Money Smarts Blog

“Renting is just throwing money away.”
“A house is a great investment.”

Sound familiar? Maybe you’re facing pressure from friends or family to make the switch from renter to homeowner. Or, maybe you feel like everyone else is doing it, so you should, too. Maybe it just feels like the logical next step in your path to becoming a Responsible Adult.

But here’s the thing: none of those are good reasons.
There’s only one really good reason you should buy a house: because you’re financially prepared to do so.

We’ve said it before and we’ll say it again. Buying a house is a big deal, and likely the biggest purchase you’ll ever make. You shouldn’t take it lightly and you shouldn’t rush into it. If you’re feeling the pressure but aren’t sure if you’re financially fit for home ownership, there are some things you should know.

Not all investments are good

Your uncle may be convinced otherwise, but a house isn’t always a great investment. Yes, some people make (a lot of) money investing in real estate. But the reality is that most people do not. When you consider market volatility, taxes, interest and depreciation, you may not even get an annual return on that “investment” at all. While time certainly helps level out volatility, not everyone has 30 years to wait for an investment to pay off. Unless you’re buying properties for rental income, it’s wiser to think of a home purchase as just that: a home. Not an in investment.

You’re not throwing your money away

Perhaps one of the biggest benefits of renting is the luxury of being able to call your landlord when things go awry. It may take longer than you’d like for the maintenance team to show up, but at least you aren’t footing the bill for that broken furnace.

Are you ready to spend your weekends fixing leaky faucets and doing yard work? Not all houses require extensive maintenance, but some do and almost all of them are bound to need a new roof or water heater or other major repair/replacement during your ownership stint. Experts recommend saving between one and four percent of your home’s value each year to pay for general upkeep and major repairs. If none of that sounds appealing, you may want to keep writing that rent check.

You can’t take it with you

Feel like moving across the country? If you’re renting, your housing situation isn’t likely to prevent you from doing so for very long or cause a major blow to your finances.  You may have to pay a penalty if you leave before your lease is up, but that’s nothing compared to the expenses you could face if your house doesn’t sell.

If you buy a house, you should plan on staying put for at least five to seven years if you plan to break even, ten if you’d like to make a profit. Moving before that could end up costing you money when all is said and done.  If your job requires you to move quickly, you could get stuck in the unfortunate situation of paying rent in your new location on top of your mortgage.

Bottom line: Owning a home is a great thing for some people, when they’re financially and emotionally prepared for the task. But, if you’re buying a home because of peer pressure, societal pressure or any reason other than because you’re financial prepared, you probably shouldn’t.

If you’re not sure if home ownership is right for you, IH Mississippi Valley Credit Union is here to help. Try our online calculators to estimate the costs of owning vs. renting. Or, give one of our stop by any branch and talk to a Financial Services Officer. They’ll give you a financial check-up and put you on the right track to be ready in the future.