Of all the important financial decisions we make in life, the buying and selling of the homes we live in is one of the biggest. In this article I’m taking a less academic approach to the topic and sharing from my personal experiences. (and poking a little fun at myself in the process)
A long time ago someone shared their definition of an excuse that I have never forgotten.
Excuse: The skin of the truth… stuffed with a lie
Here are the top 5 (most expensive) excuses I’ve used over the years to justify the buying and selling of houses we have lived in. We have bought 7 houses and sold 6 of them and along the way and have rented apartments 3 times. Hopefully none of my excuses ring true for you because it will mean you have been a lot wiser than I have. The good news in all of this is … if we learn from our mistakes we can think of the ‘cost’ as tuition … especially if we don’t repeat them.
Mike’s Best Excuses
Where emotion won the debate over wisdom:
1. “It’s a great investment” – in 5 out of 6 sales we sold the house for more than we paid for it. On the surface you would say we made money. Upon closer examination the numbers are sobering. After paying real estate commissions, property taxes, factoring in repairs and remodeling costs, insurance, closing costs, higher utilities etc., etc., etc., the return on investment (ROI) would not qualify as ‘a great investment.’
I’m not saying you should not buy a home. It is more realistic to treat it as a place to live, to think of it as an expense, not an investment.
2. “I need the tax deduction”– this is one I learned from the banks and mortgage brokers. Out of every dollar you make in a house payment guess who gets most of it? The bank! At times we bought more house than we could reasonable afford and justified the house and the big monthly payment on a 30 year mortgage with the tax deduction excuse.
Buyer Beware: With the latest change in the tax law it’s going to be harder for the average person to itemize their tax deductions and therefore harder to deduct mortgage interest.
3. “The rent money I’m paying is a waste when I could be building equity” – would be truer if I always used a 15-year mortgage. The 30-year fixed-rate is the path that generations of Americans have taken to first-time home ownership. According to the Mortgage Bankers Association, the majority of people who apply for mortgages apply for the 30-year variety: In February 2015, more than two-thirds of all mortgage applications, and 86% of all purchase applications.
If you really want to build equity use a 15-year mortgage and if you can’t afford that house payment then you probably can’t afford that house.
4. “We can’t lose” – one time I bought more house than I should have (for the big tax deduction) and it took 4 years to sell it and we still lost money. When you have an hour let’s have a cup of coffee and I will tell you ‘the rest of the story.’ Remember the great recession? This is where the term ‘short sale’ and ‘underwater’ became a big part of the American lexicon. If there was the equivalent of a CNBC for home real estate prices we would quickly see that home prices go up and they go down.
One of the big advantages of renting over owning the home you live in is flexibility. Real estate can be difficult to sell/liquidate at times. The real estate cycle alternates between buyer’s markets and seller’s markets and cannot be accurately predicted.
At different times in life the flexibility that comes with renting can be very desirable and advantageous … especially in a buyer’s market.
5. “I work hard, I deserve it” – if you take a step back and look at life through the lens of history I think you will agree people have always worked hard and for a much lower lifestyle. HGTV and touring model homes have not been good for me because they have a tendency to make me dissatisfied with what I have and ungrateful.
It’s wonderful to live in a really nice house. Beware of the things that will rob you of your contentment.
More Academic Approach
The truly wise learn from the mistakes/wisdom of others. With that in mind here are a couple of links to blog posts full of wisdom on home purchases. If you like them be sure to forward to family and friends:
From the desk of Mike Jette
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