I recently read an article by the Seattle Times about first time home ownership. It was written by Katherine Reynolds Lewis (Washington Post). In short, it’s an article about the things you should have in order before buying your first home. If you’ve been on the Emerald City Journal awhile you know my view on the subject and that’s it’s a horrible liability. You can read the article here. The article by the Times covered the basics like looking at your credit report, consider talking to a tax advisor, stick to your budget, finding a good real estate agent, and research a good lender. It’s pretty obvious stuff when considering buying a home.
The things it doesn’t cover is that homes are a liability – not an investment. They are also rarely opportunities (unless you’re paying it all off completely without a lender). You need to remember that when you purchase your first home that you’re not going to get your money back. Here is the simple most basic formula. Take your purchase price and multiply it by (2.5 – your interest fees) + yearly property tax X 30 years. This number is what you’ll need to sell it at to get your money back. Honestly, do you really think you’re home is going to appreciate that much? The truth is…. never. This doesn’t even include the repairs down the road, updating the property, and the higher costs of just living in a larger space (heating, water, sewer) compared to renting.
Of course not everyone will agree with that statement above. Most critiques say “well at least you’ll have something at the end” compared to renting which is just “burning money”. My argument is that you’d be more wealthy renting. You’re paying about 33% less renting so if you put the rest into a savings account (compared to giving the bank interest payments) at the end of 30 years you’ll have way more money saved. You could actually pay cash for a home at that time if wanted.