Buying a home is probably the biggest financial and emotional decision you will ever make. Preparing your self for home ownership financially is only one part of the battle, but even before dwelling into the finances, deciding on whether home ownership is your cup of tea should be ‘numero uno’ task for any homeowner to be.
Even though home ownership is a dream for most people, there’s much more to home ownership than paying the mortgage every month – something that many discover over time.
If you’re not prepared for the upkeep, or to replace your roof and those rotting windows, owning a home may not be your thing. Stick to renting instead, and let someone else worry about all those things. Some folks are happier and better off renting. Certainly there’s nothing wrong with their choice. Heck, who are we to judge someone throwing their money away and paying off someone’s mortgage. We (the homeowners) are dishing out 80% of the mortgage payment towards interest within the first five years of the mortgage.
Before you dive into home ownership have an idea of the advantages and disadvantages of being a homeowner because a significant portion of cash is removed from your monthly income and you will be required to make certain sacrifices.
Are you really committed to make sacrifices to be a home owner? The upkeep, fixing, painting, unexpected maintenance costs, home insurance, upgrades, and not the little country home with a a white picket fence and a dog on the front veranda that you see in every Hollywood movie. Home ownership is REAL, and if you’re not prepared for sacrifices and unexpected twists and turns – please do all of us a favor and stay a renter.
One of the main advantages to being a homeowner is financial security-your home will provide you some financial security from capital appreciation if housing prices are rising. For much of the last fifty years in most Canadian housing markets, prices have been rising.
However, there are no guarantees in life!
Real Estate is NOT Bulletproof
Nothing is bulletproof and that includes real estate.
Like any other investment, home ownership comes with risk. Think back to 2008. Real estate tanked across United States. Canada caught a minor cold. Despite that this occurred almost four years ago, Real estate in the United States is still reeling from the 2008 recession, just ask those living in Florida, Nevada and Arizona.
Fortunately the real estate market is more stable than the stock market. However, nothing is bulletproof, so it doesn’t mean value cannot drop.
Can you afford to be a home owner? How much can you afford? These are some of the questions that every homeowner faces. The key to home ownership is buying what you can afford. A simple way to do your own affordability check: Total up all your monthly debt payments including rent, add your expected monthly share of property taxes and heating, and then see what percentage of your monthly pre-tax household income it amounts to.
Don’t try to be the champ by becoming someone who justifies buying something they can’t afford because they’re afraid it could get more expensive tomorrow. There will always be Real Estate to purchase. One door closes, another one opens.
If you can’t afford something, than renting comes in. No, it’s not an ideal permanent solution unless you foresee the kind of housing market collapse the U.S. market went through.
Renting temporarily offers a way to bide your time while building up your savings. It costs less (sometimes) to rent than own, which means you can write your monthly rent cheque and then bank the money a homeowner would be paying for property taxes, upkeep and maintenance fees.
Here are some signs that renting is a better option for you.
1. Variable Income
Anyone who has a variable income will tell you that budgeting is hard – no matter how good they might be at budgeting. Managing the cash flow becomes particularly hard during slow periods (and every job has those), so having to pay a mortgage, taxes, upkeep, utilities, insurance – equals a shit load of bills to pay, and food, life, or transportation has yet to be factored in. Not having the adequate funds will create a lot of stress, lead one to dip into their line-of-credit, credit cards or other forms of credit – which leads into more debt. Let me tell you, nobody wants to refinance their debt into the mortgage – that’s the last resort for any home owner.
2. Temp or Seasonal Employment
Unless you’re really good at saving money (most aren’t) it’s tough to afford a home on temporary or seasonal employment. In most cases you’re either working during the warmer months or the colder months due to the requirements for your job. Having a consistent income stream is one thing – having an inconsistent stream spells for a disaster.
3. You live Paycheck-to-Paycheck
Again, sticking to the topic of saving money – if you’re the type that lives paycheck-to-paycheck, doesn’t save for emergencies or retirement or budgets – home ownership is probably not for you. There are too many variable expenses to take on, and sometimes you need to use the emergency savings – like for that leaky roof. Majority of home buyers don’t FULLY plan ahead, and instead deplete their RRSPs, emergency funds, and other savings accounts in order to drop enough down-payment. Sure, sounds easy, but how about replenishing those accounts for rainy days? Most never do!
4. You’re a Frequent Mover
If you career requires you to relocate often, selling and buying homes will drain your wallet. Lawyer fees, land-transfer fees, sales agent commission and moving costs are just some of the costs associated every time you buy and sell a home. Instead stick to renting – one written check takes care of the home costs, and you don’t have to scramble to buy or sell.
5. Impatience & Home Maintenance Desire
Owning a home is like dating a high maintenance woman – it requires a lot of attention. No matter what weekend, week or the 52 weeks in a year – there is always something to be done on a house. Even if you own a condo (like me), there’s always something to paint, clean, plumb, replace or throwout. What makes home maintenance so expensive is not the actual labor, because you’ll end up doing most of it your self and if you have no willingness to learn, patience or a strong desire for proper upkeep – you’ll be paying through your nose for someone else to do it. The more you can do yourself, the more money you’ll save in the long run. In four short years of being a home owner I’ve become a solid home cleaner, newbie electrician and plumber and a skilled painter.
6. You Don’t Earn Enough Moolah
How much do you need to earn in order to afford home ownership? That solely depends on how much home you buy, and since your Real Estate Agent and your mortgage broker are not actually on your side you’ll likely buy more home than you can actually afford. Most people, especially first time home buyers that come from renting are under the misconception that home ownership costs the same as renting. It’s anything but that actually. No wonder so many end up house poor, because they forget to factor in the little costs.
7. You Can’t Sacrifice Play Time
Part of being a home owner (something I learned very quickly) is to sacrifice playtime, travel and spending money when you’re out. Maybe your friends want to go away this weekend, but guess what? You have a house to paint. That’s sacrifice, and choosing priorities over playtime. I have friends that travel 4-5 times a years down south to different resorts – nothing wrong with that, but unless you make a shit load of money or rent for cheap – I don’t see that happening. One of the biggest parts people forget about being a home owner is that you need to be ready to sacrifice your time, money and sometimes values.
I was (and still am) one of those people that will tell you that you’re wasting your money by not buying a home. In fact I insist that home ownership is the only way to go – that’s if you’re in the right frame of mind for home ownership.
Not everybody is cut out for home ownership. Some of my closest friends prefer to rent and travel the world. Myself on the other hand, I’m more low key, enjoy home ownership and instead travel once or twice a year. There’s no right or wrong, it’s preference and what you believe in and where you want to be in the future.
Being a homeowner I sometimes resent all the work involved, but I’ve learned a lot on the go about home ownership, maintenance, and have put my self in good contact with contractors for more complex projects. My desire for home ownership continues to grow daily as my lifelong goal is to become a landlord and have rental properties. I like seeing the fruits of my investment first-hand and I enjoy the learning curve along the way.
There is more to life than home ownership, and it isn’t the only way. If you ENJOY owning a home, more power to you. But not everyone does.