Reason to not buy a house... ?

[J.P. MoreGains]

I'm just looking at different options for the future. Any thoughts on this:

I've always been a nomad and lived in a bunch of different places so I'm weary of committing to a house. Also, big fear of being locked in to a long term mortgage and having to pay that every month.

But... I'm open to possibilities.

Nevertheless I don't see much of a reason for me to buy a house considering the following stats. And correct me if I'm wrong because I'm new to all of this.

Current total rent in a relatively high cost of living area: $650 all included for a room in a boarding house

I'm saving over $4k a month in typical months

House scenario / proposition
- in my city there are a total of 6 houses for less than 300k which aren't nice houses at all and a lot of work. But just going with the lowest value to prove my point I guess.
- let's say I put 20% / 60k down for a 300k house
- loan amount of $240k
- 15 year mortgage with 7% interest rate
- this is all just ballparking it for a low cost scenario

With this mortgage from a calculator I would pay $148,320 in interest
- that averages to $9,888 a year in interest paid
- and averages to $824 in interest paid a month

The whole point is that this is higher than my rent, my total cost of living hovers between 1,000 and 1,400 a month from what I've seen and 1,400 would be atypical

I just kind of see myself riding out my situation as is - no mortgage and just invest my 4k savings every month.

I really don't see the benefit of signing up for a mortgage now or in the short / mid term - and this was a super cheap scenario with very low priced house, plus 15 year mortgage.

I like the feeling of investing more than paying a mortgage. Plus... if a few years from now I have hundreds of thousands of dollars maybe I do it then with a huge down payment and pay it off quick.

Being single, minimalist, super basic I just don't think I need it and I think it doesn't actually make financial sense for a guy like me.

Am I totally missing something? Everyone always talks about having a home as a great investment... but I kind of see it as holding me back from making the real progress I can make over the next few years.

[neo von retorch]

Am I totally missing something? Everyone always talks about having a home as a great investment... but I kind of see it as holding me back from making the real progress I can make over the next few years.

The only thing you're missing is that the comparison can vary greatly from one location to the next, and over time. Is the amount of interest you pay on a $240,000 mortgage the same at 8% and 3%? Of course not!

Where I live, my mortgage is under $1800/month including tax/insurance, but you couldn't rent half this space (with no land - I live on nearly an acre) for that much. But that's with a 2.99% mortgage. Turn things around to today and buying this same house at current valuations and interest rates would make for a much, much larger mortgage. (Though renting this place would also be a lot higher than $1800/month.)

Own/mortgage vs. rent is both a personal choice and a mathematical/financial one, and the pros/cons vary greatly.

[uniwelder]

In the short term, buying and selling a house has a lot of costs associated with it-- closing fees, realtors, etc.  In addition the interest paid on a mortgage as OP's mentioned.

In the longer term, OP is not considering the house will usually appreciate in value, the interest paid each month will decrease, and the mortgage amount will remain constant as the rents in the area will continue to increase with time.

[maizefolk]

I think you are likely right about your own personal situation. A room at a boarding house is less space/fewer amenities than a whole house. If you don't need that extra space/extra amenities it would be silly to pay for them. Nothing below is meant to convince you to change your decision.

That said, keep in mind that a big historical reason to buy a house in the USA, where we have long term fixed rate mortgages, has been as an inflation hedge. If inflation averages a historical 3%, in 15 years your current $650/month rent will likely be more than $1,000/month. If inflation is 5%/year (unusual by US standard, but not at all unusual globally), your rent in 15 years might be $1,350/month.

Big increases in rent can in increase the net worth goal post you need to hit to cover your yearly spend with a 4% withdrawal rate (or whichever rate you prefer).

[SilentC]

JP, it sounds like you should buy a house if you hate money.  OR you could buy a house with the intent to rent it out.  Re inflation houses have become a bad inflation hedge in recent years/more rate driven.  We had skyrocketing home prices in most of the country since the mid 2010s while inflation was low and now that inflation is pretty high prices are roughly stagnant or falling.  Sure you are paying the mortgage back with cheaper dollars but wages have also barely kept up or perhaps lagged inflation.

[GilesMM]

Your primary home is not typically best thought of as an investment so if renting is working for you emotionally/logistically, don't buy.  Many people tire of the rental situation - frequent moves, neighbors, landlords, rules, leases, etc - but others find a good deal and hang onto it. 

[J.P. MoreGains]

All good stuff here for me to consider...

I just really think the answer for me is "not now". I'm still pretty early in this journey with ~ 115k invested and saving 4k a month. I want to ride this out and just see the progress with my low cost of living. I think I have the strong preference for seeing contributions to my investments over paying down a mortgage.

I mean it definitely makes sense when I'm more established I think... it's just that's not going to be for awhile I think.

And my own personal tendency to move a lot makes me feel like it's not something I can do yet. I think if I can really tough things out for a few years and make sacrifices with my living expenses then I'll be in a good position to do something.

But... if I can pull a higher salary and save even more I think I would start looking at just buying a place in another country when I can retire or semi retire.

I think a big factor is my own personal inability to stay in one place for a long time since I get bored and want to travel / live overseas. That's actually what I need to change to stick with this journey and actually make it. So no doubt behind my point of view is this motivation

[neo von retorch]

Certainly know yourself. Though oddly enough I moved every single year as a renter. Then bought a house and lived there for 7 years. Then moved twice from rental to rental, and then lived in my current house for... 7 years. (And I'm looking to sell...)

I sold the first house after 13 years (renting it for the last 6), and it had only appreciated ~38%, so roughly inflation.

Still not sure what this house will sell for, but in theory it has appreciated ~50% in 7 years.

But in both cases there have been large homeowner expenses like roofs, HVAC, fences, etc.

[Morning Glory]

If you are still happy renting a room then there is no point to buying a house and living in it alone. A better comparison would be where you buy a house similar to what you are living in now and the roommates pay rent to you which covers most or all of your mortgage.

[J.P. MoreGains]

If you are still happy renting a room then there is no point to buying a house and living in it alone. A better comparison would be where you buy a house similar to what you are living in now and the roommates pay rent to you which covers most or all of your mortgage.

yes, now this would be ideal. I lived and rented in a place like this and liked it. So this is on my radar.

I just need more stability in order to pull it off.

[aasdfadsf]

You sound like exactly the kind of person who should rent and not buy. You don't want to be stuck in one place. You don't have a family. You are cool with a minimalist home with low rents. You are, so it seems, investing your money wisely in places other than housing. And that's fine.

It is never the case that buying is always better than renting or that renting is always better than buying. Neither can lead to an equilibrium in which renters and owners both get what they want. It will always be the case that some people are better off renting and that some people will be better off owning properties and renting to others, or to themselves.

You seem to be saving a lot of money, and that's the important thing. You can give yourself exposure to real estate if you want through REITs or other ways, but there's no special reason to do that, you'll get indirect exposure through index funds. There is no particular reason for you to buy a house unless it makes sense for you. 

[Dicey]

It absolutely does not matter either way. Why are you even having this conversation with yourself? You can change your mind at any time, just as JLCollins did. Maybe check out his old blog posts. Google knows him.

[Freedomin5]

Kristy and Bryce over at Millennial Revolution are FIREees who are also adamantly against owning a home, making good arguments for renting over owning.

Their post on not buying a house: https://www.millennial-revolution.com/rent/bought-house-back-2012/

[VanillaGorilla]

I bought my house for a little under 400k a decade ago. I paid a rate that was roughly the same as inflation (!). It's worth twice that now and it's all but paid off. I've put maybe 50k into repairs and upgrades. Maybe 500k total for paying off the loan, taxes, interest, and ownership costs. Rent for any apartment near me over the last ten years would have been around 260k. So buying in 2013 has netted me an additional $550k of net worth. Now it nets me about $2500 per month in imputed rent. This is ballpark, obviously, and the market is entirely different from what it looked like ten years ago, but there's a reason that homeownership has been the traditional driver of net worth of the middle class.

Assuming you live in the US, the federal government has always subsidized homeownership and land ownership. From the Homestead Act to VA loans to federally backed fixed rate 30 year mortgages to interest tax deductions and capital gains exemptions: homeownership is massively underwritten by the feds. Even today, with historically high rates, you can get a 7% mortgage when inflation is around 4%, which is pretty generous when you consider leveraged appreciation.

That's why a lot of people across the board like the idea of homeownership.

Probably not the right call for OP - you're new to your career, you have cheap housing, low assets and low cash flow compared to future you (hopefully). Just don't swallow the sophomoric  blog articles that oversimplify the issue (see: millennial-revolution). Don't swallow the anecdotes from the septuagenarians who were making decisions in utterly different economic circumstances, not to mention geographic housing markets than yourself (see: JL Collins). Real estate is a federally subsidized, leveraged investment that is extremely powerful. It can make you richer or it can make you broke.

Of course, it can never make you financially independent, unless you're willing to house hack. YMMV.

[Freedomin5]

Well, the bloggers at Millennial Revolution have been living their house free lifestyle for over 10 years in one of the most expensive cities in Canada and have written about it multiple times from various angles over the years. Don’t think it’s fair to say they oversimplify the issue. It’s important to at least consider their viewpoint and take whatever points have merit. Don’t throw the baby out with the bath water.

That being said, I don’t necessarily agree with all their points. I personally worry about being priced out of the market. OP says they want to travel and consider retiring overseas. Then OP needs to seriously consider whether there is even a remote possibility that they may need to come back to the US for family reasons or for medical care or if there is political instability in the region (those are usually the biggest reasons why expats repatriate). If there’s even the remote possibility of needing to return to your home country, then the house hacking route is, to me, the safest. I’ve seen too many expats retire abroad with a smaller than normal stash which suffices in Thailand but not in the US, have something happen to them, and then need to depend on the kindness of friends and family for a place to live in the US. If they don’t come back to the US, then the rental income can simply be another income stream.

[maizefolk]

JP, it sounds like you should buy a house if you hate money.  OR you could buy a house with the intent to rent it out.  Re inflation houses have become a bad inflation hedge in recent years/more rate driven.  We had skyrocketing home prices in most of the country since the mid 2010s while inflation was low and now that inflation is pretty high prices are roughly stagnant or falling.  Sure you are paying the mortgage back with cheaper dollars but wages have also barely kept up or perhaps lagged inflation.

I'm not sure I agree with the argument that owning a home isn't currently a good hedge against future inflation.

Yes, interest rates are significantly higher than in the past, but so is inflation, including in rent. Right now rents are increasing at ~7.4% annually (annualizing the 0.6% increase for rent in the latest CPI report).

If inflation and interest rates decline, there is an opportunity to refinance fixed rate mortgages at lower interest rates. If inflation and interest rates stay high, a 7.4% annual increase in rent means that at the end of a 15 year mortgage, a person would be paying almost 3x as much in rent as when they started.

There are certainly cases like OPs where renting is still the option that makes the most sense (might move in the near future, really doesn't need or want the amount of space that would come with buying even a small house).

But a house doesn't have to appreciate in value to act as an inflation hedge. Just sheltering a significant fraction of people's annual spending from long term increases in rent is the biggest part of the potential benefit.

[lucenzo11]

Here's JLCollins' thoughts on buying a home: https://jlcollinsnh.com/2023/03/02/why-your-house-is-a-terrible-investment/
And here's another where he talks more about his experiences owning: https://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
It's well worth the read as it is contradictory to so much of what we hear about buying homes. Especially in the US, it's the "American Dream" to buy a home so if you don't buy a home, then that equates to not being successful. And many people have built success on buying property and becoming landlords, but JL spins it on its head a bit and points out some of negatives of home ownership. I like how he defines it as a lifestyle choice. Owning and living in a home is not an investment, it's a lifestyle and one that you usually cannot get with renting.

In your case, you have minimal needs right now which is why you have such low rent. You don't mind sharing bathrooms or kitchens with others so it works for you. But if you suddenly want more privacy or more space, then a room in a house with others isn't going to work and you'll need to spend more for that. So your current comparison is correct, it totally does not make sense for you financially to buy a house with mortgage. Try the comparison with a one or two bedroom apartment instead. It will come out much closer and then will come down more to local markets.

For me, I rented for over 10 years after college. I didn't want to take on debt with a mortgage because I was very debt averse after graduating with lots of student loan debt and I wasn't sure where i would end up long term. I shared houses for a while with roommates but then wanted my own space so I rented an apartment. Then my girlfriend moved in, we got married, started working remotely full time and wanted pets. Working remotely was okay in our apartment, but it was tight and we wanted more space. Pets were simply not allowed. So we bought a house. I could have bought a house much earlier but it never made sense to do it financially. It only made sense once our lifestyle would support that purchase.

[Dicey]

Here's JLCollins' thoughts on buying a home: https://jlcollinsnh.com/2023/03/02/why-your-house-is-a-terrible-investment/
And here's another where he talks more about his experiences owning: https://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
It's well worth the read as it is contradictory to so much of what we hear about buying homes. Especially in the US, it's the "American Dream" to buy a home so if you don't buy a home, then that equates to not being successful. And many people have built success on buying property and becoming landlords, but JL spins it on its head a bit and points out some of negatives of home ownership. I like how he defines it as a lifestyle choice. Owning and living in a home is not an investment, it's a lifestyle and one that you usually cannot get with renting.

In your case, you have minimal needs right now which is why you have such low rent. You don't mind sharing bathrooms or kitchens with others so it works for you. But if you suddenly want more privacy or more space, then a room in a house with others isn't going to work and you'll need to spend more for that. So your current comparison is correct, it totally does not make sense for you financially to buy a house with mortgage. Try the comparison with a one or two bedroom apartment instead. It will come out much closer and then will come down more to local markets.

For me, I rented for over 10 years after college. I didn't want to take on debt with a mortgage because I was very debt averse after graduating with lots of student loan debt and I wasn't sure where i would end up long term. I shared houses for a while with roommates but then wanted my own space so I rented an apartment. Then my girlfriend moved in, we got married, started working remotely full time and wanted pets. Working remotely was okay in our apartment, but it was tight and we wanted more space. Pets were simply not allowed. So we bought a house. I could have bought a house much earlier but it never made sense to do it financially. It only made sense once our lifestyle would support that purchase.

I agree with you in principle.  Just commenting because many people don't realize that JLCollins, who I have a ton of respect for, actually bought another house in 2017. I think he calls it "Kibanda."

[aasdfadsf]

This always comes up again and again, thanks in part I guess to JL Collins writing his bad article, but some things to keep in mind...

1. Buying a house is definitely an investment. It might not be a good investment. It might be not be an investment that is right for you. That doesn't make it not an investment. It is a major capital good and is worth a lot of money for a reason.

2. The largest source of ROI from owning a home and living in it is the imputed rent. That is income! Not paying rent to someone puts all that money into your own pocket. You have to account for that or you are not looking at it right. That's something JL Collins didn't seem to get.

3. The laws, especially in the USA, tilt things heavily in favor of owning and living in your own home (renting to yourself, as it were). The biggest thing is that the imputed rent is not taxed. Then there is the mortgage interest tax deduction, certain property tax benefits, and various other subsidies (these vary greatly from place to place, but they almost always benefit the homeowner).

4. There is a lot of waste and drag that occurs with rentals: things like vacancies, renters destroying property, management and advertisement costs, lawsuits, and so on. Those are economic losses that can potentially be recaptured by renting to yourself.

None of this means that you need to be a homeowner. But it does mean that being a homeowner for many people is an awesome idea, because it makes no sense at all that it can't be. You just need to figure out if it makes sense for you or not.