About the Author

Honey's main interests are online dating, long distance dating, and long term relationships. She met her boyfriend on MySpace and they have been exclusive since their first date over three years ago. Currently they live in Tempe, Arizona. Honey graduated with her PhD in Composition and Rhetoric in May 2009. You can contact Honey via email here or online here.

Home Ownership is for Suckers

All right, Me Thinks posted another awesome comment on my Our Financial Philosophy post and Lance chimed in as well…the interwebs stole my first attempt at a comment, and then my rewrite of it was long enough to be a blog post, so here it is!  It doesn’t have anything to do with relationships, really, except that this is something that I feel REALLY strongly about and if you do too (one way or the other) then it’s a good thing to be aware of while you’re dating.

Owning a home is for suckers.

A home is one of the WORST investments you can possibly make unless 1) you are flipping houses for profit or 2) buying rental properties for profit (neither of which interests the BF and I at this time).  The definition of an asset is something that puts money into your bank account every month – something that pays YOU.  The home you live in does NOT fall into this category.

Even if you can sell your home when you want to (no guarantee), homes appreciate over time at a rate of 3-4% – barely above inflation.  A diversified investment portfolio yields, on average, 8%.  Why on earth would anyone tie up a 10-20% down payment – tens of thousands of dollars – on something that, statistically, barely breaks even when you could be MAKING money?  Yes, you can deduct the interest on your mortgage, but if you are renting, that meager savings is more than made up for by the fact that you don’t have to pay property tax. You also don’t have to pay for repairs or improvements, which when combined with property tax, end up negating the meagre “profit” that is already negated by inflation anyway.

The BF’s and my number one goal is to get out of debt (no small feat considering we owe about $250K between us).  Once we accomplish that, our goal is to NEVER be in debt again.  We may need to have car loans at some point (but maybe not, if we move somewhere with really good public transportation), but we will not buy a house unless we can pay for it outright, probably upon retirement when we are ready for a little stability.  Right now mobility is more important to us, and that’s something only renting can provide.

Plus we are never having kids, so it’s not like we need to make an investment in their future.   FYI, having kids is also a devastating financial decision and the main reason that we have chosen to never have them.  As I said in my guest post on 20-forty.com, The Ethics of Having Children, every time I hear someone say “I want my kids to have everything I never had” I just want to say, “Don’t you realize that if you didn’t have kids, you could have the life you never had?”  The BF and I each have life insurance policies with the other listed as beneficiary so that if one of us died the other person wouldn’t have to move, but that’s all we need.

To people who think home ownership is a solid financial idea, you have been lied to.  For more information on why home ownership is one of the stupidest ways you can flush money down the toilet, visit http://finance.yahoo.com/real-estate/article/102603/why-your-home-is-not-the-investment-you-think-it-is.  Sorry, Me Thinks and Lance – you may have had atypically good experiences, but I’m just not buying.

If this post made you feel like a sucker, you might also enjoy:


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  • http://honeyandlance.com Lance

    Honey, your argument is definitely solid. I’ve owned one investment property and while I did sell it for more than what I purchased it for (+$35k), the entire experience was a royal bitch. I don’t recommend it unless you have a real estate guru for a mentor and I’m totally serious about that. Landlording is tough business and there are MANY more costs involved with upkeeping a house than you first expect. Taxes, insurance, services, pest control, fixes, etc etc. It adds up to a huge amount. My point here is if you’re going to collect rents, there must be a huge profit margin built in. I recommend rents are double your mortgage payment (eg $2k rents for a $1 mortgage payment). Even then, you’re probably only breaking even once you factor all the crap you put into it. And the bitch is you’re still at the mercy of the market.

    If I buy a house as my primary residence, which I’d like to, I would also like to buy it outright or at an absurdly low price. Even then, I’d probably have a roommate or two to pay my bills for me. Mobility isn’t as important for me now as it is for you.

  • http://honeyandlance.com Honey

    I do completely get the fact that many people have an emotional attachment to owning, and if that’s why you want a place, I think it’s fine. I just think it’s important to admit to yourself that the reason you’re buying is because of those emotions, and not because you anticipate any sort of financial reward.

    The BF and I refuse to have roommates (well, I was open to that option rather than moving into a cheaper place, but he wasn’t), which is another reason owning just isn’t feasible.

    Another note – since most people who “own” homes are really just renting them from the bank rather than a landlord, it’s important to note that your bank/lending institution is most apt to work with you to keep you in your home in the early years, when your payment is mainly going towards interest (their cut). The closer you are to paying off your home and actually owning it outright, the greater incentive banks have to repossess because not only have they made the interest on it, when they turn around and sell the home the profit will be HUGE for them because it’s mostly paid off. Like so many things, home ownership is stacked against the little guy, and we’re so brainwashed to think this is the American Dream that we don’t even interrogate whether it’s true or not.

    Honey´s last blog post…Home Ownership is for Suckers

  • http://hammer86blog.com Hammer

    You’re wrong about home ownership. In fact, I’d go as far as to say that paying rent is for suckers. Your financial argument makes no sense. You totally didn’t factor in the rent that you’re paying as a negative return on your money that would be growing at 8% annually. In many situations your rent is the same price or more expensive than your mortgage payment and property taxes combined, and you’re not gaining any equity. You’re passing that money along to someone else who has a mortgage of their own that you’re paying off while they get the equity. Anyway, I don’t have the time right now to go into detail so I’m really not doing my argument justice, but the opportunity cost of investing your money in real estate as compared to in the market after tax breaks and inflation is frequently far less than your monthly rent.

    Hammer´s last blog post…TSB AFF Challenge

  • http://honeyandlance.com Honey

    I have done EXTENSIVE research on this issue, and I don’t buy your argument at all, Hammer. I agree that money you pay in rent is a zero return on investment, but SO IS YOUR MORTGAGE once you factor in inflation.

    Additionally, where I live, at least (and in most places, as far as I can tell) rent is SIGNIFICANTLY cheaper than a mortgage (of an equivalent property) unless you sink a HUGE down payment into the place, in which case you’re tying up all that money in a situation where it will give you NO return rather than somewhere you can get a yield of 8%. Your month-to-month housing costs are always a zero yield – it is the down payment money that you are wasting when you could get a return if you put it somewhere else.

    Plus, if you factor in the emotional return on the investment, if you’re renting you don’t have to worry about the upkeep of the place, it losing value, or anything else.

    Honey´s last blog post…Home Ownership is for Suckers

  • http://www.thedateabledork.com The Dateable Dork

    I actually lean toward Hammer’s point of view on this one. Like Hammer, I’ve noticed that (in New York, at least) rent tends to be (for a comparable living situation) more expensive than mortgage + taxes + other random homeownership expenses combined, AND you’re not gaining any equity. Why would I throw my money away on rent every month when I could actually pay LESS and get the added benefit of equity? I’m still thinking about this situation and learning as I go, but right now I tend to think homeownership is a pretty damn good idea (for my personal situation, at least). We’ll see. I’m still a LONG way away from buying anything.

    The Dateable Dork´s last blog post…Waaaa… I miss my fuck-buddies

  • http://honeyandlance.com Honey

    It probably depends a lot on where you live. In Phoenix, renting is WAY cheaper than buying, but then again the city is pretty spread out and we’re in the top 5 areas in the country for forclosures so people are trying to recoup their expense however they can. We just got back from looking at a 1250 square foot, three bedroom, two bath townhouse with a patio and two parking spaces that rents for $950 per month.

    Honey´s last blog post…Home Ownership is for Suckers

  • http://honeyandlance.com Lance

    I have no emotional attachment to home ownership. I’ve lived in so many rental houses, some of them very cool, that I could live anywhere. Great Yahoo article, I’ve never had it broken down like that.

  • Me Thinks

    I think where you live is a huge factor. I have never lived anywhere that rent was not equal to mortgage + maintenance + profit for the owner. Its not as easy as the article maps out – I have never owned a home that cost that much or paid that much in interest or taxes, it is not a good example.

    It is complicated – there are a whole lot of options with mortgages/tax abatement, etc that can make or break you. Mortgages with ARMs and HELOs got so easy that people were fooling themselves and getting in way over their heads. Most buyers do not think ahead and know the market and do their research, they just find their “dream home” and buy it, bad idea. A home is not a cash machine and the ROI takes either hard work (rehab/flip) or research and a lot of patience to realize. There are ways to own a home and make a profit (IMO, rental property is not a good idea) if that is your goal. That is NOT my goal now though but I have been fortunate to have that experience a couple times and if I were single and childless, I’d probably be buying and flipping every few years for $.

    IMO home ownership is not for a lot of people, many of which actually do own homes, doh! But for someone like me, its a bargain – I have a credit rating of 830 (low interest), 2 kids, a dog, a yard, a great neighborhood, etc – all that are extremely important to me and renting the equivalent would cost me tremendously more, be unstable and increase costs over time. I’m not trying to make money on this place but it saves me way more than renting.

    My point is that yes, its for suckers if you are a 20-something Honey, never having kids (I’m not touching that convo!) and want to be able to move. For someone like me, I’d be a sucker NOT to own a home and if I’m smart I will make a little $ so its a good investment.

  • http://honeyandlance.com Honey

    Thanks everyone for these responses! I have to say that I am now really curious about something that I hadn’t given much thought to before: what is the benefit of equity? Why do people have such a hard-on for it?

    I can only think of two circumstances in which it does you any good: 1) you have a bunch of some other type of debt and want to borrow against your equity to pay it off (in which case, you shouldn’t have bought a house in the first place), and 2) you sell your house, in which case you either don’t own a house anymore (which seems to go against the point) or you have rolled over that equity into your new house (in which case it still isn’t doing you any good).

    I mean, I guess there’s the possibility that it raises your credit score, but if you qualified to buy a house you already have an awesome credit score and you probably didn’t buy the house for that purpose.

    I seriously can’t think of one single practical financial advantage that equity gives you in everyday life.

    Honey´s last blog post…Our Financial Philosophy: Or, Grocery Store, Part Deux

  • http://honeyandlance.com Lance

    Great article in the Times that also picks apart the myth of home ownership as a good investment:
    http://zz.gd/9935cf

    Also, from the personal finance blog I Will Teach You to Be Rich:
    http://zz.gd/4b6036

    Lance´s last blog post…Thought Leader Interview Series: Evan Marc Katz

  • Comeonbaby

    I guess you didn’t graduate in December 2008 as your blog lead says. Probably because you haven’t learned grammer yet. Good luck with that since you’re obviously not going to be a financial success. $250,000 in debt as a grad student and it’s not a mortgage?

  • A-L

    If you’re going to move every couple of years, you’re absolutely right, it does not really pay to buy a house. However, if you’re planning on staying in a place a good long time, that’s when you want to buy.

    Person 1 rents their whole life for $1000/month. They start renting at age 25 and they die at age 85. $1000/month for 60 years = $720,000 outlay, and you know there’s no way that this would actually happen, as there is no way rents are going to remain static.

    Person 2 buys a house at age 25 and pays $1500/month to the bank (taxes & insurance are included in mortgage payments, at least in my state). So $1500/month for 30 years = $540,000. This does not include any of the tax benefits, nor any of the repairs.

    The benefit of owning your house outright by the time you retire is clear…no more payments going out every month yet you have a place to stay. Whereas if you’re a renter you always have that money going out, even when your income has decreased significantly. So you either need to save up that much MORE for retirement, or you don’t retire.

    (I came up with these figures because where I live a place whose mortgage/insurance/taxes cost are $1500 can rent for about $1000/month, and I know as I actually have some rental property.)

    By the way, $950/month rent is a very good price for what you’re getting, and I don’t think that’s typical nationally. And the Yahoo article used an interest rate of 8.75% which was a very HIGH interest rate historically, usually it’s between 6-7% so their figures are definitely some of the worst-case scenario ones.

  • http://hammer86blog.com Hammer

    Now would be an example of a time when it is cheaper than ever before to buy as both real estate prices and mortgage rates have gone way down. With the interest rates where they are now, it’s almost to the point that buying is cheaper before tax breaks in a lot of places (if you can get a mortgage, which is a big IF). It should also be noted that there is substantial inflation predicted for in the US which will make your mortgage cheaper in the long run (assuming you get a fixed rate).

    Also, those averages aren’t the end all be all. Good luck getting an 8% return in the market right now. If you do own a house, 6 months ago would have been a great time to pull your money out of the market and pay off your mortgage. And many places where you live will have a better return on the property. My mom’s apartment was bought for $90,000 in ’83 and is now worth somewhere around $2 million because she bought in an up and coming neighborhood. In New York city there are many neighborhoods where huge returns like this are very likely, particularly in the lower Harlem area.

    Hammer´s last blog post…TSB AFF Challenge

  • http://honeyandlance.com Honey

    Well, the $250,000 is for the both of us – and includes both of our total student loan debt (about $100K each for 10 years of graduate level education between us) and our total credit card debt (about $10K for me and about $40K for him – he didn’t work while he was getting his graduate degree so he ran up some more). However, our combined income is about $132K, so we are doing just fine – and we are both entry-level in our careers.

    Also, not to be picky, but you spelled grammar wrong.

    Honey´s last blog post…Our Financial Philosophy: Or, Grocery Store, Part Deux

  • http://honeyandlance.com Honey

    Yes, but if person 2 put $20K in a down payment and person 1 put $20K in an investment portfolio with a yield of 7% compounded once annually with no other additions, in the same 30 years they would have over $150K. I don’t know enough to say whether that tips the scales conclusively one way or the other, but it does give pause, at least to me…

    That place we looked at wasn’t nice enough for the price, but we have an appointment tomorrow to look at 4 places…so maybe news by Monday!

    Honey´s last blog post…Our Financial Philosophy: Or, Grocery Store, Part Deux

  • http://dadshouseblog.com dadshouse

    Rents go up. A 30 year fixed mortgage stays the same rate. And at the end, you own something you can sell. That’s pretty nice when you’re old, and living on fixed income, or want something to leave your kids.

    dadshouse´s last blog post…Beginners Tantra – Sexy and Heartfelt

  • RM

    If anyone is relying on future property appreciation to make the deal pencil-out, you are no longer investing. You’re speculating.

    As for rent vs buy, rent for now and let someone else deal with the depreciation. Buy after the market is healthy again.

  • http://honeyandlance.com Honey
  • http://honeyandlance.com Honey

    According to a cost-of-raising-a-child calculator that I found (http://www.babycenter.com/cost-of-raising-child-calculator) for every child we do not have we will save over $350K. So I think a lot of the debts we have will get paid off faster because we won’t have those expenses.

    Honey´s last blog post…Our (Weird) Valentine’s Day

  • http://honeyandlance.com Honey

    5 reasons renting still beats owning:

    http://zz.gd/02919a
    Honey´s last blog post…Top 10 Signs You’ve Become an Adult

  • http://honeyandlance.com Honey
  • http://honeyandlance.com Honey
  • Reliah

    Really? A home isn’t an investment?
    Where on Earth do you live????
    You cannot possibly believe renting is smarter than buying a home, can you???
    I want to laugh but it’s so sad I might cry.
    People are so… dumb and obviously “over” educated!
    lmfao

  • Honey

    Um, I live in an area of the country where home values have plummeted over 50% in the last three years with one of the highest foreclosure rates in the nation. Where do YOU live?

    The definition of an investment is something that puts money into your pocket every month. A home costs money every month, whether you rent or buy, and so by definition cannot possibly be an investment.

    We never plan to buy unless we can pay upfront for the home, we will not finance anything.