Living with credit

It’s not you, real estate market, it’s me

Yasmin Ghahremani

For the past few years the conventional wisdom has been, if you’ve got good credit and enough money for a down payment on a house, now is a great time to buy. But a lot of people are starting to question whether there is any right time to buy if you’re just not the owning type.

I’m one of them. I have managed to get through life without ever owning real estate, mostly because I have moved cities or countries every few years. In the meantime, I’ve managed to sock away some cash and keep a good credit score. Thoroughly middle-aged and ready to stay put for a while, I feel pressure to officially join the middle class by buying a home.

It's not you, real estate market, it's me
That’s just what normal people do, right? Homeownership in the past century has been a key component of the American dream, bestowing respectability and a perceived financial security. My immigrant father recently declared that real estate is the only investment that will always go up — ignoring the fact that his own experience has proven otherwise.

Emotions undoubtedly play a significant — and legitimate — part in my father’s opinion. A May 2012 Coldwell Banker survey found that despite the recession, 78 percent of homeowners said that owning a home is one of their greatest achievements and 85 percent of all adults said they’d always dreamed of owning a home.

That’s great for them but it’s never been my dream. I consider gardening a chore and can hardly hang a picture without emergency backup. I love the security that renting gives me, namely an on-site maintenance guy at my beck and call.

But I do worry about my financial future. I used this rent versus buy calculator and it found, to my disappointment, that buying is a good choice for me. I wanted a second opinion, so I spoke with financial adviser Andrew Mason. I asked if I really have to buy a house to make sure my retirement home isn’t a refrigerator box under a bridge, and was encouraged by his answer.

“People will look at the value of their house and say over 20 years it went from $250,000 to $400,000,” says Mason. “They don’t realize that if you had put that money in a savings account with 3 percent interest you would get the same thing.”

Not everyone is disciplined enough to save or invest in other ways, so a mortgage essentially becomes forced savings.

But homeownership comes with other costs. In Austin, Texas, where I live, property taxes are 2.5 percent to 3 percent of a home’s assessed value. Over 10 years you could pay $75,000 in taxes on a $250,000 home. Then there are the considerable costs of buying and selling a house, insuring it and maintaining it. “All those little $20 trips to Lowes add up,” says Mason. “You have to think about how much you really spend over time.”

Of course, many of these costs are tax-deductible, along with mortgage interest — at least for now. Deductions are on the table in federal budget talks, though it seems unlikely that any cuts for homeowners would affect the middle class. Even so, the deductions are not substantial enough to sway my decision. A University of Pennsylvania study found that the average household earning between $44,000 and $75,000 enjoys only $523 in annual tax savings from mortgage interest deductions. For those with incomes between $75,000 and $125,000 the number is $1,264.

I am more susceptible to the argument about building equity. In 20 years, if I stay in the same home, I could have a house paid off and live rent-free. With interest rates so low, a mortgage provides the leverage to invest in something that earns higher returns than the interest I’d be paying on the mortgage. I could sock away the difference for all those purple dresses I plan to wear in my dotage. Plus, a mortgage is a hedge against inflation. “Over time, there is probably more wealth created by owning versus renting,” admits Mason.

Ultimately, however, a lot of the choice in rent versus buy comes down to your personal preferences. “I always ask people, do you like to fix stuff?” says Mason. “If you like to tinker, owning is the right thing for you.” That settles it for me. I’d take a day of “Achy Breaky Heart,” stuck on repeat, over replacing a toilet.

I just hope the neighbors in my apartment never turn out to be Billy Ray Cyrus fans.

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  • gherlashdawn

    This post really helps me it gives me an idea about investing real estate, thanks for this!