This house can potentially be the greatest investment of my life.
This same house can potentially be the worst investment of my life.
Two weeks before I was set to get married, I was handed the keys to my first house.
At the time I was living in an apartment that just wasn’t right.
Knowing that I was about to get married, I figured the next step was to buy a house. After all, that’s what married people do, right? So my future wife and I went house hunting.
We looked at 25 houses in a weekend. One house easily stood above the rest. The price was just reduced. The seller needed out. It was in a great location. We made an offer Sunday night.
We didn’t exactly get a steal. Although, we did get a good deal. Our house was appraised for $13,000 more than what we paid. Plus, we qualified for the $8,000 tax credit.
After getting back from our honeymoon in May, we moved in.
18 months later, we sensed that something just wasn’t right. We were too far away from our friends. We were giving up weekends to maintain a home. Combined we commuted over 2 hours a day. Overall, we were spending a lot of money on things that just were not that important to us. When we added it all up, we decided that to move.
In September of this year, 19 months after we had bought a house, we put our home up for sale. Although we had a lot of people come through, we didn’t receive an offer. Combine this, with the fact that there is a large supply and little demand of houses in our area; we decided to wait to sell.
Our plan right now is to re list the house in April of 2012. We are waiting three years from the date we moved in, because only then, will we not have to repay the $8,000 tax credit.
In around 16 months from now, when we sell our house, I find out if I made the best investment of my life or the worst. If real estate prices rise, I could be looking at a six figure check, tax-free. If real estate prices continue to drop, I’m in danger of losing my down payment. This makes me incredibly excited and nervous at the same time.
The Surprising Truth about Real Estate
I’m one of the lucky ones, who wish to get out of their house. I’m not forced to move. I’m nowhere near being underwater on my mortgage. I can afford to pay my mortgage and maintain my home. I have a full-time job, which I’m not in danger of losing. I work nights and weekends to make money on the side. I live in one of the nicest suburbs of Chicago, where home prices haven’t been hit as hard.
My problem is I didn’t understand what being a homeowner all was about. Even though I read the books, asked the right questions, worked with people I know and trust, it didn’t matter. I had been hard wired for 24 years that home ownership was the American dream.
By no means is my situation a nightmare. I’m just disappointed in myself for following a conventional path. A path that was another person’s agenda for my life, and not my own.
The Myths of Home ownership
I’m clearly not the only one who fell into this trap. The benefits of owning a home were ingrained into many.
Here are the biggest myths told the public about owning a home.
Myth # 1 – The Benefit of the Tax Deduction
Say I gave you a quarter, for every dollar that you gave me. How many times would you make this transaction? Hopefully, this answer is zero times. Yet, this is exactly what the benefit of the tax deduction is for buying a home.
Also, with interest rates so low, it’s become common for homeowners to take the standard deduction over having enough to itemize.
Myth # 2 – It’s Good for the Economy
Mobility, the advantage of moving to where the money is, is worth a lot. If you own your own home, you restrict to your mobility.
It’s better for the overall economy (and the individual) to have a mobile workforce. A workforce that can go where the jobs are.
We live in a country in which one town can be booming, while another can be in a depression. For example, at the same town Detroit was getting hit hard, Silicon Valley was booming. The more our economy funnels workers to places that are thriving, the better.
Myth # 3 – A Home is a Good Investment
A home can be a good investment. Although, the majority doesn’t treat it as such.
They use their home as equity to acquire debt. They continue to refinance to a 30 year mortgage, and therefore, not paying down as much as they should. They’re leveraged over 30 times. They sell one house that appreciated, only to buy a bigger house that appreciated even more.
Myth # 4 – Homeowners are Happier than Renters
What happens when we take money out of the equation. On a fundamental level, are homeowners happier than renters?
A recent study from Grace Wong Bucchianeri, assistant professor at the Wharton School of Business compared homeowners and renters happiness. Even though she did the study in 2005, at a time when real estate was at the top, she found that rather or not you own a home, has little effect on your life satisfaction, overall mood, and overall feeling.
Putting it All Together
I’m not against home ownership. Who knows, I may be handed a six figure check in 18 months?
What I am against is the theory that home ownership is part of the American dream. It might have been a while back, but it’s far from it now.
Photo by: Leocillio Sabino