Why We Just Bought a Home

I'm probably not the only one responding to Why I Am Never Going to Own a Home Again by James Altucher today. It is unlikely that I'll offer the most eloquent defenses of homeownership (surely the National Association of Realtors would offer rosier, less conditional prose than mine). However, I can speak on behalf of those few Americans who sat out the worst of the housing bubble as renters and are now happy to be homeowners again. In fact, this could have been titled, "Why I Am Never Going to Rent a Home Again".

The crux of many arguments against home ownership is that it's a lousy investment and, here in 2011, that is certainly true. Over the last five years, the developed world has learned a valuable lesson about residential real estate - that owner occupied property is not an investment and should never be treated that way.

Buying a home today is, in many respects, not unlike buying a home decades ago. Back then, the only realistic prospects for significant appreciation occurred over a period of many, many years. Over that time, it was easy to forget about the new water heater that was installed 15 years ago or the cost of the 10-year old roof. When it came time to sell, you could simply look at the net proceeds from a sale.

Anyone buying a home today who thinks it's going to appreciate much over the next few years or, perhaps, over their lifetime, is deluding themselves. You should buy a house today for the same reasons that you bought one decades ago - as a place to live in that, when you sell it in 10, 20, or 30 years, you just might make a some money on.

Nearly all of the financial arguments that favor renting over homeownership today claim that housing is a poor investment due to items identified by Altucher such as upfront cash costs, closing costs, maintenance costs, taxes, and the high cost of selling. But once you understand that housing is not an "investment", then these become immaterial.

The fact that owner-occupied housing was considered to be an "investment" a few years back simply highlights how crazy things were at the peak of the housing bubble. Despite all the high maintenance and transaction costs, home price appreciation still made residential housing a big money maker due to leveraged bets with 20+ percent per year gains.

Today, one could argue that, with what bank CDs are paying, risk averse investors would be far better off simply paying cash for a house and never paying rent again. For every $100,000 you have in the bank, you'd be lucky to clear $100 a month in a long-term CD after taxes, which doesn't go very far in paying the rent. Whereas, that same $100,000 could buy a decent house in some parts of the country (multiply up, depending upon where you live - it's criminal that you can barely make $500 a month on a half million dollars sitting in the bank).

If you live in a high tax state, then your property tax bill will be different than mine (and maybe you should consider moving). But I'll take paying a few thousand dollars a year in taxes and another thousand in insurance and homeowners fees along with the maintenance costs, in lieu of paying $20,000 or more a year in rent.

Renting versus Owning - the Personal Side

I have to admit, this is the first time I've heard the theory that rising homeownership rates were simply a corporate plot to keep the working class down by restricting their mobility. That belies the fact that, prior to the Great Recession, it was commonplace for corporations to pay $50,000+ in relocation expenses even to workers whose annual salaries weren't much more than that.

But, nonetheless, being "trapped" in a house you own is a very real issue.

Unless you like the idea of paying a realtor tens of thousands of dollars to sell your place so you can move on, think very carefully about taking the homeownership plunge. However, if you plan to be there for many, many years, the quality of life as a homeowner beats that of a renter hands down.

After selling our Southern California digs and renting for the next six years, we benefited from our newfound mobility by experiencing Northern California, Central Oregon, and Southwest Montana before finally settling on the last destination and buying a place. So, I've got nothing against the "mobility" argument for renting over owning. However, once you take that out the equation, there aren't really any non-financial arguments left for renting.

As for walls, I've never been inclined to move them or paint them while renting, but hearing people on the other side of them was always something that bothered me. It's fine if you're in your 20s or 30s, but, once you get a bit older, you'd prefer not to hear your neighbor cough or sneeze (or worse) and that means that, if you're going to rent, you're going to have to pay a lot more to rent a house. Back in the day when you could rent a million dollar home for $2,500 a month, it made sense to rent. But that argument is quite a bit different today when you can buy that same million dollar home for $350,000 in foreclosure.

If you're just passing through, not likely to stay in an area for long, then renting has its merits. But if you're really looking to call a place home, in my view, you're much better off owning it. This has little to do with the traditional arguments you hear about homeownership being an essential part of adulthood; that is, the idea that if you don't own a house, you are somehow an underachiever.

Neighbors look at you differently if you're a renter, in no small part because the moving van could show up any day and you'll quickly be long gone. And, you'll never really feel like you're really part of the community because, well, you're probably just passing through and you like it that way. Why bother to form long-term relationships when you're just going to up-and-leave anyway?

As for maintenance, it is a very real cost of owning a home, but, save for the big ticket items, I've always thought it to be more of a hassle to call the landlord to get things fixed than to do it myself. (We've had four landlords in the last six years, one of whom sent us a gift basket at Christmas for repeatedly fixing the sprinklers that regularly sprung leaks.)

It doesn't take much effort to keep things in working order around the house. Some of us men kind of like these small accomplishments in life along with the trips back and forth to the hardware store where you can talk to like-minded men. As a homeowner, when you hang a picture (that you can finally unpack because you won't be moving next year), you can use as big a nail as you want. If, on the other hand, you don't know a ratchet from a wrench, then it's understandable how you would never want to get your hands dirty.

As for stress, renting is by no means free of this.

We were constantly eying our lease renewal data that lingered 9 months, 8 months, 7 months in the future - like a clock ticking down - debating whether we wanted to stay another year or go. We unpacked the first time, but not much after that. Things just stayed in boxes in the garage and we lived like we were in our 20s again. If you could lock in a ten-year lease, that would be one thing, but the yearly upheaval can be far more stressful than having to pay Roto-Rooter to come and fix the sink.

Your landlord can also see fit to raise your rent every now and then which can be a much bigger hit to your wallet than the steady two or three percent rise in property taxes that homeowners are likely to see every year.

But, one of the biggest pains as a renter is that, in order to get your security deposit back, you have to pass inspection. You'll never know if that ding in the garage door will be noticed, whether you'll get blamed for the screen coming apart on the bedroom window, or how "normal wear and tear" will be interpreted. If you do something really bad, like break something important, then you're at their mercy. Plus, you get the added joy of paying for carpet cleaning when you move out, whether or not your landlord chooses to put that in your lease.

Sucking up to landlords can be demeaning... and stressful.

In short, if you want to get up and go at any time (or once a year), then you're far better off renting. Housing is probably not going to be a very good "investment" for years to come, perhaps decades to come.

But, if you don't care about whether the value of your home goes up or down and you don't ever want to live anywhere else, then buy a place (preferably without the help of any bank). Then you can fit right in with your homeowner neighbors, have a sense of permanence and do whatever you want to the house. You'll never again have to write a check to a landlord, call him to fix something, or have him tell you that you have to move out, at which time you have to be extra nice if you want your security deposit back.

These are the reasons why we just bought a home.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.