Why you SHOULDN'T buy a home

What's up you guys? It's Graham here. So, I think it's a safe assumption that buying a home isn't for everyone. Once you start looking at these statistics, that statement becomes very evident. It was found that 44% of homeowners regret their home purchase, and in Millennials, it was found that 63% of them regret their home purchases.

Now, even though the main reasons for their regrets often stem from poor planning and lack of forethought, like buying a home that's in a bad location or buying a home that's too small, it doesn't negate the fact that buying a home is always the best decision from a financial standpoint. In some situations, buying a home can just be a flat-out bad idea.

Let me be very clear: when I'm talking about buying a home, I am NOT referring to an investor who's going into buying a rental property. I am referring to a homeowner who's buying a home for themselves to live in as a primary residence. But really quick, because we're on the topic of real estate, I want to thank our video sponsors today, Simply Safe.

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Now, first, let's dispel the notion that renting is throwing away your money. I think so many people just automatically assume that because you don't get to own anything, anytime you rent, that automatically makes it a bad financial move. Whereas if you buy, eventually you'll pay down the mortgage in its entirety, and then once it's paid off, you're never gonna have to worry about making another housing payment ever again.

Well, there's certainly some truth to that. The reality is that renting has several huge advantages over buying that many people just don't talk about. I say all of this as someone who's been in the real estate industry now for over eleven years as a full-time real estate agent, real estate investor, and a landlord. So when I make this video, I'm making it from a completely neutral perspective based on my own experiences and what I've seen firsthand.

So here are the five reasons why you should not be buying a home, and depending on your situation, how renting can actually save you a lot of money.

At first, when you're buying a home, you're tying up your money in your down payment. That's something that many people just don't think about. Anytime they buy a home, they just look at what their mortgage payment would be and compare that against similar homes for rent. But here's what I challenge you to think of: that would be the opportunity cost of your money. How much is your down payment worth to you if you just invested it instead?

Here's the thing: when it comes to buying a home from a financial standpoint, having all of your money tied up in a home usually isn't the most profitable decision. Having money tied up in a home means less money that you can invest elsewhere at a potentially higher return. A good analogy might be comparing home equity to that of investing in a 3% savings bond, whereas instead, you could be investing your money in stocks for a potentially 7% return, leaving you with just a little bit more profit.

Now yes, home equity is considered to be very safe, and the likelihood of you losing any money over a 30-year period is pretty much non-existent. But again, you're doing that at the expense of using your money elsewhere for a potentially higher return. So here's how I always think of things: anytime I go and buy a property, I always consider what my down payment is worth in terms of potential return elsewhere versus what I'm going to be losing by keeping it tied up in a property that isn't necessarily making me as much money as I could elsewhere.

Oh sure, the property could end up going up in value, which could alter the number depending on the location and health of the real estate market, but it could also go down. So I highly recommend considering what your opportunity cost is when buying to really determine if that's the best use of your money, because so few people ever actually go and do that.

Having your money tied up in a property that isn't producing any income with no exit strategy isn't always the best use in terms of an investment return. Secondly, you shouldn't buy a home if you've only budgeted for your mortgage payment. What many people don't realize or fully appreciate is that renting is so easy, and from that, they often forget or don't realize all of the stresses, expenses, and headaches that you have to go through anytime you're a homeowner that you didn't think you would have to deal with.

It's never just as easy as making the mortgage payment and smashing the like button if you haven't done that already for the YouTube algorithm. Unfortunately, because first of all you have property taxes, and this varies from state to state. It could be anywhere from 0.18 percent annually in Louisiana all the way up to nearly 2% annually in New Jersey.

The property tax amount that you pay is either based on the sales price of the property or based on an assessed value of the home from the time that you bought it. Like here in Los Angeles, you'll pay 1.2 percent annually of the property's assessed value in taxes, which means that if you go and spend $500,000 on a property, you're gonna be paying about $500 a month in property taxes on top of your mortgage payment.

Secondly, you're gonna have to be paying insurance charges. Now, anytime you go and rent a home, you could pay for what's called renters insurance, which is very cheap. It covers all of your personal belongings and usually should cost you anywhere from $10 a month to sometimes $20 or $25 a month. But on the other hand, when you go buy a home, insurance loves to charge you left and right.

You'll usually need to get at the very minimum homeowners insurance, which should cover the property from certain risks. Depending on the location, you might be required to purchase other insurances as well, like fire insurance, flood insurance, or earthquake insurance. For me, I pay between a hundred and sometimes a hundred and sixty dollars per month per property just in insurance to cover all of those things, and that's also an expense that you're not directly having to pay for as a renter.

Third, unfortunately, your extra payments don't stop there because now as a homeowner, you're going to be responsible for all of the repairs and maintenance that were previously taken care of by the landlord. Depending on the age and the price of the home, usually, people recommend budgeting for one percent of the home's value each and every year to go towards repairs and maintenance.

It obviously depends on the location of the property, and this does not apply to high-cost of living areas where most of the property values are tied up in the land value, not in the home value itself. But regardless, it's a good idea to budget accordingly for repairs and maintenance that you will 100% need to do at some point. Something like this could be as minor as paying for utilities that your landlord would previously pay for, like water and trash - maybe a gardener coming every other week just to clean things up.

All the way up to replacing a roof, or a water heater, or a cracked water pipe, or a broken air conditioner. I mean, the list just goes on. As a landlord and homeowner myself, all of those expenses are usually the ones that come completely unexpectedly out of nowhere. For example, I have a triplex that I've owned since 2012, and it's been perfectly fine until out of nowhere recently, I had a water pipe burst underneath a concrete slab, and that was like four thousand dollars to fix. I'm still not happy about that, but that's part of it.

Whatever, where another one recently I had to replace a roof for like thirteen thousand dollars. That was something I knew was coming up; it was not unexpected, but that was still something I had to budget for knowing that at some point I was going to have to do that. That's why it's so important to budget for these things to inevitably happen and make sure you have a cash reserve to pay for them. Otherwise, you just don't want to end up putting it on a credit card and paying some absurd level of interest on top of everything else.

All of those types of costs and hassles are not anything that you would typically have to deal with as a renter. Fourth, if there's anything that I know well as a full-time real estate agent and real estate investor, it is that buying and selling real estate usually comes with a very high transaction cost. Like usually when you're going and renting a home, it's as easy as paying for a twenty to forty dollar application fee, and that's it - you're done.

But on the other hand, when you're buying or selling real estate, it could easily cost you about five to six percent of the home's value off the bat. Broken down like this: first, when you're buying, you're gonna have to pay for inspection costs, escrow costs, title costs, loan origination costs, and a whole bunch of other miscellaneous fees that just come out of nowhere.

Between all of this, you could easily expect to pay anywhere from 1% to two and a half percent of the property's value just in those random charges as a buyer, in addition to that, the transaction cost for selling is usually a lot higher because you have to pay commissions involved in that transfer, taxes, escrow costs, title costs, and a lot of other miscellaneous things as well that just add up.

Which means that anytime you sell, you'll usually have to spend anywhere from four to six percent of the home's value just in fees. Again, all of that is an expense that you will not have with renting. So if you just want to get up and leave the next year or go and move somewhere else, you're gonna save a lot of money by paying like a forty dollar rental application fee than you would buying a property, spending all the money to do so, then spending all the money to sell it as well. That's gonna be way more expensive than just renting an equivalent home.

Fifth, when buying a home, unless you're doing it specifically as a long-term investment, chances are within the first few years you're not really going to be gaining a lot of equity or value in the home. If you're like most people, you'll buy a turnkey, move-in-ready home that doesn't need to be fixed up, and then you'll move in, slowly building up equity over time as you pay down the loan, which by the way is not a bad strategy if you plan to live there for 10 to 20 years.

Any less than that, and chances are you won't be making much of a profit unless the real estate market goes up in value enough to cover all of your transaction costs, maintenance, and repairs to the point where owning a home now becomes cheaper than renting the equivalent place. Don't get me wrong: if you buy the right place at the right time and sell it after a few years, there's definitely a chance that you can make a decent amount of money while also being able to live there for free.

But assuming the real estate market does not go up or it stays relatively flat, and you decide to sell after a few years, chances are that's going to cost you more money to buy than it would have costed you just to rent instead. That's because the majority of mortgages are designed so that you pay the most amount of interest in the very beginning when you still have the largest outstanding loan balance.

Then over time, as you pay down the loan balance, more of that money goes towards principal rather than interest. In fact, it's not until you're about two-thirds of the way through paying your mortgage that more of your payment goes towards principal than it does towards interest. So with a 30-year loan, you're not really gonna see your mortgage payoff accelerate until you're about twenty years deep.

So that means from an equity standpoint, assuming we don't see the real estate market going up in value every single year, buying and selling within a short time period is probably going to wipe out all of the benefits associated with buying a property in the first place when you account for transaction costs, repairs, maintenance, upkeep, and also the opportunity cost of tying up your money.

Now, none of this video is meant to dissuade you from buying real estate because long-term owning a home could end up making you a significant amount of money, not to mention these psychological benefits and peace of mind that you get from having total control over where you live. But it is meant to get you thinking about why you were buying in the first place and to get you to think about running the numbers beforehand to make sure it's really the right choice for you.

Because the idea that renting is just throwing your money away is complete nonsense. Depending on the situation and how long you plan to be there for, renting could just be the smart financial move to make. All of that really just comes down to determining the true cost of ownership for all the things you don't think about, and then running the numbers to see which would be the best choice for you.

And of course, smashing the like button! So with that said, you guys, thank you so much for watching. I really appreciate it. If you guys have not destroyed the subscribe button and subscribed already, make sure to absolutely demolish the subscribe button. Demolish the notifications bell. Go and add me on Instagram; I post here pretty much daily.

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So again, with that said, thank you again for watching, and until next time!