Why You SHOULD NOT Buy A Home

What's up you guys? It's Graham here. So today we're going to be talking about one of the most debated questions of mankind, something that philosophers have been pondering since the beginning of time. And no, it's not what's the meaning of life. It's not do aliens exist, or did Robin Hood disable the buy button to protect Citadel. But instead, it's: is it a good idea to buy real estate or is it too late to jump in?

Okay, maybe I'm exaggerating the significance of that question by a little bit, but still, the topic of real estate is easily one of the most common questions I get on my channel. Especially after real estate prices have hit brand new record high after brand new record high, it starts making a lot of people feel like this—and really, that's for good reason. November home prices rose nine and a half percent, which is one of the largest gains in history. That was fueled mostly by interest rates hitting their 17th record low, all the way down to, wait for it, two and a half percent fixed for 30 years. And like you would assume, cheap mortgage rates mean that buyers are snatching up real estate at any chance they could get. At this current rate, we could run out of new homes in months.

So now the million-dollar question that I present: is it a good idea to buy a home or should you even buy a house to begin with because it's so competitive and prices are rising even higher? Well, in this video, I'm going to take the stance that you should probably not buy a home right now unless you're prepared to handle five scenarios that I'm about to outline for you. Because despite the popular belief that owning a home could be one of the best financial choices you will ever make in your entire life, there are situations where it just doesn't make sense. After all, you don't want to be one of the 44 percent of people who regret their home purchase.

But first, before I begin, I need your help to smash the like button for the YouTube algorithm. Recently, it's gotten too strong for me to smash on my own, but with your help, we could work together and defeat the like button by giving it a gentle tap.

All right, so the first reason you should not buy a home is if you're not prepared to make the down payment. Sure, owning a home could be incredibly rewarding, and it's so nice to be able to do whatever you want, like paint the entire room black for YouTube, without worrying about your landlord taking the security deposit. But very few people do the math behind it to make sure all of that makes financial sense. That's because there's one term that almost no one thinks about when they buy a house, and that would be opportunity cost—or, in simpler terms, how much is that down payment worth to you if you just invested it somewhere else instead?

If there's one thing I've learned when it comes to buying homes, it's that oftentimes having your money tied up in a house is not always the most profitable decision, even if it means you don't have a landlord. Now, generally, lenders are going to want to see a down payment anywhere from five to 25 percent of the home's value just to be able to close. And if you can't comfortably come up with that, then unfortunately, you're not in a position to buy a home quite yet.

Now, yes, home equity is considered very safe, and the likelihood of you losing money over 30 years as long as you just make your mortgage payment on time is pretty much non-existent. But you're doing that at the expense of being able to invest your money elsewhere at a potentially higher return. And that needs to be taken into consideration. If you're buying a property solely for an investment, you need to consider how much time you're spending finding the right deal, doing the renovations, and picking the right tenant. How much money are you making every month in cash flow? How much of the mortgage are you paying down every single month? What's going to be your total expected return at the end of the day? And how does that compare to other investments you could be making otherwise, like Dogecoin? That was a joke—don't do that.

If you're buying a house for yourself, you need to consider how long will you be living there for? Have you taken into account your transaction costs, like commissions, escrow charges, lender origination fees, appraisal charges, and so on? Do you know how much it would cost to rent a comparable home instead? And how much money would you be tying up in a down payment, and how much money would that be making you invested elsewhere?

I would probably venture to say that almost everybody who regrets their home purchase— which is about 44 percent of adults—didn't do the math ahead of time to make sure that buying was really in their best interest. And even though there are a lot of situations out there where buying certainly makes a lot of financial sense, that does not mean that it's always the best move for everybody. That's why I highly recommend that everyone consider the opportunity cost of their down payment, recognize the true cost of owning a home versus renting, and make sure you're prepared to comfortably come up with the down payment. If the numbers make sense, then absolutely go for it. But otherwise, it might be best to hold off.

Second, you should not buy a home if you've only budgeted for your mortgage payment. This is one of the biggest mistakes I see people making when they decide whether or not they should buy a home. And it usually begins with comparing the cost of renting a home versus the mortgage payment to buying something similar instead. That kind of math just makes it seem like renting is throwing money away—and maybe it is! But as any homeowner will tell you, the mortgage payment only makes up a small portion of how much that home will actually cost you. And this is how much you're really looking at.

Go to any mortgage calculator, type in the cost of the home, plug in the down payment, type in that interest rate, and instantly you'll come up with your monthly cost. Then, if you want to take it a step further, you could break down how much your payment is going towards home equity and how much is going towards interest, and that way you'll be able to come up with your true out-of-pocket cost every month.

Then second, you have your property taxes. This varies throughout the United States, but it could range anywhere from 0.4 to all the way up to 2 percent annually of the home's assessed value. That means in a $400,000 home, assuming a 1 percent property tax rate, you're gonna be paying $4,000 a year in property taxes that you're not getting back every single year you own the home.

Now third, you also have to pay insurance. Again, this one depends on where you live and how much your home would cost to replace in the event of a disaster. But generally, this is going to range anywhere from $60 to $200 a month for basic coverage and potentially more if you're located in a high-risk area for floods, fires, or earthquakes.

Now fourth, you also have your maintenance costs. This could be the cost of regular lawn care or general upkeep or anything else you pay month to month to keep your home in good shape. And fifth, we have the dreaded repair costs. I can't tell you how many things just randomly start breaking as soon as you close on your home. These are all things that you would never think about until you're in it. Like maybe the dryer just stops working, or a roof tile falls off in heavy wind, or the toilet won't stop running, so you have to call a plumber. All these little things just start to add up that you never consider until you buy a home.

That all means that even though you might have a $1,500 a month mortgage payment when you add everything up, that can very well total $2,500 a month when you take into account property taxes, insurance, upkeep, repairs, and so on. And that's something that definitely has to be taken into account and properly budgeted for. That way you're never going to be caught off guard when your monthly bills turn out to be a lot higher than you initially expect.

Now third, you also shouldn't be buying a home if you haven't factored in transaction costs. Anytime you buy or sell, unfortunately, this is the part of real estate that almost no one thinks about, and very few people talk about until usually they're in the middle of a deal. See, as a renter, it's so easy just to fill out an application, and then bam, you're done. But when you're buying or selling, it could be an expensive process that might range anywhere from three to six percent of the home's value, right off the top, just gone.

Like when you're buying a home, you're gonna have to pay for home inspections, appraisal fees, loan origination charges, title fees, notary fees, and a whole bunch of other miscellaneous charges that just seem to get added on. In addition to that, the transaction cost when you sell is usually a lot higher because you're dealing with real estate agent commissions, transfer taxes, escrow charges, title fees, and a whole bunch of other stuff that again just piles up. When everything is said and done, selling a home could easily cost you about four to six percent of that home's value from start to finish.

And that means usually just to break even on the deal, you're gonna have to sell your home about seven percent higher, because otherwise you're gonna have to pay out of pocket. That's why I usually don't recommend buying a home unless you know exactly how long you're gonna be keeping it for. And once you've factored in the transaction cost of buying and selling, generally speaking, the longer you plan to own your home for, the more you could spread that cost across multiple years.

But in the short term, if you're planning to buy and sell a home within a quick period of time, the transaction costs are absolutely going to reduce the amount left over to you as a savvy money investor. And fourth, because of that, you should not own a home unless you're planning on keeping it at least five to seven years. That's because the shorter you own your home, the less likely you are to make money owning it. Things like transaction costs, property taxes, insurance, and repairs are all non-recoupable costs that you're not going to be getting back.

So you're going to need to make sure that property values continue rising to offset that cost of just owning and buying a house. Like on a $400,000 home over three years, you may very well experience a $4,000 closing cost when buying, $7,800 a year in property tax, insurance, and repairs, and a $20,000 closing cost when you sell. That's $47,400 worth of overhead over three years, which means you need to make sure you sell that home at $447,400 just to break even. And that doesn't even include mortgage interest, which would bump that number even higher.

That's why for the most part, generally speaking, the break-even point for a lot of homeowners is between five and seven years. And that gets to the point where owning a home becomes cheaper than renting the same thing. In almost all situations, the longer you keep the home, the more likely you are to come out ahead and make money.

And if you're buying a rental property, this is especially important because even though property might cash flow really well from the very beginning, it's potentially all for nothing if you have to buy and sell within a short period of time, and those transaction costs end up eating into your profit. So it's my recommendation that if you're looking to buy or invest in real estate in the short term, probably not a good idea unless you're going in specifically with the intention of buying a property, renovating it, and then flipping it for a quick profit.

Then in almost any other situation, I would only recommend buying real estate if your plan is to keep it at least five to seven years or preferably ten years or longer. That way, those transaction costs are going to be averaged down over the years, and you'll be able to ride out any short-term fluctuations in the price.

And fifth, you shouldn't buy a home unless you have three to six months' worth of your home's expenses sitting on the sidelines as a reserve. See, just like all the financial experts recommend keeping a three to six-month emergency fund at all times, I recommend keeping a three to six-month home emergency fund at all times to cover any repair bills, maintenance costs, upkeep, taxes, insurance, anything else that comes up, just in case for when that time inevitably happens.

Something breaks or a tenant stops paying rent or something comes up outside of your control. I've had pipes freeze and break; I've had rats chew some of the PVC. I've had the AC units going out. I even had a tenant that I had to evict about almost ten years ago now, and that was not a fun situation. But I also say this as a homeowner who owns where I live. Things just come up, and you got to make sure you keep cash on the sidelines to pay for it.

This is really going to be one of those things that you're never going to need until the one day where you do need it. When that happens, you're going to be glad that you kept some money on the side to be able to pay for it. So if you're not prepared to keep money on the sidelines or have something that's easy to pull from in the event you need to pay for a repair or an expense, then it's probably not a good idea to buy a home until you're financially ready.

And listen, I'm not trying to dissuade you from buying real estate, because in the right circumstances, long term owning real estate could be one of the best choices you make and could end up making you a lot of money. But this is meant to get you thinking about why you're buying a property in the first place and to really make sure you understand the numbers behind it to make sure it actually makes sense.

If you're buying a home for yourself to live in, personally just make sure you run the numbers to confirm that owning a home is going to be cheaper than renting. And also make sure you have a safety net to pay for anything that might eventually break. And then of course, if you're buying a place to use as a rental property, just make sure you've analyzed all the numbers and factored in your transaction costs, including vacancy. Buying the right rental property in the right area could absolutely end up making you a ton of money, just be prepared for the cost. Make sure you have enough time, and make sure you have enough money in reserves so that you're able to make payments on things just in case something comes up.

Now as for whether or not it's too late to buy real estate, now the answer to that is no, but you have to be especially considerate to make sure the numbers make sense and you have enough money in reserves to comfortably afford it. For me, real estate has been one of the best investments I have ever made, but it's also been the most time-consuming and the most challenging. So yes, it can be worth it, but you have to consider the entire picture to figure out for you which makes the most sense: owning a home, or smashing the like button for the YouTube algorithm.

And again, big thank you to Omaze for sponsoring this video. If you're interested in potentially winning your own dream home or one million dollars in cash and you want to help out the Orlando Pediatric Hospital in the process, the link is down below in the description for you to learn more information and contribute.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post there pretty much daily. So if you want to be a part of it there, feel free to add me.

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Thank you so much for watching, and until next time!