Why I Am Never Going to Own a Home Again?

I hate to be on a soap box two months in a row, and I didn’t plan to be until yesterday, which is when I saw “Why I Am Never Going to Own a Home Again” plastered over yahoo.com, msn.com and some money website I’d never heard of.

The article was written by James Altucher and I invite you to refer to his namesake blog. I know everyone didn’t see this blip on the screen, but his 14 reasons against homeownership are somehow burned into our cultural psyche. I’m going to briefly address his most important 5 reasons against homeownership.

1)      He says buying a home means you’ll never see the cash you pay for the 20% down payment again, as if it vanished. Incorrect. You may not be able to physically touch the money again, but it still exists as equity. A 20% down payment is only required to avoid mortgage insurance. Believe it or not, there are loans out there to cover 95%, 100% and even 103% of the home’s purchase price. You could even use a second mortgage in a combo loan or use gift funds from relatives to drop the cash out of pocket even further.

2)      Closing costs. Yes, they exist and are mostly dependent on the cost of the mortgage loan, but as a buyer you don’t necessarily have to pay 100% of them. Ask your agent to make the seller pay your closing costs so that less of your cash is needed to buy the home upfront.

3)      Maintenance costs. Altucher posits that these costs will impoverish a homeowner for life, whereas a renter avoids these costs. What he misses is that scheduled rent increases are due to 1) market rates and 2) maintenance. Even though someone else fixes your fridge, you still pay for it- only a little each month. Homeowners, however, can decrease maintenance costs by purchasing a home warranty.

4)      Taxes don’t mean financial ruin for a homeowner. If they did, no one would own a home. Altucher again misses the mark because renting isn’t tax free- renters pay for it every month a little at a time. Landlords don’t just sit back and absorb this expense- they pass it along to the renter. Homeowners at least have a mortgage interest deduction (for now, anyway).

5)      His last point against homeownership is interesting- he claims it is a bad investment due to illiquidity, high leverage and poor diversification. I would refer him to the point I made earlier- the money doesn’t disappear- it is available as equity. It is true that you have to borrow money as leverage to buy a house- no argument there. But how many businesses or governments would exist if they didn’t borrow money to accomplish a goal? Every person is in business for himself or herself. If a large loan to meet your strategic life goals is right for you, why shy away from it if it makes financial sense? Now, lastly, I’m not a financial planner, but I have yet to meet someone who only invested in her home and nothing else. Homeownership should be piece of your financial whole.

 I am not against renting- so just hold off on those emails. I personally am floating my assets by renting an apartment. Altucher claims he will rent for the rest of his life. So when should a person rent? You should rent when the cost of home ownership has risen far beyond what a home can generate in rent. Renters can financially come out ahead of buyers if they are disciplined and invest what they save and wait for the right opportunity. And with homes prices down and interest rates at historic lows- the right opportunity may be just around the corner.