It may seem like a dream. You have met the love of your life, and you want to move in together. You have always dreamed of owning your own house, having a home of your own. You and your SO find a cheap starter house, finalize the deal and move in. You are living the dream.
The trouble is that more than 50 percent of marriages and relationships end within seven years. If you and your SO are among the 50 percent and you own a house together, breaking up is no straightforward matter. Before you can go your separate ways, you have a house to sell.
But isn’t living the dream worth the risk? Not obviously. Let us look at some of the alleged advantages of owning as opposed to renting:
- When you rent, you never get the monthly payments back. The money is gone. When you own, making your monthly payments is like putting money in the bank.
- Buying a house is a great investment. You could make a fortune when you eventually sell the house.
- When you own your house, you ensure that there is a decent inheritance for your children
- When you own your house, you know what your mortgage will be for the next 20 years. When you rent, your future payments are unpredictable.
While these claims may seem obviously true, reality is a different one once we attend to the details:
- Unless you made a huge down payment on your house, you are likely to be paying mostly interests the first many years after buying your house. Interest is money in the pockets of the bankers. It will take five to ten years before you really start paying off on the actual cost of the house. So if things go well and you stay in your house for many years, you will have made a saving by making your monthly payments. But if things go wrong and you need to sell prematurely, you have to be lucky to even get your money back.
- Houses are great investments in the long term. Despite the unpredictability of the housing market, the value of a house is almost guaranteed to go up over time. But remember that if you sell your house eventually, you have to find a different place to live. If you buy a new house, you most likely haven’t made a dime. And again, houses are not great investments if you have to sell prematurely.
- Children normally do get a nice inheritance if their house-owning parents stay put all of their lives. However, there are costs associated with owning a house. Houses need maintenance. Eventually you will need a new roof, a new furnace, a new air conditioner. In addition there are little repairs all the time. If you rent a house or apartment, you can put the money not spent on house repairs in a savings account. Over the years, your children’s inheritance will probably be as sizable as it would have been if you had chosen to buy.
- Rents go up over the years. Mortgages stay the same. But the small yearly increases in rent in no way compares to the costs of maintaining a house. So while your mortgage stays the same over the years, the actual cost of owning may well be much higher than that of renting.
Financially speaking, owning a house tend to be a good investment if you plan to, and succeed in, staying in the same house for a long period of time. If you have to sell prematurely, you are likely to lose money. Buying a house with the love of your life may seem like a tempting idea but a significant number of those who do this will end up loosing big time.
A further consideration is that owning a house can be a strain on a relationship. There is always something to do, little repairs to be made. Renting takes off some of the pressure of the housework:
- When the furnace or air conditioner breaks, you call the manager.
- When a storm damages the roof of your building, you are neither responsible for making the payments nor for making sure that the job gets done.
- If you live in an apartment complex with a gardening area, someone else will cut the grass, water the plants and pull out the weed.
- You can normally move anytime you want without caring about whether the world is facing a financial crisis
The message here is clear. Unless the odds are great that you and your loved one will be together for a long time, you may be better off renting.