So yes, I am all aboard team bought-a-house – but you don’t need to buy a house to save money, earn money, or be a “real adult”. I promise.
First, let me step back and give you some context on how and why I bought a house, so we’re all on the same page here.
I bought a house with a partner.
I have been saving for a house for
four five years.
I have never wanted anything more.
My partner and I are committed to staying in this house long-term.
And we’re clear on the fact that this house is a lifestyle purchase, not an investment.
Oh, and we can afford said lifestyle purchase.
So while I personally am all about that home-owner life, and am committed to helping you guys figure out stuff like how to get pre-approved for a mortgage, how to save up a five-figure down payment and what to do before buying a house…
I’m also here to debunk the ridiculous things people will tell you housing is great for.
Because most of the time, those things aren’t true.
Where is this coming from?
There are some really, truly, insanely pro-housing people out there.
Yes, even given the bananas markets in Toronto and Vancouver, and multiple places in the US.
And many of them have a vested interest in telling you that buying a house is always a good choice.
It might be good for their business, their brand, or both.
Maybe they – like your crazy uncle Dave – just genuinely, truly think they’re being helpful when they tell you to stretch as far as you can to buy a house. (And if you can’t afford one $19 brunch item, you’re definitely stretching too far.)
Thanks Uncle Dave, but here’s some real talk about housing.
You don’t actually need to buy a house.
You can be a financially responsible, established human who will retire a rich lady without ever owning property. However, a lot of people will try to convince you otherwise.
Here are some of the fun and nuanced ways they’ll do it!
People will say that it’s forced savings.
Yes, but it’s also forced spending.
If you own a house and the roof leaks, or your furnace dies, or your pipes burst? You have to fix it. It’s a non-negotiable, especially when it comes to furnaces in Ottawa in the winter, or a pipe that is literally spraying water all over your main floor.
You have to spend that money.
Plus, once you’re into a mortgage, that’s a pretty fixed amount of “spending” every month. (Yes, you’re building equity, I know, but you also can’t just not pay that amount.) If you’re renting, and you need to deal with a major pay cut, you could always move somewhere cheaper if you needed to.
With the switching costs involved in owning a house? Not so much.
People will say that housing always goes up.
Um, hi, every market crash ever.
Just like any asset class, housing is not some kind of real-life GIC you can live in that is bound to go up every year. Over long periods of time, sure, housing will go up just like the stock market, but on a year-to-year basis, it could easily go down – and if you end up needing to sell your house during one of those times? Eep.
And we can all be as sure as we want that we’re going to stay in our house forever, but life happens.
You need to be prepared for life to happen.
People will say that it’s a good investment.
Investing in real estate is not the same thing as buying a house, FYI.
You can invest in an REIT – a real estate investment trust – with as little as a few hundred dollars.
You could also buy an investment property and become a landlord.
You can even invest in real estate as part of a robo-advisor portfolio if it fits your risk profile!
Those are all investments in real estate.
But a house that you live in should be viewed more as a place to live than an investment. Sure, it might make you money in the long term, but let’s take a quick look at the numbers.
If you buy a house at $400,000 with 10% down, here’s a quick look at some of the big expenses you’ll pay over your total mortgage term.
- Property tax: ~1% of the house’s assessed value, every year, going up every four years
- Maintenance and repairs: ~1% of the house’s assessed value, every year
- Mortgage interest: $150,551.00, based on an interest rate of 2.99% (assuming it doesn’t go up for 25 years, which is bananas and will not happen, FYI)
Let’s say that you sell after 25 years, and that you pay a 5% commission to the realtor who helps sell your place. Here’s what you’ll walk away with in a few different growth scenarios, when you take out the associated costs.
- If the housing market grows by 5% annually: $705,978.34 ($305,978.34 when you take out the $400,000 principal you put in, too.)
- If the housing market grows by 3% annually: $336,280.81 (-$63,719.19 when you take out the $400,000 principal you put in, too.)
- If the housing market grows by 1% annually: $107,607.56 (-$292,392.44 when you take out the $400,000 principal you put in, too.)
And you know what, I’m OK with all of those numbers.
You need to be if you’re going to buy a house, because sure, you “lost” a certain amount of money, but you could also look at it as the cost you paid to live in that house for 25 years.
Let’s be real, even the biggest loss there equates to paying about $974.00 in rent per month over 25 years, which is a reasonable amount to pay for housing you really love.
That’s all cool with me. And it needs to be cool with you if you’re going to buy a house, because unless you’ve got some kind of crystal ball, you don’t know what the growth rate of real estate is going to be for the next 25 years.
People will say that it’s a “marker of adulthood,” whatever the eff that means.
The best marker of adulthood I’ve ever found is managing your money in a way that lets you do responsible things like save for retirement, while also having the things you want, like a dog or some avocado toast now and again.
You don’t actually need to buy a house to do anything on that list. And if buying a house gets in the way of any of those things? You can’t afford it, and you’re doing the right thing by holding off until you can – if it’s even something you want.
Not making a giant financial choice just because everyone says you should, and basing your decision on what’s right and true for you? That’s hella adult.
So what should I do instead?
If you’re reading this, feeling like finally someone has validated all of your innermost thoughts about housing?
First of all, HUGS.
Secondly, if buying a house either isn’t on the table for your current life situation, or isn’t something you want to pursue, here’s a laundry list of things you can (and 100% should) do instead.
- Start an emergency fund. There will be no home equity line of credit in your foreseeable future, and that’s a shitty emergency fund plan in the first place. Start saving up until you hit one month of expenses, and go from there.
- Start saving for retirement. If you’re not buying a house – and even if you’re just not buying one right now – you need to start saving for retirement ASAP. And sure, you can’t eat a house when you’re retired, but you can sell it to pay for food. If home ownership isn’t in the cards, get yourself an RRSP or a TFSA, stat.
- Start investing your money, ASAP. That argument about how housing isn’t actually a great investment is only valid if you invest your money in other things instead – because yeah, housing can be a decent investment if the other option is a savings account that pays you next to nothing in interest. (I use Wealthsimple to invest my TFSA and RRSP, and that’s an affiliate link – but it’ll score ya $10,000 managed for free for the first year.)
But Desirae… you bought a house.
I did! And I am super, super excited to be taking possession of our first house next month.
I’m even excited to adjust my budget to account for the increased expenses, and my brand-spanking new mortgage payments. (JK I did that before buying, but you know what I mean.)
But my house is not an investment.
It’s a luxurious lifestyle purchase, and I’m really lucky to be in a position where what I want and what makes sense for me lined up so nicely.
Buying a house isn’t something you should force.
If you are worried about how your house plans will fit into your budget, or whether it’s smart to buy if it’ll tie you to one location, or if you don’t want to buy for a zillion legitimate reasons? Don’t buy that house.
You don’t actually have to in order to do any of the things people tell you housing is great for, like “investing” or “saving” or “retiring” or “being an adult.”
You can do all of those things sans house. And sure, it takes discipline, but so does paying a mortgage every month and saving up to replace a roof.
I’m just saying.