5 Reasons Why Home Ownership Might Not Be Right for You.

You’ve heard it many times I’m sure – things like, “owning a home is a big part of living the American Dream.”  As a Realtor, you’d think that I’d be of the opinion that everyone should own a house but the fact of the matter is that homeownership is not for everyone.  Here are some when I believe owning a home is not the wisest decision.

You Don’t Know Where you Are Going to Be in 3-5 Years

If you don’t know where you are going to be in the next 3-5 years then it probably doesn’t make sense for you to buy a house.  Why? Two reasons.  First off, owning a home is the epitome of putting down roots.  If you know you aren’t going to be in the same place in the next couple of years, the burden (financial and emotional) of having a home that you must do something with before you can move is not attractive.  If you live a transient lifestyle, renting is by far your best option.  The second reason is that the cost of purchasing a home and subsequently selling a home make it virtually impossible (in most instances) to turn any kind of profit within the first couple of years.  In the broadest terms, downpayment notwithstanding, its going to cost you about 2-3% in closing costs on the front end to purchase your home.  In a typical scenario on the back end, you are looking at 7-8% in transactoin fees when you sell.  That’s a 10% chunk of your profit right there.  That does not take into consideration market dynamics and timing.  In most markets, it’s tough to see a 10% appreciation in a short time period.  Not impossible but not something you should bank on.  If you are considering  a new construction purchase in a neighborhood where new construction will continue for years to come, you should know that you will be competing against the builders (and their incentives) when you go to sell.  Therefore, its often even more difficult to turn a shorter term profit in a new construction neighborhood.

You Don’t Have Money for a Downpayment & Closing Costs

Are there ways that you can get into a home with no down payment?  Yes, but they are far less abundant as they once were.  VA (for veterans) and USDA (for rural properties) are about the only two options currently available for any kind of zero down payment.  This is not to say that you shouldn’t pursue one of these opportunities if you and/or the property qualify but you should make sure that you understand all of the terms of the financing arrangement because you are buying into a property with flat or negative equity from day one (see above).  What about closing costs?  There are additional fees associated with purchasing a property and those are referred to as closing costs.  As a buyer, you can request in your contract that the seller contribute monies toward your closing costs but that is a negotiable item and there are limits to seller contributions.

You Think that Home Ownership is an Avenue to Quick Riches

Are there ways to become wealthy through real estate investment?  Sure.  Are there ways to turn a nice profit by flipping or rehabbing the right property? Yes, if done strategically.  Are there guarantees that you are going to make a substantial profit on any property you sell?  Absolutely not.  If you take the approach that you are going to buy a house with the intent to sell it a year or two later for a significant profit either through drastic home improvements or market appreciation, you are simply speculating or gambling.  Sure, if got a great deal when you purchase, make the right improvements and catch a strong market cycle it definitely can happen.  However, those scenarios typically involve very detailed research, planning and strategic investment – not blind faith.  Many of those properties are purchased with cash through foreclosure auction by seasoned real estate investors.

Your Future Employment is Up in the Air

This is a tough one because you really never know when the economy could tank and you or your partner might be out of work for a short or extended period of time.  Case in point – the past 3-4 years.  In the past, some have over leveraged their real estate purchases and been faced with the unfortunate circumstance of one or more foreclosures or short sales.  The real estate market is closely tied to the job market in most areas.   Nowadays, employment plays a huge part in the overall qualification for financing but often its wise to take a bit more conservative approach and not buy the biggest and best house you can qualify for unless you know your future is secure.

You Have No Desire to Maintain Your Property

If your ideal weekend consists of sleeping in until 11am and sitting on the couch for 12 hours a day while the bushes in your front yard grow with reckless abandon, dont buy a house.  If you cant remember to change an air filter and the next time you water your lawn will be the first, dont buy a house.  Now, that being said, you may have the financial capability to pay someone to do all of those things for you so that you can sit on the couch all day long and thats fine.  Just make sure that someone is maintaining your property because if you do not, you might have a whole mess of worms on your hands when/if you go to sell.  When you lease a property if something goes wrong or breaks, you call the landlord or management company and someone else comes to fix the problem.  When you own your home, guess who’s responsibility that is?  Property maintenance is just one of the costs associated with owning a home but a big reason why many still prefer to rent even if they can buy.

More Information on this Topic:

How Do You Know if Renting or Buying is Best for You?
The Real Estate Markets Where Buying Beats Renting
Want to Know How Much Home You Can Afford?