This post originally appeared on Forbes.
As a financial advisor who works with clients in their 20s, 30s, and 40s, the question of buying a home for the first time comes up often.
My clients are financially-savvy enough to understand there are a lot of factors that go into this decision — including the landscape of their local real estate market, how student loans could impact their ability to buy, and the fact that they have a lot of competing financial goals that may need to take priority over purchasing a property.
People at this stage of life try to juggle countless different things at once — all of which require some level of funding from cash flow or savings to accomplish.
It makes sense that, given all this, my clients frequently ask, “When is the best time to buy a home?”
Here’s my answer.
Don’t Treat Home Ownership as a Strict Case of “When” — Think “If”
Well, let me rephrase that — because I don’t have an actual answer to the “when” question. I actually think it’s a terrible question to ask.
You should stop framing the decision in terms of “when.” Consider starting the conversation with another question altogether:
“Do I even want to buy a home? And if the answer is yes… why do I want to buy?”
Too often, people breeze by these questions (if they ask them at all) without giving them serious thought and consideration. Even if your answer is “yes, I want to to buy,” I always encourage people to take the time to truly reflect on that.
Is that what you want — or does your desire to buy actually stem from pressure you feel from friends, parents, family, coworkers, or society at large?
That’s not a rhetorical question, nor is the idea that you could be subtly (or obviously) pressured into thinking you need to buy a far-fetched one.
Whether it’s inadvertent or deliberate, many of your peers or members of your family may make you feel like you need to buy a home in order to be successful, financially responsible, or generally secure in life.
But that’s just not true. Owning a home and being successful, responsible and secure are not correlated. They’re mutually exclusive, and thinking any other way stems directly from anecdotal evidence, societal norms, feelings or emotions… and it’s all based on faulty information.
You might simply feel swept up in the idea that buying a house is the next step in your life if the people around you (friends, siblings, cousins, coworkers, etc) are currently in that process, or because parents and others you deem “successful” own a home.
It might look like this is just what everyone does… so you should do it, too.
Doing something just because you think you should, and not because you made a deliberate, intentional, and mindful choice about your actions, is not a good way to make a decision about buying a house.
(It’s not a good way to live your life in general, either.)
You need to take the important step of questioning what you really want for your life before making a decision so massive as spending (and borrowing) hundreds of thousands of dollars to buy a huge responsibility.
If You Want to Buy, Ask Why
That makes the “why” question an important follow-up to “what do you want?” No matter what your answer, ask yourself “why.”
If you want to buy a home, why is that? Here are some common answers:
- Because I’m throwing money away on rent.
- Because we want to start a family and owning provides more stability than renting.
- Because I want a place of my own.
- Because buying is always a good investment
Once you come up with your answer… ask “why” again. If you believe you’re throwing money away on rent, why do you believe that? Similarly, if you believe owning creates more stability, why do you think that?
The purpose of digging into and questioning your own beliefs is to test whether or not they’re based on objective facts and sound reasoning. In many cases, the beliefs we hold are not founded on a basis like that.
It’s not just you: human beings are subject to a number of cognitive errors and biases.
One thing that gets in our way when it comes to making good decisions is the way we form beliefs, which is most often based on thoughts, feelings, and stories that conform to what we already think or what is easiest to comprehend.
Let’s take the “I’m throwing money away on rent” belief. In many cases, this isn’t a fact. It isn’t a universal, objective truth.
Yet we’ve heard this repeated over and over and over again so we believe it no matter what. We believe it, so we don’t take the time to test this notion and do the math to see if it’s true in our specific situation.
What Drives Your Beliefs?
You need to understand where your beliefs come from (especially when they’re not based on facts and data and objective truth, which is the case with so many things we believe) because that allows you to better understand why you think, feel, and act the way you do.
If you dig into your beliefs, you may realize the real reason you want to buy is because you felt a lack of security in your childhood or early adult years — and you associate a house with more stability.
That belief could blind you to the fact that financially stretching to buy a home will actually put you at greater risk for instability and a lack of security, because more of your cash flow will be tied up in home ownership costs (your mortgage, taxes, insurance, maintenance, and so on) and you’ll have to part with a LOT of cash to make the purchase in the first place.
Your beliefs matter because you make decisions based on those beliefs. The more accurate those are, the more you’ll improve the quality of your decisions.
But if your beliefs are based on inaccurate data, misinformation, or lack of understanding, your decision quality suffers as a result and you may put yourself in a bad financial position.
Nothing is more upsetting than to see a client who is at a financial crossroads who turns away from the path of financial stability and success in favor of taking out a massive amount of debt, introducing a ton of variable and unpredictable expenses into their lives, and losing opportunities to leverage their income to grow wealth because they were so single-mindedly focused on buying a home.
I’ve literally watched this happen. I’ve advised a client not to buy a home because it was not a good financial choice for their situation. They bought a home — then, months later, lost a job.
AT the time they bought, they weren’t able to save because their expenses were already high (a bad enough situation). When one of their household incomes vanished, they found themselves in a situation where they were suddenly in the red and sinking.
This was a completely avoidable situation. But unfortunately, this client, like so many other people, were convinced they needed to buy a home because housing prices “were just going to keep going up.”
They refused to look at the real cost of home ownership, failed to understand the myth of building equity, and tuned out the facts and made decisions based off their emotions instead.
A Home Is a Purchase, Nothing More (and It’s Definitely Not an Investment)
Most people put a lot of meaning into home ownership. As a society, we think owning a home means we’ve “made it.” We’re successful; we’re doing the right things; we’re officially responsible.
That is nonsense. Owning a house is not a prerequisite for success; having a mortgage does not make you any more of a responisble adult as the person down the street who chooses to rent.
What owning a home means, in the most basic terms, is that you bought a utility (and likely borrowed a lot of money you now have to repay in order to complete the purchase).
It’s something you purchased, and not only paid a lot of money for, but will continue to pour a ton of money and time and energy into in order to maintain the purchase.
A single family home that you live in yourself is not an investment. Based on the historical returns of owning and living in a single family home, at best you will move sideways in terms of wealth and financial success. You won’t be growing an asset that makes you wealthier.
If you want to grow your money and increase your wealth, you would be wise to contribute your money to a true investment, instead of tying it up in a very illiquid utility with a real return (removing inflation) of about 1%.
Ask Questions Before You Decide When to Buy a Home
If you read this far, you might think I’m completely against the very concept of owning a house.
But if you think I’m saying home ownership never makes sense or is never a good idea, you might have missed the point. That’s not at all what I’m saying.
Just like I advocate against simply assuming you “need” to buy a home, I don’t think you can make a blanket statement that buying a home is “always” a bad decision. That’s not true, either.
For my clients who are in strong financial positions, can truly afford to buy a home, and genuinely WANT to buy because it fits with their goals, lifestyle, and what they want to enjoy in their lives, I’m a strong supporter of their desire and I help them through the home-buying process every step of the way.
For my clients who can afford to buy but are honest with themselves and don’t want to, I’m a strong supporter for them, too. (I’m also in the same boat myself!)
These clients and I work together to find out what they do want, and we make sure they make the right choices with their money to get more of what’s important to them.
And for clients who want to buy but it makes no financial sense for them to do so, we talk about a few things:
- First, we ask the “why” questions. We want to understand what’s driving the desire to buy. If we discover it’s actually because they feel like they’re “supposed to,” then we may do some work to figure out what they want in life because they actually want it.
- If we find the client has a genuine desire to buy but it’s not a smart financial decision right now, then we work to create a set of actions steps they can take to move into a better financial position in the future. We lay out a plan so they can set out to buy eventually, when they can truly afford to do so without jeopardizing their financial security or threatening other priorities.
Buying a home is fine if you can afford it, actually want to do it, and it doesn’t limit your ability to do other things that you truly value. But renting is fine, too. Don’t assume buying a house is a must, a requirement to be an “adult,” or a necessary milestone to hit before you can call yourself successful.
Here’s the real point: take the time to do your research, get the facts, and question your own beliefs and desires before you make a decision.
That’s what I hope more people can start doing — so they can make good decisions based on their circumstances, their financial means, and their goals for their lives.
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