Tuesday, April 27, 2010

Be Human and Buy a Home

For an opposite point of view, check out the post titled Be Logical and Never Buy a Home.

Buying a home is one of those major events in life that everyone wants to experience. If we consider everyone we know, it will be apparent that people who own a house is usually living happier than people who don’t. There’s a sense of family and accomplish when we live in our own house. Here’s a couple more reasons why we all want to buy a house.

30 Years and We Are Done Paying for the Majority of the Expenses
Renting a house means that we will be paying rent for our entire lives, but getting a 30 year loan means that we will be done paying for our mortgages in 30 years. Once the 30 year hits, our expenses will go way down, which will give us more freedom to think about early retirement.

Those who already own a house during the early part of the latest housing cycle saw their net worth grow tremendously. For example, I just saw a house on sale for $1.8 million today that was bought in 1998 for $700,000 and the original buyer bought the house with a 5% down payment. This meant that their original $35,000 investment in 1998 turned into more than $1 million dollars in profit 10 years later! There aren’t that many investments that can return such a high percentage increase, and the only way it is possible with a house is because of the degree that companies allow us to leverage when purchasing a home.

The buyer in our example only put down $35,000 for a $700,000 house. This means that they are borrowing $20 for every dollar that they put in. In the stock market, the most we can borrow is $4 for every dollar that we own.

It Forces Us to Save
There is no better way to get us to save than having a big mortgage payment. The good thing is that our mortgage payment is partly used to build our net worth over time as the money is put into our house. It’s the same theory as “pay yourself first” because bills usually take precedence over spending. Through time, the extra money that we saved will grow to tremendous amounts of money.

The Needed Pressure to Make More Money
With high bills actually comes pressure for us to work harder and make more money. It’s another psychological trick but it definitely works. If we don’t need the money, we wouldn’t really be working to earn it. I remember my boss once told me that having expensive tastes is a good sign for a sales person since it meant that it will drive them to work harder. Like they say, “if we need it, we will find a way” and having a big mortgage payment due every month definitely creates this “need”.

It is Not About The Money
Many people will echo this, because buying a house is not always about making money! The joy of owning a house, having a place we can call our own and giving our children a place to grow up cannot be measured in dollars. The uncertainty of renting and the need to move every few years because of unforeseen circumstances can only mean more energy wasted on something that can be avoided.

We can be logical all we want but all logical approaches have the flaw of needing the assumptions to all play out. If we are human, we should make sure that we will live a happier life and just buy a home.


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Was established since 20th Rejab 1430.
Just to educate myself.
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