The more I learn about money and the world, the more I realize that everything has a cost. You end up paying it in either time or money. When I first started working downtown at AAII, I weighed the cost of walking from the train to the office instead of taking the bus. Walking took longer but it was free. Taking the bus gave me more time to read and communicate with friends but it required spending more money than walking. Usually, my decision depended on the weather (if I was going to end up too sweaty to be in public by the time I got to the office) or if my book was really good and I needed another half hour with it.
I think of costs in the same way when it comes to owning property. When you own a piece of property, it becomes a long-term investment that takes up a lot of your time, but it keeps your monthly payments steady. When you rent where you live, it can be a short-term investment where all extraneous maintenance costs are handled by the building, but your monthly payments are usually only agreed upon for a year or two before they increase.
At this point in my life, I’ve only rented apartments in Chicago. I have a high-yield savings account designated for eventually buying property, but I have no solid plans for when or where this will occur. Every time I hear about an issue with a ventilation system, a water heater or a leaky roof, it makes me recoil from the very thought of home ownership! So, I decided to actually research the pros and cons of owning property to see where I stand.
A lot of the articles I found mention that the top positive thing about buying a house is “building equity.” This has to do with increasing the market value of the property minus what is owed, so by adding more equity to your property you are increasing its value and therefore its selling price. Something about this doesn’t seem real and gives off major money laundering vibes!
The other pros of owning a house include tax deductions, a good credit mix, privacy and control over your space, stable monthly payments and fulfilling the white-picket-fence American dream.
On the negative side, the upfront costs of buying property are the biggest pain point. In addition to the down payment, which is usually 20% of the purchase price, there are closing costs that can be 3% to 6% of the price. Another cost I see often on listings is the homeowners association (HOA) fee, which can range drastically from $100 to $1,000 per month depending on where you live. The HOA fee can be higher if it’s paying for some nice amenities, like a pool in a condominium. Not every house will have an HOA, so you can find areas without them if the cost is too much.
Additional cons of buying property are the costs of maintenance and repair, as well as property taxes. (These costs aren’t usually factored into how much a house has appreciated in value but they will impact the profit a homeowner makes when they sell.) There’s also the time it takes to actually build that home equity, the interest charged on the mortgage and the wild fluctuations in the housing market to consider. Once you buy a house, you’re stuck there with much less flexibility to move compared to a renter, so it’s best to make sure you really want to invest in the area you choose to live.
In an article by The Zebra, an insurance comparison site, a 2022 survey discovered that 47% of Americans do not feel the fear of missing out (FOMO) when it comes to buying a house. Only 17% have homebuyer FOMO.
While writing this, I’ve been daydreaming about a little artist’s adobe house somewhere in New Mexico where I can live out my Georgia O’Keeffe desert fantasy. But the reality is that it could cost me even more to own and maintain a house than it does to continue renting with my maintenance handled for no extra cost in the current housing market. There’s much more detailed math involved in this decision, but for now I’ll continue renting until I’m ready to commit more time (and possibly less money) to the place I live.
If you own a house or condo, leave me a comment about how the buying process went! If you’re a long-term renter, do you feel like you made the right decision or do you have homebuyer FOMO?