Contrary to what people say, buying a home is not the best investment you can make. In fact, I would even argue, it really isn’t an investment at all.
Hello. I’m Shannyn. I bought a home this year and despite the fact that it was personally horrendous through and through, that is not why I’m asking you to take your foot off the gas pedal before you careen off a cliff into mortgage debt.
I’m asking you to think about it, because I care.
A house isn’t a good investment because most of us already have student loan debt.
Buying a home is often touted as the most important investment you’ll ever make. People tell you this all the time. Of course, this super important decision comes right after the first most important investment people tell you about -your education. Right after you’ve already taken on a bunch of student loans, you’re told to take on a mortgage. This essentially clasps the debt shackle on the other ankle so you’re nice and even, wobbling to adulthood with no less than 30 lbs. of debt baggage affixed to your person.
If you left college feeling like society lead you astray as you drag around a giant pile of student loan debt, I assure you, this well meant advice rears its ugly head once again. Now though, folks will claim that that actually, the real most important decision is now a house, you just get to do it now with a hand tied behind your back and less disposable income.
Because most of us carry the debt of our college years into the home buying equation we can’t take advantage of the advantages that come with putting 20% down or a shorter mortgage term to save on the gobs and gobs of interest and those extra fun fees known as “PMI” that are tacked on with smaller down payments.
Your home isn’t an investment because your money would be doing better elsewhere.
I’m not a huge fan of seeing your home as investment, because simply put, it’s not. I know very little about investing, but from what my far more intellectually astute friends have told me, you can do far better buying a teeny house, or renting in some cases, and taking that cash difference and putting it into index funds (ooh, big words here) that get an annual 7-8% annual return. In about 9 years, you’ll double your money.
You know what what won’t double your money? Buying a house.
Nope, not only is it a huge purchase that puts you in the hole before you ever get out of it, most people spend their entire lives getting slightly ahead on their mortgage, only to trade up to a bigger, better house they’ve told themselves they can afford and start the mortgage cycle all over again. Unfortunately, the gains are only those of ego, not of cash in hand.
But, “Shannyn,” I hear you say, “Equity, I will have some! That’s good I’ve been told!”
Yes, you will. But you will also have broken things, broken-into-things, property taxes, replacement costs, inflation creep and o-m-g that interest payment which really makes the math feel ouchie in your head so it’s best not to think about it. Most people buy a lot more house than they need, regardless of size. If they bought what they could afford, they might be a bit shocked in today’s market how little that is.
Think of it this way- a $250,000 house with a 4.125% interest rate over 30 years will actually cost you $436,185 after interest makes you hate yourself inside.
Interest and Property Taxes Mean That No, You Don’t Build As Much Equity As You’d Hope
I already hate myself inside, so you’re welcome. Welcome to my pain. I own a home, (well I rent it from a bank until I pay them back) and it’s financed over a 20 year term. After all is said and done, let’s say I’m here for 20 years and fill my yard with heirloom tomatoes, lawn gnomes and the remains of a generation of old family pets, I will pay $117,552 in interest.
Since I tend to round up for effective story telling and because math generally annoys me, that’s nearly, with some give, half what I paid for the house in the first place in interest alone.
I would like to think it will be worth the $367,552 I’ll pay for it (since I can’t even calculate the sheer amount of things it will need to be fixed in 20 years, plus taxes), but I can’t really say that it will.
It also, my money surely didn’t double over nine years. Even if I sold my house for the $367,552 without counting in upgrades or additions, I just broke even. I better pray this neighborhood turns around.
I will tell you this- as of this writing, I don’t know anything, almost diddly, about investing. It was always overwhelming to me and hurt my head and I was really just working towards that 20% down payment since, I too, thought a house would be my best investment. It was something I could easily calculate and fixate on until I hit my goal. Surely, I was doing the smart thing!
I bought a “move in ready” house that passed inspection and was completely renovated.
Here’s the math of how much I’ve spent in 6 months on this “investment”-
Not only did I get to go through a super fun 3 week nightmare of my $52,660.57 down payment being stolen (thanks title company!), only to miraculously save the house, I got to deal with the equally pleasurable process of a new roof failing, a new HVAC failing and a ton of other costs for a completely renovated house which was supposed to be move-in ready, which I will line out for you thusly:
– HVAC (installed improperly, inspector didn’t catch float valve not installed) failure: $500
– Electricians called out since electrical panel not sufficient, (inspector also didn’t catch wasn’t up to code): $450
– New external door hardware since so many contractors came through our house we needed new locks: $460
– Shed to hold all the crap we need to maintain the house: $500
– Arlo cameras (which saved us from our first break-in of all of our power tools in said shed) $550
– Skunk trapping (yes, because the bottom of our pier and beam foundation had a family): $500
– Roof failure (luckily seller fixed after 6 months of back and forth): $100 in tarping and sealing supplies because, hurricane.
– Sod, tree removal and basic landscaping (because who knew the yard was filled with screws, sticky clay and broken glass throughout? Dogs don’t need tetanus, neither do I and my patience was about spent): $3,000
– Blinds and bathroom hardware that did not come with the house: $1275 (self installed)
– Shower door (didn’t realize the damn thing needed one, it’s a walk-in, our neighbors had the same problem): $700
– Insulation (was missing in half the house, no, the inspector didn’t catch it): $1850
Grand total of expenses I will never get back in terms of value on my house in just six glorious months: $9,885
When you realize the locks on your doors are kick-inable and no less than 30 contractors had keys to your house before you bought it, that kids, is a paycheck.
That is nearly $10,000 I could have put in an investment that would have earned at least 7% and could have fed my family canned caviar at some later date, but no, it was spent to just keep this “investment” afloat so it would be livable and not cost $400 a month to heat and cool.
So, why is a home not a great investment? Let’s recap:
It costs a lot, there’s a lot that breaks (like, a lot) even with the best of inspections. Your interest, insurance and property taxes really takes the edge off of any gains you’d make. You are paying to live somewhere and renting your house from the bank and your land from the government. Quite frankly, you’d have a better bet throwing your money down the sewer with Pennywise the clown than you would being able to really ride out the gains of your house.
Most people don’t make it to the term of their mortgage because they are constantly “trading up.” The clock resets on any gains they could have made and the pain of interest seems to fade since the clock restarts with a new mortgage- at least psychologically.
Was buying this house the worst investment I’ve ever made? No.
The worst investment I almost ever made happened in 2015 when I nearly married a dude who clearly didn’t respect or love me. Had the nuptials commenced, I would have been saddled with the entire cost of the wedding, $25,000. Unbeknownst to me, his half of responsibility pie was spent on lord knows what, and he didn’t have the money any longer, it just kind of, went somewhere.
What should have been his half in cash, would have been funded on credit cards in our names jointly, and he admitted he wasn’t planning on telling me about until after the wedding. OUCH.
What a great way to start a legal partnership together. Get a gal legally bound to you, then tell her that the entirety of the wedding cost, much like everything else that would surely come later, would be shouldered by her alone. By then, she can’t leave you without the assistance of an attorney, and she’ll still have to help pay off the credit cards. *
LOVE, isn’t it great? Ammirite?
OMG between that and the cost of divorce lawyers, I avoided so much financial agony on that one. Luckily for me, I made it a whopping 2 more years before I had to have my first lawyer visit, and that was regarding this solid piece of real estate that I currently own and the many things that went wrong along the way.
*It has taken me about 3 years to finally talk about this. It was probably the shittiest experience that I went through privately, but as always, kind of find the pain humorous, because if I don’t, I’ll go insane.
That being said, do I regret buying a house? Not really. Well, sort of. But not really. Do I think it’s a great investment? Also not really, at all.
I literally buy cheap wine by the case now to save money. But hey, don’t it look classy? You can’t even tell it’s $5 wine.
After 6 months of dealing with less than transparent vendors when I planned a wedding, I became largely disenfranchised with the wedding industrial complex. I believe you should totally have an expensive party if you can pay for it in cash and still live within your means, but most people don’t. When I bought a home, I realized there were many parallels in the experiences between buying a home and planning a wedding, and not in a good way.
Get into your own mortgaged home, but know what you’re getting into. If someone is selling you on the amazing heart strings, be wary.
Overpriced wedding cakes that you “must have,” are the same trap as the overpriced townhouse that you “must have,” and homeownership has a dark side people don’t like to talk about because it’s part of the “American Dream,” we are all entitled to.
Hanging the flag=right in the feels. That dude in shirt with Abraham Lincoln riding a grizzly bear, also in the feels.
That all being said, my home has some intangibles that have been worth the pain. I guess you could say the juice was worth the squeeze, or, perhaps I’m just so grateful that it could have been way worse. Perhaps I’ve now developed a form of Stockholm Syndrome with this delightful 1934 craftsman style abode.
Here are some great “money can’t buy happiness but OMG it ain’t cheap to be happy” things which my home has enabled:
1. I had a place to take in hurricane evacuees and offer them (messy, but genuine) refuge after Hurricane Harvey.
2. We’ve had 5 amazing foster dogs, two of which were street rescues, one of which was on death’s door when we found him on around my birthday on our lawn.
3. We finally have an office space! I have yet to really enjoy functionally as an organized space, but it houses all of my fundraising crap! Plus it gives me breathing room beyond my 2 bedroom apartment.
4. We have used the spare room to do AirBnb and take the bite out of the last round of home improvement projects. I currently am up to about $500-650 a month on average in profits from part-time effort.
5. I get to have a garden, an American flag on my porch. Plus, a fenced in yard so my lazy ass doesn’t even have to get dressed or see anyone anymore with their judgmental eyes about my choice of bed attire to allow my dogs to potty.
6. People in my social circles, either out of genuine concern, or, a desire to see their lives as a far tidier shit show in comparison have reached out. It adds to the bonds we share and making for interesting conversation where I was previously quite boring.
7. I now know how to both trap, and humanely release skunks. We have caught 12 in 2 months of sporadic trapping. I literally, quite literally smell a side hustle idea for more income to pay for this house. Ever the opportunist!
8. Although the wire fraud nightmare was absolutely awful, I was just floored at the show of support I experienced. I’m not kidding you, people offered to set up GoFundMe’s, friends sent cards and flowers, checked on me throughout the process. Honestly- it gave me more faith in humanity than the loss the fraud could have caused. Almost losing my $52,000 down payment sucks, but seeing your circle rise around you, is humbling.
The 5 dogs we took in during my first 6 months of homeownership- bottom left & bottom right we found on the streets.
That all being said, money can’t buy happiness, but it sure costs a lot if you go about it the way everyone else does.
I can already hear people in my head saying “awww, but wasn’t it worth it?” and honestly I don’t have an answer for that. I’m happier than I’ve ever been, I’m very grateful for the life we’ve built and the opportunities and honest-to-God miracles we’ve experienced this year (recovering $52,000 and stopping a break in on our property as it happens is nothing short of miraculous to me).
Please, Do Not Join The “Your Home Is An Investment Cult.”
I think about how different my life could be had I made other choices, and I’m still pretty solid on the path I’ve chosen. That being said, am I sold on the American Dream? HECK NO. I do not recommend that anyone signs up for the cult of homeownership that everyone prescribes as being the best thing ever.
Will I also argue that it empowers you to do great things money can’t buy- like host evacuees, save dogs, raise a family, start a garden or simply be happy? You bet! Do I recognize it’s also a slippery slope of consumerism? Also yes. Proceed with caution and give it some real thought before you sign your name on the dotted line.
Long story short- a home is not the best financial investment you can make.
So, there it is,my meandering experience about houses. I’m not a math whizz, but you can read more about the numbers and why having a mortgage can totally be a bad decision here, here and here if you’re considering buying in the near future.
Jump in, but do the math and add a margin of about 2% of “woopsie money” in a savings account for all the repairs you will need to make even in the best of circumstances.
