Hundreds of articles have been written about the benefits (and disadvantages) of home ownership and whether or not buying versus renting makes sense. This article isn’t to argue which of the two is better, I simply want to mention two relatively ignored benefits of owning. I personally did NOT take these benefits into consideration when we bought our house a few years ago. In fact, I really don’t think about them that much as a ‘normal’ person but they’ve become increasingly obvious to me as a financial advisor:
A mortgage payment forces you to ‘save’ money. Since becoming a financial advisor, I’ve poured through over 100+ people’s budgets, and I’ve noticed how difficult it can be for people to save money. You have to make dozens of tough decisions each and every month in order to stay cash flow positive. Budgets are like diets, they’re really difficult to start and even more difficult to stick with. Big decisions are easier in that you only have to make a decision once (picking a cheaper car or house), and that one decision can have lasting impacts for years. One of the few areas where I see significant financial progress by younger people is in retirement savings: people are funding their 401ks.. Why? Because you never see the money. It gets deducted from your paycheck before it is ever direct-deposited into your checking account. Poof. “Gone”. And it’s invested into a stock market that averages 8% returns every 2 weeks without you making any more decisions. Often I wish we as a society would do the same thing with our taxable investing and savings accounts. Hopefully you see where I’m going with this… buying a house ‘forces’ you to save money into an asset each month. If you aren’t buying a house, then you’d theoretically have to actively make the decision every month to save money (if your budget allows for it).
Buying a home ‘locks in’ a large chunk of your monthly ‘cost to live’ budget. By buying a house, you now know exactly how much the largest portion of your housing budget will be each month. And you’ve locked that amount in for the next 15, 20, or 30 years assuming you used a fixed rate mortgage for financing. Sure your property taxes and home insurance can fluctuate, but oftentimes your rent or mortgage will account for 20-40% of your monthly budget. Buying a house means nailing that number down so you can actively budget around it for the foreseeable future. No matter how much house prices go up in the future, you’ve got (Year 2024) housing prices locked in. This is similar to owning a Roth IRA (versus a Trad). Everyone’s individual situation will differ whether or not a Trad or Roth IRA is better for them, but a big benefit of owning a Roth means you know exactly how much money you’ve got free of taxes. It makes it easier to plan your retirement whereas with a Trad IRA you have to balance how much income to claim each year to minimize taxes owed. As a financial advisor, knowing exactly what my clients’ housing budget number is really powerful. I can better predict their monthly and yearly budget. I can better predict their net worths over time. And it tells me a lot about them as individuals.
Did I say I was going to give you two ‘secrets’ to homeownership!?!? Lemme hit you with a surprise THIRD… If you read my second ever Blog Post (Common Tax Misconceptions) point #4 talked about whether owning a home saves you money on taxes (cliff notes: not necessarily). But while owning a house doesn’t help most people on their taxes, it CAN help as a massively powerful wealth transfer to your children, or whoever inherits your estate. At least considering how the tax code is currently written, inheriting property with stepped up value is a massive benefit to the next generation. So think twice before allowing your parents to gift their house to you because it’s often better to inherit it.
Summary Checklist:
This article is NOT arguing if owning is better or worse than renting
Paying a mortgage every month forces you to ‘save’
Kind of like a 401k
Buying ‘locks in’ a large part of your current AND future housing costs
Kind of like a Roth IRA
Oh yeah there’s some tax benefits
Owning a house makes forecasting your financial future easier
I hope you’ve found this post helpful. It’s not easy to write these articles but it’s even more difficult to write about a topic that so many people have already written about without sounding like an echo chamber. It’s also a difficult balance to write a blog post that goes into enough detail to be helpful but isn't too detailed that it’s difficult to follow. If you're unsure if renting versus buying would be better for your individual situation or if you simply have any questions, I’m an open book and would love to hear from you! And as always, you can book a free 30-minute call with me to test the waters and see if you’d even want to work with a CFP professional.
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