Home Investing 18 Reasons To Never Own A House

18 Reasons To Never Own A House

SimiJuly 30, 2018

There are many people who will tell you that owning a house is the ultimate investment. The tax benefits are amazing. The rental income potential is out of this world. Your property will practically pay for itself. However, “When something is too good to be true, it probably is,” as the old saying goes.

You might be tempted to jump in headfirst at the first buying opportunity to cash in on the benefits. But you need to think long and hard about the commitment you are about to make. Buying property isn’t something you can undo whenever you feel like it. It is a long-term binding commitment. So, if you are not ready to tie yourself down for the foreseeable future, you could be in for a rough, stressful ride.

Nobody tells you about the hidden costs of owning a house. They only say how empowered you will feel when you own some land. To most people, owning a house is a romantic idea. However, it can turn into a wallet burning nightmare if things decide to go south. You just don’t know what will happen in five or 10 years.

For example, you probably have no idea where your career will take you or what will happen to your neighborhood. Times have changed, and things change a lot quicker than they used to in the past. Here are some reasons to think long and hard before signing those mortgage papers.

1. It’s Not Always a Sound Investment

This is probably the biggest argument in favor of buying a house. Although there is some truth to the argument, there is also some fine print many people are not aware of. It is true that certain homes appreciate in value over a period of time. However, there are other assets that also appreciate.

If, for instance, you bought a house 20 years ago for $20,000, the house might be worth more than double that today. The gain seems impressive, but if you calculate how much interest you paid over that period, the gain becomes minimal. The only reason why homes appreciate in value is because of inflation. Just as your house gains value due to inflation, there are other assets that also gain value.

If you were to invest in your business or play around in the market, you are sure to make a pretty penny more than your house would garner. If you invest wisely, the returns on your house can look like peanuts in comparison to your market investments. For many people, playing around in the stock market is like gambling. But if you do your homework, your chances of losing out are minimal.

Speaking of losing out, your home could depreciate, as well. All your neighborhood has to do is hit a bad patch, and there goes your investment. You are never sure what is going to happen 10 to 20 years down the line.

2. Mortgage Interest Deductions Don’t Justify the Interest

When buying a house, not everybody has $200,000 laying around. Although it is possible to buy a house without a mortgage, most people need to take out a loan. In fact, more than 70 percent of home buyers need to take out the mortgage for a house. The average mortgage interest rate is around 4.3 percent.

That means on a $200,000 home loan you will end up paying around $356,306 for your home. If you do the math, it comes down to paying $156,307 in interest alone. With a 30 year mortgage, the average interest per year is a little over $5,000, although you pay the bulk of that over the first couple of years. Assuming you are in the 25 percent bracket and you itemize, you only end up saving around $1,300 per year.

However, calling it a saving is somewhat misleading. In the example above, you’ll end up saving around $40,000 over the course of the 30 years. However, you will have already paid over $150,000 in interest. It sounds more like a sales gimmick than anything else.

Think about those promotional offers where when you buy something, you get something free. They are also misleading because you have to fork out some money in order to get the free item. So, the question then remains, is it really free? Do you save $40 000 or are you only paying $110,000 in interest?

3. The Temptation to Borrow Can Get You into Trouble

People are often tempted to max out their loan limit when they find their dream home. Without any warning, interest rates could rise, or mortgage interest deductions could be gone. When you rely on these deductions to make ends meet, the red lights should go off. That’s when you should reassess if you can actually afford that home or not.

When people buy normal consumable items, consumers tend to focus on the price of the item alone to determine if they can afford it or not. When it comes to homes, realtors might use the interest deductions as a lure to get the potential buyer to spend. The buyer could end up getting the loan, only to find the repayments are too high.

Many homeowners find themselves in hot water when the tides turn for the worse and economic climates change. In terms of affordability, the initial couple of years are the toughest. But it is during these years that most homeowners end up losing their dream home.

Unfortunately, the lack of knowledge along with the temptation to buy that dream home often outweighs reason. The buyer will make plans on how to repay the mortgage they base on perfect month-to-month circumstances. But there are too many unforeseen circumstances that can occur during a month to derail your best-laid plans.

4. Debt to Income Ratios

When you borrow to buy a home, your debt load increases considerably. This can put some strain on your credit and ability to borrow for other things like cars. People who take out mortgages usually have other forms of debt, as well. When figuring your credit, adding all the accumulated debt can affect your rating and your perceived ability to pay.

A mortgage increases your debt to income ratio. However, everyone needs a place to live. Whether you’re paying rent or a mortgage, it takes up a large amount of your income. However, there is a difference between repaying a mortgage and paying rent.

Even though a monthly rental payment can be more than a mortgage repayment, under certain circumstances, it is an expense rather than a debt. On paper, it makes a tremendous difference in terms of your credit score. This is a good reason to consider renting instead of buying a house.

When you take out a home loan, you take out a long-term commitment, which ties you down. A rental contract is a short-term contract. So you can change the scenery when your financial situation changes, whether it is for the better or the worse.

5. The Average Mortgage is Around 20 to 30 Years

Without a doubt, the political climate of a country is probably one of the biggest reasons why you should carefully consider whether you want to buy a house. Your mortgage can last up to 30 years, but the country’s administration lasts for only four years or due to re-election, possibly eight. You can’t rely on your mortgage tax deduction to be there for 20 to 30 years.

Reagan promised in his 1984 speech to the National Association of Realtors that he would preserve the part of the American Dream the tax deduction represents. However, that promise came under fire last year when the Republican administration halved the deduction of mortgage debt for newly purchased homes to $500,000.

Although it seemed like the mortgage tax deduction would be there forever, the Trump administration cut the American dream deep when they halved the amount of deductible interest. And they did this after promising for months that they had no intention of doing so.

It seems like with every new administration, comes a new tax reform. Each administration has their own idea of what works. And you may not be one of the people who could benefit from the reform. But 30 years is a long time, so the unpredictability of each administration makes it difficult to assess whether owning a house is in your favor or not.

6. A Mortgage is 20 to 30 Year Anchor

It’s hard to wrap your mind around what will happen in 20 to 30 years. When you buy a house with a mortgage, you tie yourself down for that amount of time, as well. Homeownership limits your mobility and anchors you to one place. It’s a long-term commitment, and it does not sway easily for anything. So, it doesn’t matter if you received a brilliant job offer in another town or want a change of scenery.

It often happens that your best-laid plans are disrupted and then it is not always the easiest thing in the world to sell your house again. In the meantime, you may need to move. The only three things that can happen is you can sell your house, put your property up for rent or carry two payments. However, there are few people who have enough of an income to carry two mortgages.

The stress of being a landlord is not worth it. The fact that you depend on timeous rental payments makes the end of the month a stressful one. You also need to deal with all sorts of maintenance issues that usually occur when you least want them to.

When you are a homeowner, you are in for the long haul. So, you need to take the good with the overwhelmingly bad. Once you have your house, it could take a while to sell again, especially if the economy is not in your favor.

7. It’s a Money Pit

Many people call a house a money pit, and with good reason. The costs just never seem to end. When you buy a house, your initial sums and budget go as far as your average utility bill and the mortgage repayment. Many people neglect to think about maintenance costs or underestimate them. The problem is that unforeseen costs arise without warning.

You may have a good budget saving system going, but the costs often outweigh the best-laid plans. Nobody asks for their A/C to pack up, or for their garage door motor to seize. Electrical damage is another of those rare occurrences. But the fact is, these things happen. And the costs can quickly mount up to something you couldn’t have planned for.

As the saying goes, if something can go wrong, it will, especially when it comes to your house. Yet these are all costs related to things you have no direct control over. The other expense is renovating. When people buy a house, they might be content and happy with it in the beginning. But, as time goes by, they get this itch to change stuff.

Before you know it, you could end up raking up ridiculous bills to change your house. The sad thing is that you will almost never see the money you put into your house again. Your home’s value seldom rises beyond what you spend on it.

8. Home Appreciation Jackpot or Highway Robbery?

In some cases, you might be one of the lucky few who is fortunate enough to score big on the sale of your house. However, this is not something you may not want to jump for joy about. There comes a limit where it feels like robbery because the taxman will come knocking if you make too much of a profit on your home.

Sometimes, the appreciation of your home isn’t because of inflation, home improvements or both. Sometimes your investment was just that good. If the gain of the sale of your house exceeds the $250,000 exclusion or $500 000 if you are married, whatever your gains are above the exclusion limit are subject to capital gains.

What’s more than that is that there will be a 3.8% Medicare Tax deducted from the investment/unearned income. It almost feels as if you are being robbed of making a sound property investment.

High-income taxpayers are particularly targeted. If you have a reported income of over $200,000, you will be liable to pay the extra tax. It seems like daylight robbery, especially since you probably didn’t ask for the appreciation spike. It seems a bit unfair that you need to pay extra tax, just because your house became more valuable.

9. Varying Real Estate Tax

When the bank approves your mortgage, you can be confident your repayments will stay roughly the same. If you have a fixed mortgage rate, you know what you will pay each month. New homeowners appreciate predictability. It allows them to make plans and draw up a stable budget. But real estate tax is rather unpredictable. Unfortunately, there are several factors that influence your taxes.

Whenever they assess or reassess your property, your tax can change. However, when they tamper with your tax rates, it has a direct effect on your tax. Townships and counties are continually on the lookout for revenue. And what better way than to jack up the property tax rates.

And residential leases are different than commercial leases. They don’t tend to be triple net, meaning the expenses are part of the total rental repayment and not passed through directly. Real estate taxes are usually accounted for in the total cost of the rental. But when they are not, there is the chance they might be limited by statute or capped.

Some states have put laws in place to govern property tax burdens. However, the fact remains that your tax expenses on a property will be substantial. Calculations show that your property tax accounts for about a quarter of your homeownership costs at the median homeownership duration.

10. Loss on the Sale of Your House

Sometimes when you lose money, there is a silver lining. There are ways to soften the blow. For instance, when you lose money on stock, you can always net those losses against other gains. If you own your own business, you can deduct those losses or use the same loses to offset other gains. And it doesn’t even have to be in the same year.

Unfortunately, when you lose money on your house, there is no way to claim a capital loss on the sale of your personal residence. It doesn’t matter how big or how small the loss was, it will hurt and there is nothing you can do about it. Many taxpayers are finding out the hard way in this market.

With the market being so volatile and in continuous flux, it is risky business to put all your money in the housing or property market. You never know when the market is going to take a dip. With all the external factors which you have no control over, it is a game of Russian Roulette. The fatal shot can go off at any time, and there is no warning.

Looking at the political climate, varying real estate tax and the possible depreciation of your property, the odds are alarmingly high you’ll sell your house at a loss. In the past, property may have been a sure investment, but with the rapid changes nowadays, you could be better off going for short-term rental options.

11. Itemized Deductions are Getting Tricky

The rules and regulations regarding itemized tax deductions are complex. So, you need to be on top of your game if you want to cash in. For example, your home mortgage interest is only deductible if you itemize on your Schedule A. This means that only a third of taxpayers qualify for this deduction. The only way you can itemize is if your deductions exceed the standard deductions.

Currently, the standard deduction rates are $12,000 for individuals, $18,000 for head of households and $24,000 for married couples filing jointly. For many taxpayers, these numbers are hard to come by. Mathematically speaking, the longer you own a house, the less your chances are of getting a decent deduction. This is because of the decreasing interest you pay on your home. The less you owe in interest, the less your deductions become.

Considering the bump in the medical expense deduction threshold, your chances of getting itemized tax deductions takes another knock. So much for saving on taxes when you own a home. With the thresholds going up and the limitations being ever more constricting, it becomes a difficult decision to own a home or not. The benefits seem to have disappeared altogether.

12. Keeping Up with the Joneses

There is nothing wrong with having a bit of ambition in your life. This is especially true when you want to provide for your family as best as you can. But there are limits to what is a healthy ambition. There is also a fine line between ambition and jealous pride. Often, the latter takes hold, and you have to prove yourself to the people around you.

The warning signs should be going off if you start to compare your situation to someone else. There is no shame in renting or even owning a little home. In fact, being able to make wise decisions while young will lead to a more comfortable life later. You would be surprised what you could get by with nowadays. Whatever your situation, be wary of the expectations other people place on you.

It creates unnecessary stress. And it can cause some serious relationship issues with your spouse and family. The only time you should consider buying a house is when you and your spouse agree it is a good time and you have the means. Stretching yourself thin is not going to make things any easier. You may get your dream home, but the end of every month could become a nightmare if you don’t budget properly.

13. You May Qualify, But Does That Mean You’re Ready?

So, you qualified for a mortgage, and the bank is willing to lend you the money. The question is, can you commit for the long haul? Buying a house is expensive, and the financial strain may be more than you bargained for in the end. Before people buy homes, they get into certain spending habits. Often, they don’t recognize the comfort in which they are living.

For many people, these spending habits go beyond what they can afford, so they have a constant level of debt. So, how do you know for sure if you are ready to buy a house? Before you purchase a house, see if you can save money and stick to a budget. Regardless of whether the bank feels you have the means to buy a house, you need to know you are ready. Buying a house will cramp your style, especially if you’re not ready.

The commitment you need to make when you buy a house is a long one. You won’t be able to continue with your lavish lifestyle for many years. It’s not the mortgage you have to worry about, but all the maintenance and utility costs, as well. Many people don’t realize the costs involved, so they end up being miserable instead of living in their dream home.

These are the 13 reasons why you should never own a house. If you still dream of homeownership, consider these factors so you’ll know when it’s the right time to take the plunge. So, if you can create a budget and stick to it, live without luxury and keep up with maintenance costs, it may be time to look for that dream home. If not, consider a rental property instead. The decision is ultimately yours.

14. You can’t pick up and go

Buying a house ties you down to a particular town or city. It binds you there for most of the duration of your mortgage. For the first while, you are paying off the interest and not the capital. That’s why it takes a few years before you can sell and break even, let alone make a profit. It could happen that a few short years after buying a property you find yourself at a crossroads.

You’ve been offered the job of a lifetime, but to take advantage of it, you’d have to move. If you sell your house now, you’ll be lucky to break even. That means saving up for another deposit and taking out another mortgage that will be a millstone around your neck for the next 20-30 years.

While you were weighing up the pros and cons and taking the onerous responsibilities of home ownership into account, the job is given to someone else. And there you sit, having missed out on it all because you own a house. If you know there is a good chance you could be transferred for your job; it’s probably best not to buy a house. You might find yourself needing to pack up and go. What do you do then? You’re faced with two alternatives. You could let the house stand empty and put it on the market. You’d have to hope and pray it doesn’t get broken into and vandalized. And you’d have to put all your trust in a real estate broker to make the sale on your behalf.

Or you could rent the property out while you take some time to decide on your next move. The problem with renting out to unfamiliar tenants is that you don’t know what you can expect. They could trash your house and lower its value.

15. What suits you in your 20s may not work in your 40s

If you take on the responsibility of buying a home when you’re still young, you need to be able to look ahead. Sure, it’s okay if the house only has one bathroom. After all, it’s just you and your partner, right? Wrong. In a few years’ time, a baby will make three, then four, and maybe even five. Now you’re stuck in a home with one bathroom. Those who’ve lived through it will tell you it’s not a barrel of laughs. But when you were in your 20s, and you were buying a house, that was all you could afford.

When you were buying your house when you were starting to settle down, you probably didn’t give much thought to school feeder zones. It’s likely you didn’t give much thought to schools at all. You may find yourself in a less-than-desirable school zone. There’s nothing you can do about it. The school may be quite far from where you live, making transportation an issue.

You only had one car, so one garage was enough back then. Now it isn’t anymore. You need a double garage and some additional storage space for toys, Christmas decorations, etc.

You’re then confronted by the reality that the choice you made when buying a house has come back to haunt you. It was too early on in your life, and you should have waited. If you knew then what you know now, you’d never have chosen this house. In fact, you wouldn’t have chosen any home at all. The point is that life takes you through many twists and turns as it progresses. As you get older, your needs and wants change. Unfortunately, your house can’t always change with them.

16. Remodeling

Somehow, when you own a home, it’s never quite 100% where you’d like it to be. There’s always that dream remodel you’d love to do. It would make the house even more perfect than it is now. You look at interior decorating magazines, and you can visualize their contents in your home. When you walk into the kitchen, you see the cupboards looking a little worn, and immediately feel the need to remodel. It’s your prerogative as a homeowner, isn’t it?

For many couples, there’s often one half who has a grand vision for the house. The other half is content with how things are. But the remodel junkie always seems to win the argument. Some people spend so much time remodeling that it becomes a continuous process. They’ll work their way through all the rooms in the house and then start all over again. None of this happens for free, though. And the money must come from somewhere. You’ll blink twice, and the money for your dream holiday in Jamaica will have been invested in a bathroom remodel.

Your life is ruled by contractors when you remodel. Often, they work at their own pace which can drive you crazy. And they don’t care if you have no shower for a week because they’re taking their time. Their shower is working, so what’s the problem? You’re at their mercy.

It’s a crowd of strangers in your house, dirt, dust, and chaos. If that’s something you’re sensitive to, it’s best to avoid remodeling. Also, consider the fact that the money you spend on remodeling may not add equivalent value to the selling price of your house. If you spend $10,000 on a remodel that adds only $5,000 to the amount of your home, you’re operating at a loss.

17. You can lose it all

One faulty electrical connection can make sure you lose everything you’ve lived and worked for. You and your family may emerge unscathed, but your precious home and all your belongings will have gone up in smoke. It’s true you can lose all your possessions in a fire at a rental property. But the loss of the building is the owner’s problem, not yours. When you are the owner, now the damage is your problem. It can become a massive issue, and you could wind up taking a financial hit.

You might not be adequately insured. Then your insurer will pay out only the value of your policy. This may not be enough to rebuild the house. And all the while, the mortgage payments are still due. The loan you’ve taken doesn’t disappear like your home can.

If you didn’t read the fine print on your policy, the insurer might point out an obscure policy exclusion. That means you won’t get paid out at all. All those years of paying insurance for the building will have been for nothing. Now you have no money to rebuild your home, and you still need to pay the mortgage. You may be able to sell the land, but will it get you enough money?

Most insurance companies make a lot of their profits based on denying claims. Very often, the reasons for the denial are somewhere in those terms and conditions which most of us neglect to read. This is why it’s important to work with a reputable insurance broker who will explain everything to you. It’s also critical that you don’t miss out on an insurance premium payment, as this could jeopardize future claims.

18. The market is not always stable

If you’re one interest rate hike away from not being able to pay your mortgage, you’re in too deep. Your debt is too great, and you could lose it all. Most people are taken by complete surprise when there is a disturbance in the market. Most of us don’t follow the financial news. The only time we become concerned is when we feel the effects in our personal lives.

If inflation suddenly spikes, an interest rate increase might be on the cards. If the interest rate on your mortgage is variable, you’re going to feel it. If the interest rate goes down, we celebrate. But instead of putting the money we’ve saved away, we absorb it into the budget. Then when the interest rate goes up again, we’re looking at ways to pay the increase to the installment.

The housing market can affect you too. You may have bought an expensive house in an ‘up-and-coming’ neighborhood. As soon as there’s a financial crisis, ‘up-and-coming’ changes to ‘going nowhere slowly.’ The investment you made is now going to reflect a loss because you can’t sell the house for the price you bought it for.

The job market is sensitive. We know that jobs are here one day and gone the next. But a mortgage is there for 20-30 years. The bank will understand and cut you some slack if you lose your job. But they’ll only go so far. After that, they’ll foreclose. You will lose your house and all the money you paid toward the mortgage debt. At least if you’re renting, you can make a plan to move somewhere cheaper if you lose your job. Your lease may be for a year, and you might have to stick it out, but there’s a short-term end in sight. With a mortgage, there isn’t.