Truths of Owning a House

  • Thread starter LukeLewis
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LukeLewis

LukeLewis

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If you've never owned a house, all you have to go on is what other people say. That's fine, but when listening to these people, make sure they're telling you the truth and not covering up some hard facts to make themselves feel better. In fact, do this with everything. Talk to a wide variety of people and determine who you can trust. It'll be worth your time. Also, when it comes to money, it helps to talk to the most boring and unemotional person you can find. Think Ben Stein. The dude is monotone and that's exactly what you're looking for. He'll make you feel stupid for wanting to do something stupid when appropriate. Don't go running off talking to your mother about money. All she wants is grand kids and she'll tell you anything to get you into a big house with lots of bedrooms. This is the last person you want to talk to.

Here's what you'll likely hear from an old curmudgeon:

1. You'll work all your life to pay for a house you'll never actually own. Think about that. Many couples get together in their early 20s and then purchase their first home in their late 20s. For the sake of argument, let's say they buy that first home when they're 25 years old. To buy the house, they acquire a 30 year fixed rate mortgage. That's something even grandpa would say is okay. The only difference between you and grandpa is that grandpa lived in his first house his entire life and you're planning on moving at least every ten years. Probably a lot more frequently. So you get yourself a 30 year mortgage when you're 25 years old. If everything goes well, you'll have that paid off when you're 55 years old, right? But wait, if you sell your first house when you're 35 and buy another one that's got another 30 year mortgage, you'll now be out of home debt when you're 65. And if you sell that house when you're 45 and get yourself another 30 year mortgage, you'll have it paid off when you're 75. Do you see where I'm going with this? What's worse is that it's rare for a young couple to purchase a smaller and more economical home. The principle reason a couple decides to move is because they need a bigger house for their growing family. So that mortgage they need to pay off when they're older is actually larger then their first.

2. Tax deductions only go so far. An accountant once told me to buy a big expensive house because I'd be able to write off the high property taxes. I followed his advice and it was one of the stupidest things I've ever done. My accountant's job was to save me money on my taxes. He achieved his goal. Unfortunately, I was young and got hosed in all other aspects of my financial life. Yes, there's a good possibility that you'll receive some tax savings by owning a home. I believe you can write off your mortgage interest as well as your taxes. The only problem is, everything else you pay will be with after tax dollars, meaning, there are no more tax savings after what I described above. And those other things, such as a new porch, homeowner's insurance, and driveway repaving can really add up.

3. Property/school taxes and homeowner's insurance is getting expensive. Have you ever seen the property and school tax bill of someone who is living in New Jersey, New York, Massachusetts, or Connecticut? If not, I don't advise is. You'll likely faint. Be prepared to see people who are paying over $1,000 per month, just for those taxes. My grandfather used to live in Scarsdale, New York. His annual property and school tax bill was $27,000. He lived alone and hadn't had children going to the local schools - ever. I went to college with a girl who had parents who lived in New Rochelle, New York. Their tax bill was $18,000 per year and that was over 25 years ago. I'm sure they've gone up. They never go down. Think moving down south is a good way to save on property taxes? Think again. Yes, you may save on taxes, but will likely make up for that with your homeowner's insurance. The insurance companies in the south like to break up insured areas by different types of zones than they do up north. Your neighbor may pay $500 per year while you'll pay $3,500.

4. Houses may drop in value - by a lot. Back in 2005, at the height of the housing craze, people were purchasing sheds in California for over a million dollars. I mean, these houses were tiny and they were garbage. When the market dropped out from under them, they were stuck holding the bag. I know people who are still living in their houses they bought back then and are paying their million dollar mortgages. That's fine; the only problem is that their house is only worth $300,000. Try thinking of a way out of that one.

5. Think of all the missed opportunities. While you're off working like a dog to make money to pay your big mortgage, you're not buying investments that can make your life so much easier later on. Imagine buying a few hundred thousand dollars of the S&P 500 back in 2002, when it cost only $86 per share. Today, it's $417 per share. You'd have more than quadrupled your money over the past 19 years and that's not even accounting for dividends and reinvestment. Also, think about all the time you'll spend working for something you'll perpetually worry about defaulting on. It's not fun. It's better to buy yourself a small house that's easily affordable that'll loosen up the rest of your life. All too often, people consider their home equity as some sort of value in and of itself, to acquire more loans to make their financial lives more difficult to manage.

Remember, if you do plan on purchasing a house, the smaller, the better. And the more people you can live with, the better. The rest of the world can do it. Why can't we? Financial stress is a huge cause for divorce and health issues. It's better to avoid it altogether.

This post is part of a series: Rich Dad Poor Dad by Robert T. Kiyosaki
 
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Truths of Owning a House was posted on 06-05-2021 by LukeLewis in the Finance Forum forum.

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