
Why Your First House Is A Liability - introvertmac
https://medium.com/@introvertmac/why-your-first-house-is-a-liability-7e41c8b35295
======
bluedevil2k
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.

~~~
CincinnatiMan
The tax advantages are pretty rare now that the standard deduction was raised
to $12k per individual. Only something like 10% of homes still use the
interest deduction.

~~~
cactus2093
Yep between the salt tax deduction cap, incredibly low interest rates,
recently lowered limit of $750k for how much home value qualifies for the
mortgage interest deduction, and recently raised standard deductions, for a
married couple (and maybe also for a single person but I haven’t calculated
that in detail) the tax benefits of owning a house are very close to 0.

Which is probably a good thing, there’s no need to give the huge breaks we
have been the past few decades to people wealthy enough to buy a house. But
what a bizarrely complicated way to go about enacting this change instead of
just eliminating the mortgage interest deduction altogether.

~~~
sokoloff
I’m in favor of the owner-occupied mortgage interest deduction (MID) because I
believe that owner-occupied housing should not be at a disadvantage compared
to commercially rented-out property.

Without MID, landlords can (tend to) outbid owner-occupants for property
because of differential tax treatment. (Commercial loans for profit-seeking
businesses are always tax-deductible as we tax profits and not revenues.)

------
dawg-
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.

~~~
jlj
> A mortgage payment is always less than rent for an equivalent property,
> anyway.

Not always, though they often track closely to reach other, they can also
diverge. If rent is high and home prices are low that could be a good signal
to buy.

And you also have to consider what you equity would be doing if it was
invested in something other than your house.

~~~
thrwn_frthr_awy
> > A mortgage payment is always less than rent for an equivalent property,
> anyway

Yeah, I don’t understand these statements. It is clear that people making them
do not have experience is real estate or only have experience in specific
markets. There are absolutely many real estate markets where the rent is more
than the mortgage, and anyone with enough real estate knowledge to give advice
would know this.

~~~
bonzini
> There are absolutely many real estate markets where the rent is more than
> the mortgage

That's what the quote is saying.

~~~
thrwn_frthr_awy
Ahh you are correct! My point is there are many markets where rent is cheaper
and there are many markets where mortgage is cheaper. Anyone saying that is
only one of those is going to cause me concern.

------
kbos87
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.

~~~
whiddershins
This idea of appreciation being a bonus is the most important concept in real
estate ownership.

Make the math work without appreciation, and you are doing it right.

~~~
kbos87
So, so true. But if you have conversations with a hundred people about the
math behind their real estate, it’s the only thing the vast majority are
considering in my experience, which is such a big miss.

~~~
whiddershins
This is literally what creates real estate bubbles. If you are thinking that
way, congratulations, you just reinvented leveraged investing.

A la ‘a short history of financial euphoria’.

------
geerlingguy
> 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.

~~~
pseudoramble
I agree with your point. In addition, this book also suggests ideas that, in
my opinion, are so far away from the minds of an average person that it's kind
of absurd. Admittedly it's been years since I've read the book, but one
example I can remember is setting up a corporation to reduce tax burden
through. I don't think it's useful advice for somebody whose trying to get by
and not already wealthy.

I would've appreciated the article more if they skipped mention of "Rich Dad,
Poor Dad" entirely.

------
mellosouls
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.

~~~
Barrin92
you can turn that argument on its head though. Caring about quality of life is
why I rent rather than buy a home. No debt, no fixed costs (people typically
say 1% of the value of the house per year, quite a lot of cash), no repairs I
have to worry about, moving out is simple etc..

Here in Germany most people rent by the way, so I never understood the
obsession with homeownership. Just look at the covid mess. If you're in your
20s or 30s and bought a house and live on credit cards I'd be sweating right
now. Living in a rented place within my means, having a year worth of savings
in the bank, it's a lot less stressful.

~~~
rootlocus
My rent is 0.5% the price of an apartment per month (350 eur / mo). So, in 17
years, there are two outcomes:

1\. I have no apartment, no money invested, and I have to keep paying rent.

2\. I have a 60k euro apartment. Not only do I not have to pay rent ever, I
also have the option of selling it and recovering most of my investment. Or I
can rent it to generate money. Not to mention I have something to leave behind
to my grandchildren so they don't have to spend money on rent.

> Just look at the covid mess. If you're in your 20s or 30s and bought a house
> and live on credit cards I'd be sweating right now

People who are renting are also sweating right now. Whether or not they bought
a house or rent doesn't matter. What matters is that they "live on credit
cards".

Or take another example: Silicon Valley. There were are two kinds of people in
SV:

1\. People who owned homes now rent them at exorbitant prices, or sold them
for a huge profit.

2\. People who rented were forced to move out or live on the streets.

Owning a home is an investment. Renting is a liability.

------
treyfitty
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.

~~~
dawg-
Medium is very popular among people who are trying to be Thought Leaders but
actually have no original thoughts to share

~~~
danielhua
Ha. I'm stealing that joke, that's quality. I wonder if anybody's managed
financial success on Medium/Substack yet with a "hustler inspiration" focused
GPT masquerading as a guru. I'd love to read that postmortem.

------
GhostVII
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.

------
jaimex2
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.

------
jlj
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.

------
axegon_
> 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.

~~~
juniper_strong
>> most young adults don't have a roof over their head sorted out.
Statistically few people have the opportunity to live with their parents

"The share of 18- to 29-year-olds living with their parents has become a
majority since U.S. coronavirus cases began spreading early this year,
surpassing the previous peak during the Great Depression era.

In July, 52% of young adults resided with one or both of their parents, up
from 47% in February"

\-- Pew Research, [https://www.pewresearch.org/fact-
tank/2020/09/04/a-majority-...](https://www.pewresearch.org/fact-
tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-
for-the-first-time-since-the-great-depression/)

~~~
axegon_
U.S. is a different story. On the other side of the pond, things look
differently. I know of just one person in his late 20's living with his mom,
but this is a recent development in his life(used to live abroad, moved back
and needed a place to stay). Otherwise he left the nest pretty much when he
was 18.

------
goldcd
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.

------
thrwn_frthr_awy
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.

------
b203
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.

~~~
geodel
True rental yield in India is 1.5-2% pa as compared to 6-7% in America or
Europe.

------
jccalhoun
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.

~~~
rtkwe
Roughly the same for me here on the east coast even. My basic mortgage payment
was less than I was paying for rent to hear a kid have night terrors most
nights. Definitely miss maintenance being someone else’s problem but I think
it’s very much worth it.

------
maztaim
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.

------
johnyzee
> best personal finance book “Rich Dad Poor Dad”

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

------
sys_64738
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.

------
fortran77
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.)

~~~
vonmoltke
> You want to be able to pick up and move and chase an opportunity.

This is a very personal decision. I, for instance, hate moving. Doubly so
moving long distance. I was never going to be the type who bounces from city
to city. Thus, I bought my first property when I was 24.

~~~
fortran77
> This is a very personal decision.

That's why I said " _I_ certainly wouldn't buy a house before age 30." I was
pointing out an advantage of renting that's not purely financial.

------
epx
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.

------
konschubert
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.

