What's the big deal about home ownership?

In My Humble Opinion
21

Owning a house:

a. No upstairs neighbors.

b. No downstairs neighbors.

c. Generally, far more room than a rented apartment (and I’ve never found a rented house that was both decent and cheaper than owning).

d. Freedom to pursue hobbies. Want to build a boat in the garage? Use the table saw at 10 o’clock at night? Put a big garden out back? Want to put a grill on the deck and invite all your friends over? Want to store your boat in the side lawn? Nobody’s business but your own.

e. Pushing retirement age? Having the house paid off and not be facing another 25 years of rent payments is pretty attractive. Yes, I know, there’s still maintenance, insurance, and taxes, but if you get sick of all that, you’ve got a ton of equity to fall back on.

f. Availability. Sometimes there just aren’t any rental properties in the area. Heck, I wasn’t planning on buying when I moved up here.

As for 15 year mortgages – they’re at historic lows. So you can get one now for not much more than a 15 year would have cost 12-15 years ago. The nice thing about a 15 year mortgage is that you can really see the principle shrink each month.

Yeah, there’s a lot of crap involved in owning your house. But the benefits probably outweigh the disadvantages.

22

Probably is the key word. I have always been a strong advocate for thinking it through at the very least - everyone I know jumped to buy a house as soon as it came within swinging distance. Some did all right. Some are suffering badly.

It is sold as the American dream and that is what I resent terribly. It should be as major of a decision as getting married or having a kid - all of which are parcel to this “American dream”.

Myself, I am quite happy renting. And, I am also putting money away for my retirement. What’s to say I can’t do both? Plus, I rent a house, so I share no walls with anyone and have a garden and do minor repairs myself and major repairs are left for the landlord.

And I don’t understand a mortgage, either. How can it be OK or right in anyway to put yourself that much in hock? Is that really the right thing to do?

Don’t get me wrong. Eventually we probably will buy a house - maybe in another 10 years or so. But it is a terrifying prospect, to put yourself in debt for 15-20 years without even thinking about it.

My family is constantly after me to buy a house, too, and I just dig in my heels. I am not ready.

23

It varies greatly by location. From a purely financial perspective, it makes much more sense to buy at a local price-to-rent ratio in the teens (say, metro Ohio) than it does to buy when the ratio is in the 30s (Bay Area, California).

24

I own because it forces me to save a little each month and I have the freedom to do whatever I want to the house and that money comes back to me (mostly). I am planning on moving a couple of times before I retire but by rolling over my equity I should be able to easily pay off my final house before I retire. At that point I will be able to live in exactly the style I want rent free. Once I get too old to maintain a place on my own down sizing from a house to condo will leave me extra money to supplement my retirement.

I haven’t looked but I’d be surprised that even with the crash houses are worth less today then they were 30 years ago my parents are still up 50% from their purchase in '01.

25

I own because I have a lot of animals, and couldn’t keep them in an apartment (particularly the horses). I have a 8 1/2 years left on a 15 year fixed mortgage, and even with the deflated prices currently have an equity that’s more than double the amount I owe on the property. I pay less in my combined mortgage, taxes, etc. than I would in rent and horse board, even if I just had one horse.

I have only one house I can see from my house, and I can only see that in the winter when the trees are bare. But I have great neighbors who will come check on me and the house if they see a strange person on my land. I feed their dogs and goats when they go on vacation. The loudest noise at night are the frogs and the occasional coyote.

For me, home ownership isn’t a goal set by someone else I must acheive, it’s a lifestyle. I’d rather be cutting my own grass than cursing the neighbors walking too loudly in the apartment above me.

StG

26

My husband and I pay less each month for our mortgage than we did on a small one bedroom apartment. An apartment that could just about fit on the main level of our house. Now, the apartment was downtown and the house is in the 'burbs, but we also save on paying for parking. That was over $300 a month on top of rent.

I can paint the walls, change the flooring, and if I feel like knocking down a wall, its no problem at all. I have a raised two tier flower garden that I built, I can get whatever pet I want, whenever I want, and we have a little woodworking room in the basement.

I have rented houses in the past, and they have been more expensive with less options.

But if those things are not important to you, and you found a place that you like, there is no need to own.

27

For me it’s mostly about stability. When I rented a house, the owner just told us one day that when our lease was up in a month we’d have to move because they were going to sell the property. And I didn’t like it that any improvements we wanted to make, we had to get the owner’s permission for, and then the owners would benefit from the improvement long-term, not us.

Now we bought a house and I love the idea that we can stay as long as we want, make any changes we want, and that the house is really OURS. Plus we bought for much less than it is currently worth, so that’s nice too.

28

Some of you sound like owning a home is a life sentence. :smiley: You guys know that you can sell the home before it’s paid for, right?

Overall, home ownership is still one of the safest investments that can be made. Not everybody’s home or even the majority of people lost value when the bubble burst, including mine. People who bought homes at the top of the market lost their asses or are upside down on their mortgages and the people who were perpetually flipping homes just to make a quick buck also got burned.

If you don’t want to own a home then great!

I’m not a city boy and I like the quiet boring suburban life so home ownership suits me. I would want to live in one even if it wasn’t a good investment.
I for one like something substantial that I can call my own and for the most part do whatever I want with it. YMMV.

29

Again, it varies entirely by location. Typically, average US home prices tend to stay rather flat after accounting for inflation (http://www.econ.yale.edu/~shiller/data/Fig2-1.xls ; WARNING: MS Excel file). In real terms, we’re roughly at around 2000-2001 average pricing levels. But location can influence these trends a great deal; there were much greater bubbles and busts in the coastal areas and places like Las Vegas, NV than in other locations. CPI has risen about 25% over the past decade, so a 50% price increase is a solid gain (inflation + 2%).

30

Good for you for not letting anyone rush you. It’s YOUR investment to make if you choose to or if you choose not to.

I think what you mention above is key. “Some did it right.” I think there were way, way too many people who were irresponsible and lenders who were unscrupulous enough to agree with them that they could swing the payment. Financially a good rule of thumb is that you should be able to afford your mortgage payment plus 30%. The 30% covers taxes, repairs, insurance, etc. That way you know how much house you can afford.

Exactly. Within two years of buying my house I had the realtor calling me trying to get me to sell it. Why? The market was exploding in the city (more than the national average) and houses like mine were selling for 50-75% more than what they sold for a few years earlier. She wanted me to sell it and take the profit above what I owed and put it into an even bigger house. Thank goodness I told her no. I’m a single female with no kids. I don’t need bigger than a 3 bedroom house. Plus, it sounded too good to be true.

Some of my neighbors sold their houses and made a killing. Hopefully they didn’t put that money into an even more expensive house because the market crashed hard.

Now my house is worth about $15K more than what I paid for it. I’m happy with that even though I didn’t sell it when it was “worth” 50-75% more.

So in many areas, the market just readjusted

31

It’s also about privacy. My landlord has keys to my house. He can come in any time he gives 24 hours notice, just to inspect the place. When you own your home, you don’t have to let anybody in except cops with a search warrant.

There’s nothing shady going on in my house, it’s just the idea that he can come into my home and I can’t do anything about it that bothers me. (But in my area, rents are so much less than the mortgage/taxes on buying a similar house would be, so it makes financial sense to rent)

32

Why? Short answer: freedom or leverage, depending on your goals.

While I was in college I wondered this myself: why would anyone buy a home? After college was over I found out more things about it and ran some more numbers, and found it made sense. So I tried it, and it worked out highly in my favor.

But, as mentioned, it’s all about 2 things: tradeoffs and investment risk. I’m not going to discuss apartment vs. house, because that’s not apples and apples. I’m discussing renting vs owning the same property.

  1. Tradeoffs. These have been discussed. When you own, you have to do (or hire) your own maintenance, but you can do things the way YOU want. Paint the walls green if you want, or drill big holes in the wall to mount something or other. Or add a bathroom. If you like basic white and you don’t want to tinker, renting may be the better choice.

In many ways, owning is the ultimate freedom to do what you want with your house, while when renting you’re simply not free to do what you wish. If freedom is of value, this may be a dream for you.

  1. When you rent, there IS no investment. Buying a home is (for most people) a matter of putting 1/5 of the price together at once and borrowing 4/5 of the total investment and paying the interest on this amount each month. Total payments tend to be a little less than that of rent, but not a lot, and the renter didn’t have to shell out 1/5 of the total up front.

So let’s assume a simple scenario for a moment: no income tax implications, no change in value of the home, no inflation, and a $100,000 house. A renter pays say $800/mo. An owner had to put down $20,000, but pays (including property taxes and insurance) say $700/mo. In addition, depending on how long he’s had the loan, some portion of that $700 is NOT interest or other payments, and instead pays down the principal of the loan. After 30 years of living like this, our renter, R, has payed $8001230, and has nothing to show for it. The owner, O, has payed $7001230 plus the $20,000 down payment, and has a $100,000 investment in a home which he owns free and clear, and could sell at any time for essentially $100,000. A grand total of a $116,000 difference.

The above scenario isn’t perfect for many reasons. Moving when you’re renting is far easier and cheaper than moving when you own (no huge realtor fees, among others!). Rental prices in some areas can be smaller than mortgages, especially if you forgot to include property taxes and insurance (rare, but it happens). And there ARE tax implications and values DO change and so on.

Income taxes are designed to favor the home owner. Renter R gets no tax breaks for renting any home. Owner O, however, gets to deduct his mortgage payments. Of the $700 above, some $500 or so is actually interest, and that’s the amount he can deduct. If he’s in a 20% tax bracket, that $500 subtracts $100 from the taxes he would owe, so it’s like he’s only paying $600/mo instead of $700, and the rest will catch up after April 15 in the form of a refund check. (NOTE: this benefit only applies if you itemize your deductions! If not, it’s assumed and included in the general deduction)

And now we get to the area where people really make money on Real Estate, and that is the investment. Ignoring flipping, Real Estate investment is a long-term growth investment. Just like with the stock market, there are ups and downs, but just like with the stock market, the trends overall are positive. Real Estate, on average, over the last 100 years or so, has gone up around 6%/yr in the USA. That may not sound like a ton, especially when you consider that inflation is around 3%, but there’s an important factor here: leverage.

See, if you’ve got $20k, and you invest in a really good stock that does 10%/yr without fail, you get $2k the first year, $2.2k the next, and so on. If you invest $20k in a $100k home, however, and it increases just 5%, it gained $5k, and that’s YOURS, not the bank’s. That’s 2 and a half times. Yes, you have to pay interest on the loans, but you were using that as a rent-type “you’ve got to live” expense, anyway. On the $20k you invested, a $5k gain is 25%. That’s huge.

This leverage can go the opposite way, of course, as hordes of people found out recently. If the $100k house loses 30% of its value, not only do you no longer have the $20k you put down, but you also owe an additional $10k you’d have to PAY if you sold the home. The power of leverage is a multiplier of both positive and negative market shifts.

So is owning a home a good financial choice? Well, it could be said to be a gamble, for sure, but since the market >tends< to go up, it >tends< to be a good idea. It’s like owning a casino: sometimes the house loses, but usually it wins. If you can’t handle any kind of risk, probably renting is a better idea. If you can handle risk, though, AND you do some research on trends IN YOUR AREA, it can be a good idea to buy.

I’d personally never buy if I thought I was going to live in a place for less than a couple of years. The fees and so forth from agents and whatnot just end up being too high and even if the value of the property increases, I’ll most likely be in the red overall. But if I was sure I’d be there at least 3, I’d probably buy most of the time.

So in summary, it’s all about freedom and a possible investment gain. Hopefully this answers your question.

33

Not necessarily true. If you pay $1000 for rent and a comparable mortgage costs $2000, that’s $1000 you could put into another investment vehicle that may offer a greater return.
People like home ownership because you are building equity (see basic accounting WRT assets, liability, revenue and expenses). Theoretically, after 30 years (and even while paying off the principal) you are accumulating an asset that is worth something. You can borrow against it and so on. It’s also not subject to rent increases or being sold out from under you. You can also do with it as you please whereas with an appartment you are typically limited to what modifications you can make.

34

I’ve always lived in areas with high costs of living, so maybe that’s why owning my own home has never been a goal or dream of mine. It’s simply never been within reach, barring a rich spouse, inheritance, or unbelievable financing offer. I hear about people who bought a house 2 years after college, and then moved 5 more times throughout their lives, each time buying and selling their homes, and it’s almost incomprehensible to me.

I’m fine with renting for the foreseeable future. I don’t want a mortgage debt, my landlord’s a nice guy, I like my apartment, the location is convenient, and I don’t want to commit to living in this town for years to come. It’s a good thing I feel this way, because even if those things were different, it’s not like there’s a ton of affordable options out here.

35

I don’t think you’re nuts, Mr. E, but I disagree with you pretty strongly. I think you over-value the “safety” of stocks/iras/etc, and undervalue real property.

Real property is always going to be worth something. Might not be worth as much as you paid for it originally or over time, but it is never going to be worthless. It’s a patch of ground to call your own, and you can live there as long as you like, assuming you pay the mortgage and taxes. If you have room, you can grow food in your yard. If you’re out in the country a bit, you can also shoot food in your yard if necessary. You can make money on the property by renting it out, you can sell it, or you can leave it to someone after your death. Also, there’s a certain status attached to home ownership. If you do it, you have achieved something that society recognizes as significant. Perhaps I’m just vain and petty, but I take a certain pride in my house. It’s not a big fancy mansion or anything, but it’s mine. I can invite you over, or forbid you entry. People can see that I’ve got something with some degree of value.

Once you pay rent, that money is gone, forever. You get one rental period’s worth of value for your money, and that’s it.

36

If you get a fixed-rate mortgage, no matter what happens, the amount you pay per month is not going to change. It won’t go up the way rent might. Your property taxes could go up, though.

You can change things you don’t like about the house. You can decorate in some way that doesn’t involve beige carpeting and white walls. If the boiler is old and sucks, you can replace it. If it doesn’t have a dishwasher, you can get one installed.

Your kitchen appliances, cabinets, and such may be of better quality. When a homeowner changes those things, they have to live with the results. When the management of an apartment complex changes those things, they don’t. The apartment complex managers have more incentive to cut corners and go with cheap stuff, since they just lose some money as a result, while homeowners who do that have to deal with cabinet doors falling on their heads and being without major appliances for a period of time. Though people who flip houses without intending to live in them may have the same incentives as apartment complex managers.

If you don’t live somewhere with a restrictive homeowner’s association, you can own however many and whatever species of pets you want to (subject to local laws). Many apartments restrict pets by species (they allow cats but not dogs) or weight (no pets above a certain weight).

You can choose who does repairs if there are problems. If one particular service person doesn’t do a good job, you can get someone else to do the work, which you can’t always do in an apartment. The downside, of course, is that you have to pay for whatever work you need done.

You can change more things about the grounds around your house, especially if you own a single-family house and not a condo. That’s nice if you’re into gardening, or like doing yard work. If you don’t like doing yard work, that doesn’t mean that homeownership isn’t for you, though- there are people you can hire to do it for you. It’s not free (more accurately, included with the monthly payment), the way it is with apartments, though.

Moving is a bigger pain in the ass than it is for a renter, though. When you’re renting, you just give your 30 days (or whatever) notice that you’re leaving, clear your stuff out, and give back the keys. You don’t have to worry about who’s going to have the place next.

Doing any of those things because it’s what you’re supposed to do at your age, is a big mistake. Those are lousy reasons to get married or have a kid, and buying a home for one of those reasons isn’t any better.

37

Except that rent keeps going up, and eventually you are paying $2000 per month in rent, same as the guy who bought the house and is paying a mortgage. After that, you have no investment advantage over the homeowner.

38

Leaving aside the financial aspects (and the tax savings on mortgage interest is a life-saver for me!), there is also the appeal of ownership. I can make changes without consulting anyone else (except city planning for major changes). I can paint the outside of the house any color I want. I can paint the inside any color I want. I can plant whatever I want in the garden. And so on.

Which raises the question why anyone would want to own a condo, it has all the disadvantages of renting plus all the disadvantages (ably noted above by several people) of ownership, and almost none of the advantages of either.
Roddy

39

The biggest reason I initially bought the place was taxes. I actually liked apartment life and was content to stick with it. Since there are only two of us though, we don’t get all those nice tax breaks for reproducing, just the standard deduction. After i started earning decent bread it hit me how much I was subsidizing everyone else. My mortgage was the same as renting and I had more space and a few extra bucks back from Uncle Sam.

After having my own place I realized how much I enjoy privacy. But since we were living in a row house, it wasn’t as much privacy as it could be. So we bought a single house. Now I sit on my back patio drinking a beer and smoking and I never have to see my neighbors.

We could have rented a house I suppose but it would have cost me a little more and I might have to move out if the owner decided to sell. I prefer not to have my life dictated to me like that.

I don’t know if owning a house is the American dream or not. But my American dream is to sit out on my back patio drinking a beer and I don’t have to see anyone, hear anyone or be bothered by anyone. Just me and the squirrels and groundhogs.

40

I had a teacher in high school who’s first home purchase was a duplex somewhere near where he was stationed after he joined the Air Force. He figured he could live in one half, rent out the other half, and when he got orders for a new base, rent out the half he lived in and have someone manage it for him while he was away. This way the renter(s) at least help offset the cost of living there, even if he doesn’t get the whole castle to himself.

Admittedly he did have to deal with broken washing machines and fallen tree limbs and the occasional broke and/or deadbeat renter, but that was just part of the game to him. He pretty much treated his first home as a business investment that would actually get him some kind of monetary return (the rent checks). Not sure if the rent from the other half covered the mortgage, but I imagine it helped.

Plus, now that I think about it, if he made a point of renting to military personnel, he’d have additional avenues of dealing with lame renters (fun fact, if I don’t pay my rent, my First Sergeant and the Payroll Airmen help me resolve that, whether I like the solution or not…)