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For most people it’s a dream to live one day in their own house, which they paid off with their own hard-earned money. 
Depending on where you live and how high your demands and your income are, this can actually result in you paying off a bank loan over the next 10-20 or even 30 years. After which you practically *own* the house (before it was actually owned by the bank). And after which you probably start spending again (during probably as well), as even the best build quality deteriorates over time and needs upgrades, re-invest or maintainance.
So why pay off for your own house then? Why live and work many years of your life for owning a house?
The internet is full of sites, praising the advantages of home ownership compared to rented homes. Just google for ‘rent or buy your own house’. There are plenty of reasons, which are stated usually by banks, housing development companies, consultants, real estate brokers and other beneficiaries of you as a house buyer:
- Tax Savings (not applicable in all countries)
- Tax Free Profits (some countries apply home speculation taxes; but rules vary from country to country)
- Leverage with ‘Other People’s Money’ (effectively bank’s money)
- It’s yours – you own it!
- Value of property can only go up
- In the long run you save money, because you don’t spend on rent
But what is the rush with buying a house for yourself? Except you know already, that you want to stay in that area for the next 30 years. A great comparison table of Buying vs Renting, you can find here.
And here are some reasons against buying your own house:
- Real Estate Markets are overvalued (at least in the US, Australia and some parts of Western Europe)
- You will be in debt for a long time, basically living and working to pay that debt off (The Rat Race)
- Long commitment of monthly payments, possibility of bankruptcy, if you lose your job or source of income
- You could invest your money better in other investments with better long-term returns (stocks, funds, bonds, etc.)
- You will anyway inherit your parents house one day
- Hidden additional costs, like
- Closing costs
- Interest on your mortgage
- Property taxes
- Property Insurance
- Private Mortgage Insurance (if your down payment is less than 20%)
- Maintenance
- Inflation
If you must own a house, why not buying it to rent it out to someone else?
By doing that you effectively create an income stream for yourself, instead of spending money, which you don’t even own yet.
As an aspiring World Traveler, you might even want to consider the following reasons, why buying your own house back in your country of origin could be no-no:
- Cost of living (and costs of property) is cheaper elsewhere
- Property prices in industry countries are already incredibly high, why buy overpriced property for yourself?
- With your strong currency (Dollar, Euro, Yen etc.) you can get more ‘bang for the buck’ in lower-cost countries in Latin or South America or Asia
- If your owned property is rented out, you can earn an income stream, which could finance your life abroad
- If your rented house needs maintenance or serious investment, you simply call your landlord or move on
- Renting your own accomodation ensures your independence and flexibility – meaning: if you get bored with the location you are in – you can move on easily
- You don’t want to be caught in the Rat Race forever
- You don’t want to stare at the same walls and neighbors forever
- You don’t need to prove to your neighbour (friends, family, colleagues,…) that you can own a bigger house than they do
- You don’t want to worry about maintenance, security, termites, burglars, an overvalued housing market or other catastrophes, while you are traveling
- You are happier with less!
All in all, it surely comes out to personal preference. After all real estate is a local matter. What matters is the market you are in, where you have the most in-depth knowledge and the most to gain or to lose. If you still don’t know, if to buy or to rent, here is a suggestion:
Flip a coin. If you’re disappointed with the result, then you know the real answer.
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December 21st, 2006 at 1:34 pm
You have a very professional, well-designed, interesting and informative blog. I’m impressed.
Brightest Holiday Blessings!
December 21st, 2006 at 6:59 pm
What an analysis! You’re assessment seems funny yet are practical and realistic scenarios one needs to ponder about. I enjoy reading your blog will come back here the next occassion… Thanx for sharing great ideas…
February 6th, 2007 at 8:38 pm
You are so right !!! I have several properties in US and some in my country. I have concluded that the “american Dream” of ownining your house is just not the best financial move you can make. You may feel proud to have a picture perfect house (for wich you have to be enslaved most of your life) paying for everything you say, plus I would add furnishings, Improvements, insurance and worst: expenses to buy, sell or refi. Nowadays there is not even a warranty to sell at a higher price !!!. What an illusion. Rent and invest the rest. Be a landlord, is more fun, you really make money and you own your destiny.
May 8th, 2007 at 4:03 pm
[…] Why work your back off to buy a Porsche, 2 houses and tailor-made suits; when you can drive an old used Motor-Scooter in a beautiful surrounding, rent a small but cozy flat and sit in flip-flops and shorts at the Perfect Beach, thus avoiding Monday Morning Blues forever? If you tend more to the latter, you can have it. If you want to own all the riches – you can have it as well. It’s all up to you! But make your choice early! […]
June 5th, 2007 at 9:02 pm
[…] Why work your behind off to buy a Porsche, 2 houses and tailor-made suits when you can drive an old used motor-scooter in beautiful surroundings, rent a small but cozy flat and sit in flip-flops and shorts at the Perfect Beach, thus avoiding Monday Morning Blues forever? The choice is yours! But make your choice early! […]
June 11th, 2007 at 4:07 pm
[…] If you own a home/house, evaluate if it’s good or bad debt! If the return from rent is lesser than the mortgage payments and other costs, it could be better to sell it off completely and put the money into fixed-income assets/dividend stocks, thus converting bad debt into a passive income stream. I *would not* bet on an increase in real estate value over time, that’s gambling. But you have to evaluate your situation and decide on that yourself. It doesn’t necessarily pay off to own a house in a developed country. […]
August 19th, 2007 at 8:38 am
[…] Chris presents Why it doesn’t necessarily pay off to buy your own house in the US, Australia or Europe posted at nomad4ever. […]
September 3rd, 2007 at 12:35 am
I guess buying your own place does have it perks. With rental, you can’t always decorate it the way you want. But careful planning would definitely have to go into making that purchasing decision. Don’t just follow your heart when buying it, but follow your head and do the numbers as well.
February 1st, 2008 at 10:52 pm
[…] in it, but one can never know how big your family will be one day. You want to live forever in your own place. And with an own house you are forever secured. Of course you will have to invest again over time […]
March 23rd, 2009 at 5:55 am
I think nomad4ever let his carefree mask slip when he inserted as one reason against home-ownership “You will anyway inherit your parents house one day” which perhaps sums up his future plans. It is widely known and discussed that his generation is enjoying the greatest wealth transfer in history as most parents of his generation accumulated wealth which they will leave to their children. Essentially, his current ‘carefree’ lifestyle is build on the promised security achieved through his parents’ hard work.
March 23rd, 2009 at 10:17 pm
Peter, nice try here, but a little bit off the actual facts.
Of course, I’m not nearly as carefree as the above and other posts on this site might suggest. I’m all for reasonable planning and execution of financial independence. Also I wouldn’t recommend to gamble on a possible inheritance by parents or other relatives. It was merely meant to think outside the box, as most people are more afraid of the future than necessary. :D
December 29th, 2009 at 7:26 pm
Chris has a strong argument against buying/keeping a real estate in the West (West refers to developed nations including Japan, Singapore, Hong Kong and Australia, not just the US and EU) when a Westerner has already planned to retire and live a nomadic lifestyle in the East (East refers to developing countries, including Mexico and Latin America). This is especially so because the Western mortgage had been overly leveraged. Many home owners are still not out of the woods. I expect more to default their loans in the coming few years. One particularly dangerous mortgage product that many Americans had taken up is the progressive mortgage package which comes with an artificially low interest rate in the initial years and a substantially higher rate later. Many families are struggling to pay even the artificially lower rate now. When they have to face the music years later, their monthly payment maybe 2 times or more than what they pay today. For example, they may have to pay US$2,000/m later whereas they are struggling to pay $1,000/m now. Many such families will default their payment and be forced to sell their house, and banks may become bankrupt again since the massive foreclosure of these houses will push the prices down below what they are assumed to be worth in the bank’s balance sheets. And property price will go down, igniting another financial crisis like what we saw in 2008. Perhaps the next crisis will be even worse. So, those who thought that property prices will increase perpetually will get a second shock when this next crisis comes along. The bottom line is, what is the intrinsic value of the property? Are they worth so much in, say, gold? Most properties in the West are priced too high in gold terms. Moreover, as a nomad, you really don’t want to pay taxes, to be bothered about finding tenants and collecting rent, and to renovate your property, etc. The best way to manage your assets is to make them as easy to manage as possible, and to pay as little taxes as possible. One way is to move them into a tax-frenly financial centre such as HK or Singapore. They have excellent financial services, regulatory framework and tax treatments for nomads’ investments. HK even offers a Right of Adobe (equivalent to Permanent Residency) to those who invest large sums (around US$1m) of money there! These 2 cities are also among the most transparent economies and reliable financial centres in the world. Foreigners may also open bank accounts, buy insurance policies and open trading accounts there. For example, a nomad in Asia could purchase a health insurance in Singapore and go back to Singapore for surgery or hospitalisation when required to enjoy world-acclaimed medical facilities, or choose to receive treatments in other approved hospitals elsewhere in Asia. For nomads who wish to enjoy a regular stable income from his investment, he may purchase a life annuity that guarantees a minimum amount of monthly income for as long as the person survives from a Singapore insurance company. By so doing, he can receive a fixed income (e.g. S$2,000/m) plus bonuses denominated in a strong currency (Singapore Dollar) for life, so he doesn’t need to bother about mismanaging his investments or fluctuations in the financial markets. By the way the Singapore Dollar has appreciated against the US$ considerably. HK$ is pegged to US$. Both HK$ and S$ are considered strong. Others who are investment savvy may invest in stocks or mutual funds in HK/Singapore on their own. Since the financial companies in these 2 cities have English-speaking staff, it’s easy to communicate with them.
December 29th, 2009 at 7:46 pm
Great information and insight, sunny! Thanks for sharing, I can only agree to the safe and transparent financial framework of Singapore – the only regret I have; that I didn’t find out about it earlier in my life. It’s really something to think about during a quiet day somewhere, if one is serious about changing ones consumerist lifestyle, becoming financially independent and retiring early.
April 27th, 2012 at 5:19 am
I had this bookmarked in one of my old notes. It’s amazing to see how much house prices in most places in the world have dropped since you said they were overvalued in 2007.
I live and rent in Canada, where the cult of home ownership is still going strong in 2012. To date, we haven’t seen the nasty drop in home prices (though there are some serious warning signs about an imminent drop).
Thanks for sharing, Sunny!