How Home Ownership Kept Me Broke
Author : Tom Graneau
Owning a home is an American dream, one that millions are pursuing daily. I imagine the same could be said about people in other parts of the world. However, “Home sweet home” can have a financially empty meaning for people who purchase the property for financial gain. Despite the idea of walking away with some cash, when the math is done, the result is usually disappointing.
In my thirties, I purchased my first home and moved my young family into it. Later, I upgraded to a second and a third home for convenience, comfort, and above all, profit. Through it all, I was naive about the facts of real estate. Looking back, thirty years of home ownership experience kept me broke but made me wiser. The following are five things I didn’t know until it was too late:
People buy homes for various reasons, but financial gain tops them all. According to Fannie Mae, 43 percent of those surveyed indicated that safety was their primary reasons for purchasing a home, 33 percent stated that proximity to quality schools was their motivation, and 83 percent admitted that financial incentive was their main drive. Conclusively, most people buy homes for wealth accumulation. What I didn’t know was that home ownership does the exact opposite. It depletes people’s wealth-building capacity over time by consuming their hard-earned income and cash reserve while restricting their abilities to capitalize on other types of investments because of their limited financial resources.
- Cash is a highly valuable commodity, and everyone who understands its value wants as much of it as possible. What I didn’t know is that investing hard-earned cash in a home is one of the worst financial decisions an average person can make. Since common wisdom suggests that home ownership is one of the best options for wealth-building, many people deplete their savings (401k plans, IRA accounts, etc.), to purchase a home. What they don’t realize is that the money invested in a home is money gone forever. The cash they once owned in a moderately safe account has been placed on a property that belongs to someone else—the lien holder or mortgager, and it will never return to the home owner.
- The real estate industry is full of deception. Mortgage companies, real estate brokers, banks, and even our government (HUD, FHA, Fannie Mae, etc.) love to trumpet the idea that they are in the business to help people attain the American Dream. What I didn’t know was that these organizations are not interested in helping homeowners experience financial success. Encouraging people to assume the biggest debt of their lives (a mortgage) is not a positive way of helping them succeed financially. Instead, these organizations are in the business of misleading the masses for financial gain. Their mantra is intended to pad their own asset base for greater financial leverage. Once a person becomes a homeowner, he or she becomes liable for the mortgage as well as all the costs that are associated with maintaining the property. The heavy fiscal obligation on the home makes it difficult to get ahead financially.
- Most homeowners look forward to the day when their mortgage payments will come to an end—an envious position indeed—at least, so it seems. What I didn’t know was that once the home is paid in full, all the cash (home equity) is trapped in the house until the owner refinances the property. This is usually done through a reverse mortgage or home equity line of credit, both of which are counterproductive to the home owner’s plan for financial success. If the homeowner sells the home to recoup the cash, he or she becomes homeless until some or all the cash is used to purchase another property.
- Renters can be winners. The mortgage and real estate industries have done a great job to demean renters. “Why rent,” they say, “when you can buy for less?” They have come close to calling renters idiots who throw away money on rent each month. What I didn’t know was that nothing consumes more of an individual’s hard-earned income than home ownership. One who rents will NEVER “waste” as much money on housing as one who owns. The appeasing $50,000 or even $100,000 cash equity a person receives after the sale of a home is negligible in comparison to the money he or she will spend on the home during occupancy. The mortgage interest alone will account for twice as much as the cash equity. Maintenance and remolding costs will be extra. Do the math and see.
For these reasons and more, I have decided to rent again…indefinitely. The idea is to save all the extra money that I would otherwise spend on home ownership, and let the landlord pay for upkeep and maintenance expenses. You may consider doing the same.
If you’re a homeowner, there is no reason to take drastic steps to rearrange your current housing situation. What has been done, is done. For the time being, you may simply want to consider these facts to allow yourself more financial leverage in the future with respect to housing.
The bottom line is that more people should be renting a home rather than buying one. Financially, they would be better off in the long run.
For additional information on the topic, consider reading Renters Win, Home Owners Lose.
What are your thoughts on the matter?
Does home ownership make sense to you? In what way?
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More than 83% of people buy homes as a financial investment. But could home ownership have the opposite effect on the average consumer?