When should you NOT buy a house
Everybody and their grandma wants you to buy a house. Well, that is great and in all honesty, real estate is a great way to accumulate wealth. However, keep in mind that accumulating wealth takes time, patience and most importantly, timing. On today’s blog, I will discuss 5 scenarios when you should not buy a house:
1. You have just entered work force
Congratulations on your first job out of college or university! This is adulthood and things are going to get exciting, fast, thrilling and surprising! Many times, you might be thinking okay, I have started working and I might have saved some money during school. Let’s go buy a home. Not so fast, millionaire in making! Today’s work force is more competitive than ever. Thanks to automation, employers expect a lot more from new grads. Your first year should be the time to show how hard working, smart and disciplined you are. One year goes by and if you see all is well, then by all means. Start looking for that home. Just make sure you do not move very soon. Which brings me to point 2.
2. You want to move in next 5 years
Real estate appreciates but it takes time to appreciate. Also real estate transactions are costly. Guess what, everyone gets paid when you buy/sell a home. Lawyers, lenders, government, contractors, realtors. If you buy a house and plan to sell it soon (<5 years), you might lose a lot gains due to transaction costs. Remember it’s a marathon, not a sprint. If you are not sure about where you will be in 5 years, I suggest rent. Any money you may save, put it away in less risky ETFs and let your money grow.
3. Market is too red hot
If you are fighting in a bidding war, you are setting yourself up for a rude awakening. My recommendation is prepare a price in your mind and stick to it, no matter what. You don’t want to enter in a market that is too hot. Because you know what happens next? What goes up, must come down. Last thing you would want to do is become house poor and hate your life.
4. The difference between renting and owning is just too much
Ahh, yes, renting is pissing away money in the drain. However, nobody speaks about hidden costs of home ownership. Taxes, property maintenance, home insurance are on top of your monthly mortgage. Keep in mind that initially most of your payment is interest and very little is applied to principal. Over the time as mortgage is paid off, this becomes opposite of each other. If you add these variables and find out that costs are a lot more than renting, you are better off renting. Yes, the exception is if you have co ownership in the house (with family, spouse etc.). Then the cost is shared. So is the equity but it’s okay. This is your own family! If you are a lone wolf, then rent. However, if owning is less expensive or slightly more than renting, you should definitely buy.
5. You have not found your purpose yet
I am still looking for my purpose. I am seeking for that adventure that makes me alive, wakes me up in the morning and makes me excited to start. I have been looking only for money. However, I have not been satisfied because I have not found my purpose yet. A lot of people are on the same boat as I am. Home ownership should be a pleasant experience. Once you find your purpose, everything will fall in piece and home ownership would be amazing. Do people still buy homes without figuring themselves out? Of course, they do and mostly you will too. I would not recommend it. Find you, find what makes you, you.