Why You Should NOT Buy A Home In 2022

What's up, Graham? It's guys here, and welp, it's official. We are setting records, but unfortunately, it's probably not for the best of reasons. It was just reported that housing affordability is nearing the worst it's ever been in history, and as a result, sellers are beginning to lower their asking prices. Wait, wow, that can't be right? I read that right? Well, yeah, it's true! A new list just revealed the 15 cities seeing the biggest price cuts right as mortgage demand begins to slip and interest rates reach the highest points since 2009.

So that, of course, begs the important question: Am I wearing pants? To which the answer is no, I'm wearing shorts.

Alright, jokes aside, given the disaster of the stock market, the impending recession, and the uncertainty of a rising interest rate environment, we'll attempt to answer the question that everyone wants to hear: Should you or should you not buy a home in 2022? Today, I'll confidently take the stance that no, you should probably not buy a home unless you're prepared to handle these six situations that I'm about to outline. Because you definitely don't want to be one of the two-thirds of homeowners who now regret their purchase.

On top of that, I say all of this as someone who's worked full-time in real estate since 2008 and as someone who currently owns nine properties throughout Los Angeles, Las Vegas, and recently Mississippi. So everything that I say is from experience and witnessing the pitfalls from other people who have done it before and made mistakes—like the mistake of not smashing the like button and subscribing if you haven't done that already. Because according to a recent survey, 99.96% of viewers say that smashing a like button was the most fun they've had since the Catalina wine mixer.

And also, a big thank you to Notion for sponsoring today's video, but more on that later.

Alright, so first, you should not buy a home if you're in a rush to buy something as soon as possible. Now, sure, even though owning a home could be incredibly rewarding, and it's so nice to be able to put a 300-gallon saltwater aquarium in the entryway while you plumb a chiller through the drywall without worrying about losing your security deposit, being in a hurry to buy something as soon as possible because mortgage rates are going up is probably going to be a massive mistake.

On the surface, it was reported that buyers who rush in to make a purchase were significantly more likely to face four major issues. First, forty percent were overwhelmed by the amount of maintenance the property required. When it comes to this, it's really important to realize that with real estate, your payment doesn't just stop with your mortgage. You're also going to be responsible for property taxes, insurance, repairs, maintenance, and the strong likelihood that something is going to break the moment you buy it.

Second, thirty-two percent said that the home turned out to be too small or lacked important features. Of course, in a highly competitive market, there are going to be compromises, but when thirty-nine percent said that the location increased their commute time and twenty-five percent bought in a bad area, it becomes apparent that these could have been avoided ahead of time with a little bit more planning and patience.

The third issue is that twenty-eight percent said their mortgage payment was too high. To me, this seems like a mistake of not shopping around and not doing enough research to ensure that the rate you're being quoted is actually the most competitive rate. This is why it's always crucially important to get multiple quotes or work with a mortgage broker who knows how to best bring down your rate, especially in a time like this when mortgage prices are rising.

Finally, fourth, twenty-four percent worried that their home was a bad investment and was too expensive. The issue that I see is that most people buy a home at the top of their price point while maxing out the amount that they could qualify for, without fully realizing the true costs of owning a home. This leads people to buying a home that might cost more than it appreciates and therefore leads it to be a bad investment.

Not to mention that brings me to my second point of real estate: You should not buy a home if you haven't analyzed the opportunity cost of your down payment or, in simpler terms, how much is your down payment worth to you if you invested it somewhere else instead. Basically, would you rather lose eight percent to inflation or eight percent of the stock market? That was a joke!

If there's one thing that I've learned when it comes to buying a home, it's that having your money tied up in a primary residence isn't always the most profitable decision, even if it means you don't have to waste money on rent. Oh sure, home equity is considered very safe, and the likelihood of you losing money over the next 30 years is pretty much non-existent as long as you make your mortgage payments on time. But if you're buying a property solely as a good investment, you need to ask yourself, how long will you be living there for? Have you taken into account transaction costs like commissions, transfer fees, and escrow charges?

What is your total monthly cost when you account for property taxes, repairs, and insurance? How much would it cost to rent a comparable home? How much money are you tying up as a down payment, and what could you make on that money had you invested it somewhere else? I would go on a limb to say that almost everybody who regrets their home purchase—which turns out to be roughly two-thirds of adults—didn't do the math ahead of time to make sure that buying a home was really in their best interest.

Even though there's a lot of situations where buying a home makes complete sense, it doesn't automatically mean that buying a home is the right decision for everybody. So that's why I recommend that everyone consider the true opportunity cost of their money, recognize the true cost of owning a home versus renting, and make sure you're prepared to comfortably cover the cost of the payments. If the numbers make sense, then absolutely go for it, but otherwise, it's probably best to hold off.

Third, you should not buy a home if you've only budgeted for your mortgage payment, and that's it. This is one of the biggest mistakes that I see people making when they decide whether or not they should buy a home, and it usually begins with comparing the cost of rent to the cost of owning a home while projecting that home values will continue to increase at a rate of 10 to 20 percent a year. This kind of math just makes it seem like renting is throwing money away every single month. And maybe it is, but as any homeowner will tell you, your total payment begins to add up extremely quickly.

And here's how much you're looking at: one, obviously is your mortgage payment, and this one is easy to calculate. Go to any mortgage calculator, type in the cost of the home, plug in your down payment, type in the interest rate, and instantly it'll come up with the monthly payment. If you want to take it a step further, you could break down how much that payment goes towards interest and how much of it goes towards equity to get your true out-of-pocket cost.

The second is property taxes. Now, this varies throughout the United States, but it usually ranges anywhere from 0.4 percent all the way up to 2 percent of the home's assessed value every single year. That means, in a four hundred thousand dollar home, assuming a one percent property tax rate, you're spending four thousand dollars every single year that you're not getting back, and those taxes will continue going up over time.

The third you've also got to pay is insurance. Now again, this depends on where your home is located and how much it would cost to replace in the event of a disaster, but generally it's going to range anywhere from 100 to 250 dollars a month for basic coverage and potentially more if you're located in a high-risk area for fire, flood, or earthquakes.

The fourth is maintenance costs. This might be the cost of regular lawn care, general maintenance, or any other month-to-month costs just to keep your home up and running. And fifth, we've got the dreaded repair costs. I can't tell you just how often things begin to break as soon as you close on your home.

And all of these are things that you would never think about until you're actually in it. Like, for example, the faucet that just gets loose for no reason, or the random light that stops turning on because it's got nothing better to do. All of these things add up that you don't really consider until you buy a home and realize just how often you're driving to Home Depot, and gas is five dollars a gallon. That means even though you might see a $1,500 a month mortgage payment, when you add everything up, you could very quickly be approaching $2,500 when you account for property taxes, insurance, repairs, and everything else.

That's why this is something that has to be taken into account and properly budgeted for, so you're not caught off guard when things inevitably cost more than what you would expect. Not to mention, with real estate, admittedly there's a lot to keep track of, and it's easy to lose sight of your priorities. But thankfully, our sponsor Notion helps keep us organized and ensures that I have enough time left over to answer all of your comments down below.

Without exaggeration, we've been using them for over a year to coordinate work and scheduling on the podcast, The Iced Coffee Hour, and I also use them on a daily basis to share video scripts that later turn into my brand new weekly email newsletter, which I'll link down below in the description just so you can see how integral Notion has been to making that a reality. For example, it's been so easy to share my work instantaneously by creating a new document, pasting my work, and now my entire team has access to send back their notes.

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And now, of course, with that said, let's get back to the video.

Alright, so next—fourth—you should not buy a property if you have not factored in the transaction cost of buying and selling a house. Throughout the last two years, it just seems like there's this mindset of buying a home, getting to live there, and then being able to sell it for a massive profit since prices keep going up. But unfortunately, this is the part of real estate that so many people don't think about until they're in the middle of a deal.

See, as a renter, it's so easy to fill out an application—usually for free—and you're done. But when you're buying and selling, this could often be a very expensive process that could cost you anywhere between four to seven percent of the home's value right off the bat. Like, when you're buying a home, you're gonna have to pay for inspections, escrow charges, loan origination fees, and transaction costs—not to mention a whole bunch of other miscellaneous charges that come up throughout the transaction, like transfer taxes, notary fees, and certification fees.

It's just too many fees for me to talk about here without losing track of what I was talking about. Between all of this, you could easily expect to pay anywhere from one to two and a half percent of the home's purchase price just for the opportunity of being able to buy. So if you’re purchasing something for three hundred thousand dollars, expect to pay an extra three thousand to seventy-five hundred dollars up front just for the privilege of getting to call it home.

In addition to that, the transaction cost of selling is often significantly higher. When everything is said and done, selling a home could easily cost you another four to six percent of the home's value from start to finish. That means just to break even on the purchase, you're gonna have to sell your home seven percent higher than what you paid for it. Otherwise, you'll have to pay out of pocket for those transaction costs.

Now, of course, if you bought your home throughout the last few years, then most likely this is not going to be a problem and you're probably sitting on a lot of profit — congratulations. But the future of home appreciation is not guaranteed. Even though things look good with low inventory and strong demand, there is a chance that the market could soften. That's why I don't recommend buying a home unless you have a good idea how long you're going to be living there for and have taken into account the transaction costs to buying and selling.

And fifth, because of that, you shouldn't be buying a home unless you plan to keep it at least five to seven years. That's because the shorter you plan to keep your home for, the riskier it becomes that you'll make money by owning it. Things like transaction costs, insurance, repairs, and maintenance are non-recoupable costs that you will not get back.

So you'll need to expect that property values will continue to rise to offset that expense to make buying worth it. Like on a four hundred thousand dollar home, over three years, you could very well expect to pay a four thousand dollar closing cost when buying, seventy-eight hundred dollars a year in property taxes, insurance, and repairs, and a twenty-thousand dollar expense when selling. That's forty-seven thousand four hundred dollars worth of overhead, and that doesn’t even include your mortgage interest, which could push that number even further.

That's why generally the break-even point for most homeowners is probably going to be somewhere between five and seven years. And in almost all situations, the longer you keep your home for, the more likely you are to end up making money. It's also important to mention that these last two years have been a complete anomaly when it comes to the housing market, and it would be impossible for prices to keep rising at the same trajectory. It’s just not going to happen.

So my recommendation is if you're looking to buy a home that you're only planning on keeping for a few years, it's probably not a good idea unless you're specifically going in with the intention of renovating it and flipping it for a quick profit, renting it out in the future, or you can handle the risk that maybe in the short term you're not going to break even right away.

And six, you should not buy a home if you don't have at least three to six months of your home's expenses saved up in cash at all times. Just like financial experts recommend you keep a three to six-month emergency fund, I recommend a home emergency fund that covers three to six months of your mortgage payments, property taxes, maintenance, and anything else just in case something inevitably breaks or there's an unexpected bill outside of your control.

It's really important to recognize that everything in a property has a lifespan where eventually it'll need to be repaired or replaced. For example, roofs usually last 15 to 25 years, water heaters last 10 to 15 years, AC units last 10 to 15 years, garbage disposals last a few days, and so on. And once we begin to average all of this cost throughout the course of your home ownership, you'll begin to realize it adds up very, very quickly.

On top of that, most people are not fully aware that the cost of materials, labor, and wait times have increased substantially throughout the last two years. So it could be quite a shock when you see what a 2022 repair bill looks like when you've compared that with what it used to look like back in the olden days.

Anyways, an easy way to make sure that you're covered—one, a home inspection will uncover a lot of these issues before you actually go ahead with the purchase. Just knowing what equipment is near the end of its lifespan and what repairs you'll likely need to do over the next few years is going to leave you much better prepared for when those items eventually do break and need to be fixed.

Now seriously, I've seen people complain and spend more time focusing on the color of the kitchen walls that could be changed for five hundred dollars than they do on the circuit breaker or foundation of the house that could sometimes cost tens of thousands of dollars to fix. It makes no sense.

And two, expect that the maintenance is probably going to average out to a few hundred dollars a month at minimum just for all the random things that break over time. That's why anticipating this ahead of time and building it into your budget is going to dramatically cut down on the likelihood of you running out of money because you'll go into it knowing exactly what to expect.

However, on a positive note, I will say this: If you're patient, now could finally be the time where you can negotiate and look out for new opportunities that haven't existed since COVID. For the first time in a long time, buyers could begin to get the upper hand, and that could present some great deals if you know where to look.

For example, I just recently partnered with Ryan Panated to buy a group of residential and commercial lofts in St. Louis, along with a project in Phoenix, Arizona, that I believe long term should see some fairly consistent and stable growth. I know this one isn't so much about buying a home to live in since those were purchased primarily as an investment, but if you're an accredited investor and you want to join us on these or even future deals, I'll link to the information down below in the description.

For me, real estate has easily been the best investment that I have ever made, but it's also been the most challenging and the most time-intensive. So yes, it can be worth it, but you really have to look at the entire picture to determine whether or not it's worth it for you and your situation.

And whether or not you should subscribe if you haven't done that already. Thank you so much for watching, and until next time.