Lew Rockwell ran a piece by James Altucher on using a checklist when buying a house. Some of his items are meant to be comical, although most of them are valid points to consider. Altucher has written several times in the past about buying a house. He is against it, although some of it may stem from his own experience of having a house and going bankrupt.
I am a big advocate of buying investment residential real estate, if you are in the right position. You should be in a good location where the local government is not too overbearing. You should have cash reserves for unexpected expenses and vacancies. You also need to make sure that the math makes sense. You should not buy for appreciation. You should buy for positive cash flow. Any appreciation you get should be icing on the cake.
I view things a little differently when it comes to your primary residence. I am not completely against buying as Altucher is, but I think he has many valid points to consider.
First, it is important to realize that a house is a consumer good. It happens to be a consumer good that is a necessity in life, just like food. You need shelter and I’m guessing most people don’t want to live in a tent. But nonetheless, a house is a consumer good when you are “consuming” it, as opposed to renting it out.
Therefore, anything you purchase that is above your basic needs is really excess. I am not against having more than you need. But it is important to realize that you are not buying an investment. You are buying something to enjoy. You might pay more for a house for a safer area, for better schools, for a better location, for more space, for a bigger yard, for a swimming pool, or any number of other things. And they are all valid reasons. But again, just realize that these are things you want, not things you need.
The best financial time of my life was right after college. I was in a three-bedroom apartment with two roommates. I had the smallest room and I shared a bathroom with one of the other guys. My rent was the cheapest. My portion was just under $300 per month. I then contributed for cable, telephone, and electricity. That was split three ways. My living expenses were really cheap and I was able to save a lot of money, despite having a low salary at the time. I did not have to worry about any repairs. I also didn’t have to worry about mowing a lawn.
I think the biggest problem with home ownership is that people underestimate the costs. They look at their monthly mortgage payments and don’t consider most of the other things. Here are just a few things to consider and it is far from an exhaustive list:
- Homeowners insurance
- Termite bonds
- Lawn maintenance
- Association fees
- Property taxes
- Repairs for plumbing, air conditioning, roof, sprinkler system, blinds, flooring, etc.
- Maintenance for air conditioning, garage door, sprinkler system, dryer vent, gutters, etc. (if you skip this, then expect higher costs for the repairs above)
- Higher costs of electricity and water
- Possibly higher commuting costs if you move further away from your job
- Spending more money on upgrades and appliances