Today my wife and I close on our first house we are buying as a couple. Over the past 6 years of our marriage we lived in various places that I owned before our marriage, as well as a short stint in an apartment. Although we had comfortable and affordable living arrangement during that time, we were constantly on the hunt for something “nicer”. The current stream of information about housing I believe is definitely incorrect and I would love to help change the current mainstream approach to buying or renting a place to live; the first being, thinking about Future Potential Capital Gains rather than living rent/mortage free.
I remember thinking about 5 years ago “Wow my house has appreciated about $100 Grand since I bought it, but think if I would have bought a $250K house (although I couldn’t have afforded it) rather than a $130K house to begin with; the potential gains could be $200 Grand! I could just struggle to get by on the high mortgage payment and utility expenses (since it would probably be a bigger house)…for the chance at a future payoff!.” I was caught up in thinking about future potential gains rather than on handling my finances TODAY. I was swimming downstream rather than upstream. My thinking was leading my family straight to a life of murky evaporating water and Financial Ruin! My wife and I were battling what we discussed in the Intoduction to Giving Article: the WRONG world view about money.
Of course, our appreciation from market gain was zapped up in a short few years within the collapse of the housing market and I learned a very, very valuable lesson: DO NOT count on future POTENTIAL CAPITAL Gains in housing. Exclude them from your decision making. It’s just not worth the risk because there is a more sustainable way to use your money.
This past summer when the housing market reached a level of affordability again, we decided it was time to purchase a new house, together. Rather than looking at neighborhoods that could eventually appreciate in value, we decided to look at houses that we could pay off in 5 years. Many of our friends and family scoffed at the neighborhoods and/or houses we were looking at. They would say “well if you just spend $40 to $60 grand more you could buy this other “Nicer” house that has a greater POTENTIAL future gain.” $40K! That is a lot of money! Some families don’t even earn that in a year! Let me tell you most people don’t have even $40K in Net Worth, why burden myself with $40K more in debt? When talking about buying a house, money is thrown around in tens of thousands of dollars, like it is nothing. This is due to the ease of financing today and the idea that financing is the right way to go.
Instead of the chance of future Capital gains we opted for something we could control: guaranteed Future gain in the way of free rent (well almost free…you still have to pay property taxes, Insurance, and utilities) by purchasing a house we could pay off in no more than 5 years.
Control what you can Control: You can’t control your house increasing in value, but you can control what price range you buy a house making it affordable now and for the future. Keep swimming upstream.