Why Homeownership Keeps You Poor!

If you are buying a home or building one soon, you should value your sentimental attachment for a house far more than at least braking even with the cost of renting a similar house after at least 30 years or even longer. Let’s look at the full cost of buying a home or its worse counterpart, building a house in more detail from a US buyers perspective to find clarity in this much misunderstood and therefore, controversial topic.

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I demarcate costs of a mortgage to buy a house to two main categories namely, direct costs and opportunity costs. Although direct costs such as that for interest, maintenance, taxes and others are easily understood by many, the same cannot be said about the latter. However, in most to all markets direct costs alone are higher than the cost of renting. Meanwhile, the biggest advantage of renting vs. buying or building comes from investing the downpayment and more importantly, investing the difference in the mortgage payment and rent payment into a passive market investment. When you add all that together, the case for buying a home is non-existent. Yet, some don’t believe so and provide the following myths as counterpoints.

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The myths offered proposing buying houses fall into two main categories namely, rent price growth outpacing inflation and housing being an appreciating asset. Ignoring mere benefits of renting such as flexibility, fixed nature of your costs and lower overall cost and, setting them aside although they are significant advantages, I’d posit that the above two counter points are just that myths founded only in misguided adventures in thinking incorrectly. Here’s why.

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Housing prices do go up but not after inflation. While you can find a golden property that outpaces inflation by a mile, the chances of you being that lottery winner are lower than being struck by lightning thrice at the same spot over different days. In addition to that, while rents can go up, it too can only go up in line with inflation unless you live in a city with abnormalities as the norm.

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There is a third category of counterpoints where many say an anecdote of someone who became rich off a house, and I’d ignore those for their unverifiability. However, one caveat is when you plan on living in one house for forty or more years or your land has oil or any other valuable resource. But there are no guarantees with that too.

This content is intended for informational purposes only and should not be construed as financial or investment advice. Readers are encouraged to conduct their own research and consult with a financial advisor before making any investment decisions.