Is Buying a Home Still a Good Idea?
Americans still see homeownership as that ultimate prize in life. However, there are differing opinions among experts about whether buying or renting is the way to go when it comes to your finances.
In fact, the U.S. Census Bureau said the home ownership rate was 64.4 percent for the third quarter of 2014 – which is the lowest in the past 50 years.
A survey this fall by Wells Fargo on “How America Views Homeownership” showed that two-thirds of Americans feel that now is a good time to buy a home. However, many are reluctant to do so because of uncertainty about qualifying for a mortgage or navigating the home buying process.
Kelly Phillips Erb, a tax attorney in the Philadelphia area and contributing tax blogger for Forbes, had been a homeowner for more than 15 years. But for the past few years, she and her family of five has been enjoying the benefits of renting a beautiful home with five bedrooms, a pool and many acres in a rural setting.
She wrote a controversial article last year titled, 11 Reasons Why I Never Want to Own a House Again, in Forbes. She got hate mail and emails from people telling her she was crazy.
“But so many people think that renting is about moving down in the market. But actually, the house we rent is bigger and better than the one we owned,” she says.
Renting Has Its Advantages
She says that in many areas of the country, there are beautiful homes to rent. She and her husband are writing a book about their experiences when it came to renting and buying.
People think renting is an apartment. Rental means temporary and temporary means bad to many people. That’s not so, she says.
In her area of Chester County, there is a huge draw for IT and executives. They don’t stay there forever, and they don’t want to commit to buying a home since they will be moving on soon. So, there is a great selection of good homes to rent.
“Yes, buying a home can be an investment to some people. But I don’t think of a home as an investment. It is a means to an end. I love my house, but I associate it with my family. I don’t think about it as an investment,” she says.
She also doesn’t think that buying a home is a stupid idea.
“Some people’s identity is based on their homes. Some people want that. I was raised in the south, and people there stay put for long periods of time. But I don’t’ believe a place is tied to a deed,” she says.
Phillips Erb also doesn’t understand why people continue to think that a tax advantage of owning a home truly makes up for all the expenditures that come out of the homeowners’ pockets.
“I’ve heard banks and realtors encourage people to buy more house because they can get an interest deduction on their mortgage,” she said. “Before the deduction was around, people made decisions whether to buy a house if they could afford it instead of how the tax benefits them. “
Assuming you spend $10,000 in interest on your mortgage, then you will be given only a $3,000 break.
“That’s not good economics,” she says.
She understands how people want to buy a house so that their kids can grow up in one place. It’s the emotional things that make sense to her, but not so you can write it off on your taxes.
She and her family like the idea that if something happens to their rental house, they don’t have to pay for the changes or to fix something.
“I love having the extra money and extra time of not doing maintenance on our house. I’m a very busy person with three kids 12 years and younger. I’m a lawyer. I don’t have time to caulk my own tub,” she says.
She also believes that people who bought a home 20 some years ago for $200,000 and sold it for $400,000, are kidding themselves that they really made $200,000.
“They’ve had it for 20 years and put in a lot of extra money such as buying a new air conditioner, heater, roof and other things. Plus, real estate doesn’t always appreciate,” she said.
She’s not saying that she would never buy again. It’s all about the facts and circumstances at that time, she says.
But…Here’s How Owning a Home Pays Off
Tyler Tervooren, independent entrepreneur and founder of Riskology.com, believes that buying a home is a great thing for young people to do. He blogged an article on The Absolutely Insanity of Not Buying a Home When You’re Young.
“Buying a house – especially when you’re younger – is still an incredibly smart decision, financial or otherwise,” the Portland, Ore., man says.
He comes from a background of watching his parents work hard to build their first house and then build a few more to make them into rental properties.
“For the first 10 years of my life, we lived in a mobile home. But my parents did things in a smart way that was beneficial to our family. Now, they have a completely different lifestyle. It made a huge impact on my life,” he says.
His dad was able to retire at age 50 because of owning real estate.
“But before buying a house, you have to think about it in the long-term sense. Buying a house is not an outdated idea. People who say that are looking at the short-term perspective,” he says.
The younger you are, the further ahead you will be if you buy instead of rent, whether you buy a house on a 10 or 30 year loan, Tervooren says.
“After you stop paying, the house is yours. But if you pay rent every single month until well into retirement, you don’t have anything for all that money you spent,” he says.
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Lee Nelson writes for national and regional magazines, websites, and business journals. Her work has appeared in Yahoo! Homes and many Hearst publications such as Life@Home and Women@Work.