Why Your First House Is A Liability

Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all?

Also, there’s tax advantages to mortgages here in the US.

Renting out a house isn’t easy money, believe me I’ve tried it. You have to find tenants, things break, a lot, that you have to pay for. In my case, the tent ants literally moved out in the middle of the night using their car headlights since they hadn’t pairs the electric bill in 5 months.

Letting your money generate appreciation (in the stock market I assume) is no guarantee and as we’ve seen the last 20 years, we could see annual gains and losses of 20%.

A house IS AN ASSET. It’s a non-liquid asset, but it’s not a liability. What’s the best test if it’s an asset or a liability? Would you want to just give it away to someone?? A house, of course not. A car loan, of course.

I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommend any young person to go ahead and buy a house as soon as they have the money for a down payment. There is a lot more benefit than just the financial side of things. I grew up a lot in that house. The freedom of owning your place also comes with the reality that anything that happens to it is on you. The house was the biggest personal responsibility I had ever taken on and it was a great overall life experience.

Oh god, I’ve thought long and hard about this over the years and my conclusion is that there’s no good advice that applies to everyone - whether you should own or rent depends heavily on what you value, how long you plan to stay put, and what alternatives you have when it comes to what to do with your money.

Renting gives you flexibility and keeps any cash you might have free, but it also is a sunk cost with each passing month. It’s pretty simple math.

Owning a place ties up cash in the form of a down payment, and a lot of people underestimate the true cost of maintenance and repairs over time on both new and old buildings. But the ability to build equity over time and the amount of control it gives you over your living situation makes it an obvious choice for me. If you can get into a multi-family or income generating property, your returns are obviously higher. I’d always look at appreciation potential as a bonus if it happens, it’s never a reason to buy.

I think the truest and most important thing to keep in mind is that money is made and lost when buying real estate, not selling it. Educate yourself, be picky, take your time, be realistic about costs, and do your very best to buy well.

> I don’t want to reinvent the wheel, we’ll use the definition from one of the best personal finance book “Rich Dad Poor Dad”

I was trying to understand the perspective of the article, and that gave me the major clue.

RDPD is one of many books that basically says the key to financial success is real estate investment.

For a few people, and at certain times, maybe, but it is better for most people to make it a (small) part of a wider financial investment plan.

Your first house (or any house) should be first and foremost though if as a place where you will live, and “primary residence as investment” is almost never a good thing.

Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home.

Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white.

Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a life where not everything is based around that mind-frame.

There is probably some useful advice in there somewhere but a more thoughtful, pragmatic approach will serve it better.

Why is Medium filled with, what I call, celery? I consume articles, but there is absolutely no substance.

Is there some unknown incentive for these people to share empty “enlightenment?” It’s as if these people are becoming content farms being graded on number of articles published.

Anyway, this article is garbage.

I agree that for someone who wants to frequently move around in their 20s, a house is a liability, especially since you don't know what the housing market will do so you could end up loosing a lot of money in the short term. But not everyone wants to move around in their 20s, some people find a city they like and want to stay there.

And I don't understand why the author suggests everyone wait until they can get a rental property, that just doubles your exposure to the housing market and adds the stress of having tenants. If you really want to have that much money at risk, just dump all the second house money in the S&P 500, and trade on margin or something.

Depends what country you're in really. Here in Australia the advise is pretty terrible.

House prices in some cities go up faster than any investment you could make and there are some pretty crazy tax gymnastics purposely put in place to keep the dirt cash churning.

Meanwhile your mortgage repayments are slightly higher than renting in the same area so why wouldn't you just pay for an asset instead of paying off someone elses mortgage.

Youre building equity which you can leverage for other investments while keeping a roof over your head.

This is mixing up liquidity with asset vs liability. A house is a depreciable asset. The land beneath the house holds it's value and doesn't depreciate. That's why the assesed value for tax splits them out. Both are less liquid than cash, but I can convert my equity in the asset to cash very quickly with a loan, or put the house up for sale and maybe it takes a little longer to get the cash. The loan would be a liability. But a house is never a liability on financial terms.

My current plan is to buy, live in the house for a few years, offer the house up for rent, and rent a new house for myself. I'm currently on step 2. I don't want to overcommit myself in real estate so buying a second residential property doesn't make sense for me. Because of rent appreciation I will have positive cash flow while renting out my current home. That hedges for any future rent increases in my future place of residence.

I'd consider buying an income generating vacation home too. But not another primary residence. That's just my opinion. And my opinion doesn't make my house an asset or a liability.

Now that said, I feel one non-financial aspect where owning a house is a liability is the opportunity cost of time spent maintaining the house. In a rental the landlord takes care of it.

> It is safe to assume, you are probably buying your first house for yourself — not for renting it out. In this scenario — your first house will take money out of your pocket, you can’t convert it into cash for at least first few years otherwise where will you live? Hence I believe it is a LIABILITY.

Yeah... Of course. But let's look at the alternative - most young adults don't have a roof over their head sorted out. Statistically few people have the opportunity to live with their parents - lack of space, job opportunities, social circles and so on. So it's either buying or renting. And here is where you need to look at both options:

1. Renting - you have a fixed rent + bills to pay. If something breaks down on it's own, your landlord has to fix it(ideally but far not always the case). Depending on your landlord there may or may not be furniture, so you may need to invest in furniture, appliances, etc.

2. Buying - same as rent, but you have to take care of maintenance on your own in all cases. However, the big difference is that in this scenario, your mortgage payment does add something to your name, that is, your money isn't fully gone at the end of the month, as opposed to renting. Renting will guarantee a roof over your head until the end of the month and that's it. Mortgage does mean you have an asset(even if it is partially). You still have the ability to sell it, should you need to.

I'm not talking about the people born with silver spoons in their mouths - for the vast majority of people(myself included), those are the two options we have in front of us. They are both liabilities, they both are a weight on your shoulder and while mortgages come with more strings attached, I still believe it's the lesser evil of the two.

Well politely "I disagree"

I moved to a lovely new town for my first IT job (I'm still there 20 years later). I initially rented for the couple of years and moved out when the landlord decided to sell - and he offered to sell to me for what I thought was a ridiculous price. Few years later I decided to buy and saw that original house was back on the market. The appreciation on that original house was more than I'd earnt (pre-tax) in those intervening few years.

Next flat I rented was from a teacher. She'd decided to try working in Australia, but before she left had decided to sell her house in the UK and buy a nice, easily rentable flat in the town she 'might want to move back to'. This struck me as incredibly sensible.

There's your job(s) which may be tied to a particular place and there's your housing in that same place. If you don't own anything you're at the complete mercy of the markets. You might score that great 10% yearly pay-rise, but if housing goes up 20% it's still 'bad'

My humble advice is that not buying is perfectly sensible as it provides you with flexibility - but try to connect yourself to the housing market - you'll always need a house. Buying a place and renting it out might provide best return for the risk, but there are plenty of funds geared around housing you can invest in, just to make sure you don't get left behind.

It unclear to me what investment of a 20% down payment the author thinks is going to have net returns greater than the leveraged real estate investment.

Also the statement “Especially, in big cities where down payments are huge, renting is always a better idea” is just straight up wrong and it’s uncomfortable to me that people write financial advice articles with such a clear lack understanding of markets, real estate, and motives of home buyers.

The author's advice is country dependent. My assumption is that he is writing from the perspective of buying in India.

1) In India, rents are very low compared to mortgage payments. 2) Home value appreciation is low given the rate of inflation. 3) financial instruments like home equity line of credit are not available.

So yes, it probably is not a good decision to buy a house in a big city in India. Elsewhere? Do your own calculation.

This really varied from place to place. I live in a small city in the midwest. My mortgage payment is barely more than my rent was and I went from 1 bedroom to 3. I also went from hearing neighbors all the time to rarely hearing them and having a fenced in yard where I can do whatever I want. Those luxuries are more than worth it to me.

I could make more in a large city but real estate would be way more too.

I don't ever consider my primary house an investment. I purchased and put money into projects that allowed me to live in the house. Usually, housing markets are stable enough that at the very least you are either breaking even, making some moeny or at the worst losing a little money to when selling the house. Despite maybe losing some money, consider the overall amount you spent. If done right, you should have at least lived rent free.

There are downsides to owning. Bad stuff happens and you are on the hook for it. A furnace can cost a pretty penny. Water damage is messy, expensive and hard to repair. If you aren't handy, renovations are costly. Even if you are handy, renovations often cost more than planned and take WAY longer than you might want. I wound up doing a lot of punch list work as I was getting ready to sell my first house. I spent years living with my imperfect, incomplete work.

Consider this, though: renting is as bad as leasing a car. There is no financial benefit long-term. That money is gone and you will have no real leverage from that rental to put towards your next adventure. Not even the security deposit with interest will cover the overall cost of renting for a year, though you may get it back with a little interest. You will have spent a significant amount in rent over the time you lived there, more than that deposit + interest is worth.

You do have some benefits (maybe). You aren't responsible for renovations or equipment failure. Hopefully you have a landlord that is responsible and willing to quickly repair that furnace in the dead of winter. You aren't as tied to a location long-term. When the contract is up, you can leave immediately. You don't have money tied up in a house that may not sell at the same time you are looking to purchase.

Ultimately I was able to walk away with a chunck of change for my next house, if I calculated it out, I likely broke even or lost a little money over renovations and interest, but I didn't lose all those payments over 5 years to rent.

> best personal finance book “Rich Dad Poor Dad”

Lost me right there. That is such a stupid book.

Home ownership and apt renting are radically different markets. That house you bought, how much does it cost to rent the equivalent? Your end desire is the important issue here to decide to buy or rent. When you rent you don't control the surrounds you have and might have undesirable neighbors living on top of you. I know few people who bought a home regret it. But some people prefer the care free life of renting. I don't want to be renting or paying a mortgage in my later years.

Forget pure financial calculation -- It also gives you less flexibility to move quickly! I certainly wouldn't buy a house before age 30. You want to be able to pick up and move and chase an opportunity. (I'm awfully glad I got on a plane and moved to Silicon Valley in 1989 on a whim.)

Purchases are irrational. I bought the car I bought because I like the engine noise, and I bought a house because I don’t want to have to ask permission to the landlord to hang a frame in the wall.

It makes sense not to buy a house if you just know you are moving in the foreseeable future.

buying a house is probably not a good investment, true. But so is buying a car.

And at some point people may get to the point where they want these things.

Sure, you can rent, but there at lots of things you can’t do in a rental. And in some regions the rental market for houses is very small.