The Surprising Truth about Owning Your Own Home

by RJ

in Real Estate

I bought my first house in April of 2009.

This house can potentially be the greatest investment of my life.

This same house can potentially be the worst investment of my life.

My Situation

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

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{ 8 comments… read them below or add one }

DaveNo Gravatar December 17, 2010 at 9:40 am

Great post! Your post is extremely similar to mine. My comment relates to the “hard-wiring” over the past 24 years. Over the 24 years of your hard-wiring (1983 – 2007), real estate in Chicago appreciated EACH YEAR and the increases were substantial (see the link below). We were led to believe (and it was true until 2008) that real estate was a sound and safe investment.

Good luck on selling your home.


amberNo Gravatar December 17, 2010 at 11:16 am

Good that you can be honest with yourself and your wife about the situation. I have to say mine is entirely different, but that is the point, homeowning is perfect for some, but not all of the people.
I rented for 8 years and felt constantly in motion – living in 14 different places total (including college)! I moved boxes I never unpacked because I said, well, I’ll just move again soon anyway. Overall, I met some great roommates but that was the only upside.
I have owned since July 2008. I love my place so much. I feel rooted. I have dogs. Life is good. Financially, is it better? Tough to say. That said, I have an aggressive goal to pay my mortgage off in 10 years (on a 30 year fixed loan). The interest makes me sick and I will pay as little as possible. I have the cash to do this because I bought well under my limit. I recommend others do the same.


SamanthaNo Gravatar December 17, 2010 at 1:42 pm

Good article. Doesn’t affect me right now (too young), but it’ll be good to keep in mind when I’m around that age.

Although, my tip – proof read! Please reread the article for errors.


RandyNo Gravatar December 17, 2010 at 8:58 pm

One more myth that many people have learned about is that “real estate values always go up.”

Your post is accurate, but one thing you haven’t considered is the alternative to owning a home is renting. With renting, you pay a certain amount each month and in 3 years you’re left with nothing. In your case, you may lose the down payment and have nothing. Is your house payment more than the rent? If so, then your ownership may be more expensive than the rental would be. But don’t compare your house payment to a zero dollar rental.

As for the tax implication, it’s a little more complicated. If you itemize now vs. standard deduction before, what “new” items are you itemizing? Maybe your charitable giving wasn’t enough to put you over the standard before, but with the mortgage interest, it is enough. Same goes for property taxes on the cars you own, and any other deductions.

I’m glad you posted this, a lot of people fall into the same trap. I don’t think you can make the ownership decision solely based on a financial decision.


Financial SamuraiNo Gravatar December 18, 2010 at 8:19 am

I think what you’ll find is that if you are in the 33% or 35% tax brackets, and live in a high income tax state, you will find homeownership to be VERY beneficial to offsetting crazy taxes. Otherwise, it’s hit or miss.


PatrickNo Gravatar December 18, 2010 at 8:49 am

After spending ten years in the Army and moving to 4 times during that period I was very excited to buy a house and turn it into a home. We have painted every room in the house to the color we want because we can, you would be amazed at the happiness that can bring.

I agree that buying a house severally limits your mobility and I can say that even though I have full time employment where I live now I have also had to pass up other job offers in the last six months because that would have required me to move.


dickNo Gravatar December 18, 2010 at 9:10 am

You should rent out the house to dozer and buddha


John HunterNo Gravatar December 22, 2010 at 7:19 am

I agree that the idea that homeownership is = to the American dream makes no sense. It is very nice, for some people, including me. But it just doesn’t make sense for quite a few people. And that doesn’t mean they are missing anything that they need.

We tend to swing back and forth wildly. Today many people are thinking home ownership is awful no matter what. It wasn’t a guarantee of success before and it isn’t universally bad today. It depends.


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