Poll: Importance of home ownership

[David1961]

I discussed this with a friend recently and thought I'd start a poll here. How important is home ownership to achieving FI? By "home ownership" I'm referring to the process of getting a mortgage for your primary residence when you are younger and eventually paying off your mortgage.

 

[Walt34]

It varies so much with individual circumstances that there really is no "one size fits all". In the area I lived in it was extremely important because at the time rents were rising much faster than home prices.

Although I was "house poor" for a couple of years had I not bought a house I would rapidly have had to move to smaller and smaller rental accommodations. Clearly that was not the case everywhere.

 

[frayne]

I would think for most people in general it is very important. After my first house, I have been fortunate to be able to pay for my next three homes with cash. To me having a mortgage is a debt hanging over your head. Debt, IMHO is the biggest hurdle to being FI. I've never looked at a house as an investment just something you need in order to live and raise a family. Just my way of thinking.

 

[mpeirce]

There is also the community benefit that people who own their homes generally take better care of them and participate in the community more than renters.

 

[Midpack]

I voted, but while it's been important/essential for generations, that doesn't guarantee it will be for generations to come. I wonder which perspective each member voting had in mind?

 

[nun]

Home ownership with no mortgage is crucial to my ER. Additionally my home is a two family and my tenant pays me $1200/month in rent. My home is also a nice diversifier for
my portfolio.

 

[nash031]

I'm a homeowner (about 50% equity in our current home), and I don't think it matters to my FI at all. I've built housing into my expenses for our initial FI plan, so if I have to rent or carry a mortgage forever, we'll be able to. If not, well, an E-class for everyone!!

I think it just depends on whether you've planned for rent or planned for maintenance/tax costs only in your expenses.

 

[Fermion]

I voted not important at all. Home ownership can be a boat anchor, especially if you need to move or go into LTC. All it really does is solidify a nice tax base for the county you purchased it in so the local school system can buy new I-pads every year.

 

[daylatedollarshort]

In some markets home ownership can be a hindrance to FI. Look at all the people who were underwater on their mortgages a few years back, and could not relocate to find work.

Robert Shiller says historically housing has not been a great investment:

http://www.businessinsider.com/nobel-prize-robert-shiller-housing-not-great-investment-2013-10

 

[MichaelB]

I think home ownership is one of the foundations of the US economy. It has fueled economic growth and well being for countless millions and generations of families and has been a critical source of employment. This should continue for my children's generation as well.

 

[RetireAge50]

I voted not important at all as it represents only about 10% of my total net worth.

 

[ziggy29]

Very important when it's relevant, but also very situational. It depends on your temperament, the stability in your career and such. Also a community of mostly owned homes is usually nicer than a similar community of mostly rented homes -- haveing a stake in the neighborhood often improves it.

That said, not everyone has the desire to be tied down or a career where they are likely to be able to stay put for 10 years or more.

 

[samclem]

It depends . . .
In my career, I moved every 1-3 years, so buying a home usually meant losing money. We did it a few times, and it played zero role in our ability to build assets for retirement.

But, now that I am semi-ER, owning a home is very important to us for non-financial reasons. We enjoy fixing the place up, DW enjoys working outside, and we both >really< appreciate the fact that we'll never have to move our things again unless we want to. We also like the fact that our housing costs won't be going up (except for property taxes). All this is a separate question from the mortgage: We have a mortgage and like it that way--I wish I'd gotten a 30 yr fixed rather than 15.

 

[Meadbh]

Even experts can't agree on the answer.

The Experts: Is Investing in a House a Good Idea? - WSJ

My answer would be that a residence is a place to live, which is usually purchased with leverage, requires regular cash injections to maintain, and statistically appreciates at or slightly more than the long term inflation rate, while providing psychological satisfaction, the monetary value of which is not measurable. It can be a good investment and a source of satisfaction if purchased at a reasonable price, with a low cost of capital, and maintained for many years before selling in a buyers' market. This is not guaranteed at the time if purchase. A residence should not be considered a short term investment and should not be purchased unless the buyer can commit to at least five years. There are risks, which we all know, and the risks and benefits must be weighed against the alternative, which is renting.

Most home buyers do not complete a business plan for their purchase and, assuming they have sufficient cash to make the payments, will make their purchase decision primarily on the basis of location and aesthetics. This suggests that home buyers are not necessarily thinking rationally in a financial sense, but are driven primarily by emotion.

Rental property, whether residential or commercial, is an investment pure and simple. It is not associated with the same emotion but the financial aspects are usually evaluated more stringently. Market forces, costs, leverage and duration of ownership are all important, but the prime purpose of rental property is profit. A secondary purpose is diversification to a no correlated asset class.

 

[Options]

Couldn't vote cuz needed another option: "it depends". Personally, bought 18 years ago and home value is over 4x what I paid so it was amazingly profitable. Now, however, would never buy here cuz Los Angeles is one of those cities where housing burden is overwhelming. Link below discusses rents, but same applies to buying.

Where is the Money Going? - L.A. Residents Have Nation's Highest Rent Burden - Ca - News

 

[dvalley]

Usually the biggest expense every month is housing, at least on the two coasts and many places in between. Having a paid for house free and clear frees up the biggest monthly expense. In other words you might only need $40k per year to retire vs. $60k - that's huge. Now as we know rarely anything is free and clear...there's the property taxes and maintenance though still few and far less than the monthly mortgage/rent etc.

On the other hand if you live in cheaper areas it probably is a wash i.e. rent/mortgage vs. taxes/maintenance.

 

[daylatedollarshort]

Really it depends on a lot of factors - location, job situation, alternative investment returns, property tax rates. There is no one size fits all answer. A house can be a great or terrible investment.

The New York Times has a calculator to help make the decision:

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=0

 

[Senator]

If I was to do it over again, I may be a renter. I would move when my job location changed, and move across the country if necessary. The commute savings would more than make up for any benefit in home equity.

Also, I could start out in a 1BR, or Studio, and get additional bedrooms if and when necessary. In an apartment, you do not need a lawnmower, snow blower, chain saw, canoe, etc. So you save on buying 'toys'. You can rent the equipment when you need it at the destination you will use it.

I am glad I have my house, all paid off. But if a renter does things efficiently, they are better off. Assuming they are saving their savings, they would have a large account balance.

A home is a forced savings account, at a low interest rate.

 

[TimSF]

Very important. Aside from the controversial question of whether housing is a good investment, I would like to hold up two FI-ing aspects of home ownership: (1) "forced" savings; and (2) pre-paying retirement housing costs. For the 13 years or so that I had mortgages, most of my excess cash (after maxing out employer retirement accounts and keeping an adequate emergency fund) went to paying down the mortgages. This was instead of buying luxury items, fancy cars, or other consumables. I paid each mortgage off in less than 10 years. Also, having now ER'ed, I can relax in the knowledge that, having prepaid my housing costs, I know that for the rest of my life, my housing expense can only increase modestly. I am not at the mercy of a landlord.

 

[panacea]

While I'm a home owner, I voted "not important at all" with regard to making a difference toward achieving FI. I think it's more of a lifestyle choice than a financial choice.

 

[Birdie Num Nums]

Couldn't vote cuz needed another option: "it depends". Personally, bought 18 years ago and home value is over 4x what I paid so it was amazingly profitable. ...

Does that 4x figure also include non-deductible mortgage interest (which most people do not take), insurance, taxes, maintenance and personal man hours spent on the place over those 18 years?

 

[Birdie Num Nums]

...Also, having now ER'ed, I can relax in the knowledge that, having prepaid my housing costs, I know that for the rest of my life, my housing expense can only increase modestly. I am not at the mercy of a landlord.

Until you find out that you need a new roof at $x, or the sewer line immediately repaired for $6,000--which recently happened to my former landlord. And many "homeowners" are at the mercy of a landlord--who just goes by another name (such as "homeowners association").

 

[braumeister]

Not important for most, I think.
In fact, kind of irrelevant. But still a lot of satisfaction for many, including me.

Currently living in the last house I will ever own. Next move will be to either a lock & leave condo or a CCRC.

Meanwhile, we are enjoying our last house to the max. Replaced the HVAC when we bought it ten years ago, and will probably replace the roof in a year or two. Otherwise, everything is in good shape and we love the location so much we want to stay here as long as we can.

 

[TimSF]

Until you find out that you need a new roof at $x, or the sewer line immediately repaired for $6,000--which recently happened to my former landlord. And many "homeowners" are at the mercy of a landlord--who just goes by another name (such as "homeowners association").

Yes, home ownership may include such unexpected costs such as a new sewer line, new roof, etc. The trick there of course is to buy smart in the first place (I have never been interested in condos).

 

[youbet]

While paying off a house over time can be a useful form of forced savings, there can be downsides too. For example, many folks spend much more than they should on "living space" due to owning a good sized home when they'd do fine in a rented one bedroom apartment.

If houses are going to go back to appreciating significantly and consistently, they are a hard financial proposal to beat if the purchase is made in moderation. You're living in an appreciating investment. But if appreciation is nil, or close to nil, folks who stretch their finances in order to live in a big home with nice amenities might do better financially by renting a modest apartment and investing the difference in TSM every month.

We're still in the very modest home we bought 36 years ago. We view our success at getting to FIRE at 55/58 as augmented not by owning the home but more by owning a small, easily affordable home. We invested several thousand annually for decades that would have been consumed by the property taxes, higher maintenance, higher utilities, etc., that a large home would have entailed.