. Then suddenly you have more than enough money for your dream house, and you don’t have to flush years’ worth of rent money down the toilet.
Now, I realize this still might not be feasible. Maybe a down payment on a 200k home just isn’t gonna happen, for one reason or anything. I get it. Buying probably isn’t for you then. Don’t try to do something wild like take out a payday loan for the down payment, or stretch yourself to the point of breaking to come up the money. If you really can’t scrape up the down payment, it makes sense in your case to be a long-term renter.
- You refuse to “settle” for anything less than your dream house.
Look, I get it. We all want what we want, and we want it right now. I’m just as guilty of this as the next girl. I know exactly what I want in a forever home and a forever community, and I’d love to be in that situation right this second. But that’s not how life works. And if you can’t be patient and “settle” for a little while, you will dig yourself into a house-poor hole. I get that you want the McMansion right now, but maybe you need to be content with a split-level ranch for a bit. Like I mentioned above, start small. Build equity. Then swap up to the next level, until you’re in the house you’ve always dreamed of.
That’s exactly what we do. Every time we sell, we get back every dime we put into it, and then some. So we have been able to “upgrade” our house each time. We started off in a cute little starter home in Colorado, then swapped to a bigger house with more upgrades in Virginia, and now we are in a fully loaded “dream home” in an epic community. If we continue with this method (which we fully intend to), by the time Dave retires from the military, we will have lived for free for most of our marriage, and get to buy a forever home that is everything we ever wanted, and more. But it takes time and patience, otherwise, you’ll find yourself with a mortgage payment the size of Texas and no financial wiggle room for hobbies, travel, or little everyday luxuries.
I totally understand not purchasing until list prices and/or interest rates start to come down, or renting for a bit so you can save for a down payment. But once the market corrects and you have that 20%, it’ll be time to buy. Don’t wait until your 30s to buy your first home — that just means you flushed money down the drain (by way of rent) for a decade or more. Don’t let ignorant naysayers scare you away from making fiscally responsible decisions. Set yourself up for success when you’re young — I promise 32 year old you will thank 22 year old you for getting a foot in the door as ASAP as possible. And if you think “as ASAP as possible” is a typo, we can’t be friends. That’s all.