We got an excellent question on the subject of home ownership following our post “Now’s the time to buy… or is it?”
There followed a discussion which brought up some nuances that IFO thinks readers will enjoy.
Q: I’m going to go soft devil’s advocate on the “home is an investment” idea. It is a non-liquid asset for sure. It is an asset because the alternative is renting. When you own the house, you don’t have to pay rent. Consider the “rent vs. buy” calculator from the NYTimes, sometimes it “pays” to own or partially own a house.
The point I’m making is that the portion of the house that you own may, given the right numbers, pay off.
IFO: Yes, Q, you are absolutely correct. Owning a home has definite benefits. I just don’t think that most of the benefits are financial. What I do object to is the notion that you “own” the house, when you still have a mortgage.
As far as the idea that buying is better than renting, my DDH used to say, “You have to live somewhere.” For a long time, I thought that statement was kind of cryptic, but finally understood it to mean that there is a “cost” to lodging of any kind – whether you are renting or owning. If you are renting, you can use the money you would have used to buy a house to invest in something else that may have a better return. The linked NYT article makes that clear.
Also, I’m leery of the notion that as soon as the alleged value of the house increases, you should take out a loan on it.
Q: Here is another angle: while we were house hunting, I asked [myself whether] the purchase and its potential rent on the open market was a good investment. So I am “renting” to myself. Should I move, I would rent to someone else.
IFO: Your other angle is a good one – IFO tried to do something similar while she was looking for a place to live in 2013, but she found the math challenging. Your approach to look at buying as if you were renting is most sensible.
<End of discussion>
Let’s discuss a bit more the non-monetary benefits of owning a house. We won’t get into condominiums here, since that is a highly complex subject in and of itself.
Do understand that you still have to be able to afford taxes and upkeep, even if you own the place free and clear. However, home ownership gives a feeling of safety in a country still living mostly under the rule of law rather than dictatorial whim.
There is risk where ever you turn, but apartments can suddenly go bad if a new owner comes in, refuses to keep the place up and jacks up the rent. Houses that you rent can be sold out from under you and you may have to move at a highly inconvenient time.
Neighborhoods usually change more slowly than individual apartments or homes, so if you are as alert about your surroundings as IFO has taught you to be about your stocks, you should be able to sell before anyone else catches on to what you, as an observant, long-term resident, can see.
Thank you, Q, for bringing another viewpoint to this complex subject!