The debate between buying a house and renting is never-ending. There are people who feel strongly that house buying is always a best investment decision. There are also equal number of people who think renting is the best option when it comes to saving money.
I would like to touch base on this topic for a while. The topic is intriguing and as long as you’ve making a calculated decision, you are good with either buying a house or renting an apartment.
Neither is a poor decision as long as you know what you’re doing. If you didn’t analyze your decision before spending your savings, either can be a poor financial decision.
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Why most home buyer makes a poor decision
Most of the buyers’ decision is based on the information they receive from a friend or internet. It might be in the form of indirect peer pressure.
“All of my friends have a house, maybe I should own one too. “
These buyers tend to rely on others’ information rather than making their own decision.
For some reason, these buyers do not believe on their own decision; probably because, they believe, they don’t have the expertise to analysis or they do not understand their own financial situation.
Not everybody wants do their own research right?
Plus, who has time for all these?
The information is readily available on the internet!
Before I get distracted, I want to focus on the 4 myths of buying a house. The following are some of the reasons why a random home buyer thinks that’s his/her right decision. I call them home ownership myths. I want y’all to be aware of these so that you don’t make the same mistake.
A. Home is better investment decision than renting
I want to quote Robert Kiyosaki’s statement here that he mentioned in his best-selling book Rich Dad Poor Dad.
“Your House is your biggest liability.”
He further explains, Home is not an asset. Asset is the one that puts money in your pocket. Home is a liability because it takes away money from your pocket.
Therefore, owning a home is not always a better investment decision. At times, renting can be a better option (again, it all depends on your financial position and goal), when you don’t enough budget for down payment.
B. I’m wasting money while renting
When you’re living in an apartment, you pay rent every month. All your monthly payment towards your rent disappears and you don’t have anything to show for it at the end.
On the Contrary, when you buy a house, your monthly premium goes towards the house and once paid off, you have an equity.
Therefore, some people consider renting is a complete waste of money. You could have paid the same monthly premium and buy the house.
Let’s compare apples and apples.
The monthly payment on the house and apartment is not the same. The payment you make towards the apartment, in general, includes rent, renter’s insurance and utilities. Some of the apartments come with utilities included.
The payments towards the house are mortgage (principal and interest), home insurance, Home Owners Association (HOA) fee, and utilities (water, electricity, gas and trash).
Most of the people tend to stop here.
Most people don’t think about the Taxes, maintenance cost, and many other optional fees like home warranty, Lawn service, pest control, home monitoring service, flood insurance (based on the location, it may be mandatory) etc.
Taxes and insurance alone can add up equivalent to the cost of renting.
C. Home owner has an advantage of forced savings
First, I want to laugh at this concept!
Let’s discuss what this fancy phrase “forced savings” is. The financial guru or mortgage broker I should say, explains – owning a house would force you to have a budget to pay for monthly premium of the house. If y you are not a saver, you don’t have a choice but to force save money for the monthly payment. Else the house will be taken away by lenders.
The concept says – Somehow, you’ll find money to pay your mortgage.
I do not agree with this concept and here is why. You cannot force anyone to save. That is because, saving is a mental rather than physical game. If a person is spender, s/he will find a way to spend money no matter what. This concept of buying a house to force save is a recipe to disaster. Also, it is no fun to force save, unless that’s your own plan. You do not want to be worrying about money every month and wondering if you can make the payment or not. Forced saving can last for a while but on long run, homeowner would struggle to keep the house. Rather than owning the house, the house will own him.
D. Tax advantage of buying a house
Home ownership is a best financial decision on a long run, if the decision has been made with much financial literacy. Buying a house is a big financial step and you don’t want to make a purchase because someone recommended it. It might work for them but not for you. You have to analyze your financial position and be sure if it makes sense. You do not want to own a piece of property that’ll keep you awake all night wondering if you’ll be able to make the payment. You want to be Home rich, not house poor.
If you think you’ve made a really good decision while buying a house, please drop us a comment below. I would like to know how did you plan it ahead to avoid financial burden of owning a home.