Why I’ll Never Buy a House!

Once again, it seems as if I’m attacking Conventional Wisdom. Truth is, I’ve never been one to just accept things “because that’s how it always is/goes.” Attacking is a strong word. Let’s just say I’d like the opportunity to share my views with the hope, that if nothing else, it will stir up some thoughts.

Let me begin with the biggest misconception theory. “A house is the best asset you own. It keeps appreciating.” FYI – Money in the bank keeps appreciating too. Also, since we in Jamaica have experienced major currency devaluation over the years, let us ensure we keep that important aspect in mind when comparing apples with apples. A house valued $5 million Jamaican Dollars 10 years ago, and $9 million today, experienced NO REAL APPRECIATION. I repeat. It experienced NO REAL APPRECIATION. Between 2001 and 2011, the Jamaican Dollar against the US Dollar moved from $45JMD to $1USD (2001) to $86 to $1 (2011). Let’s take a closer look. If I had converted my $5 million Jamaican in 2001 to US Dollars (conversion equivalent of $111,111 USD) and hid it under my mattress, then reconverted it to Jamaican Dollars in 2011, I would have had over $9.5 Million Jamaican Now. Not to mention if I had put the money in the bank 10 years ago, and the compounding effect the interest earned would have had on that amount! What is clear here is that when taking into account “Appreciation,” it must be independent of Exchange Rate Fluctuation Gains I would have experienced automatically.

Now let’s say that you fall into the very small percentage that, despite the currency variable, you have still managed to see a slight increase in appreciation. Consider this. In Jamaica, the cost of selling a property is approximately 15%! Hence, if you purchased a house for $100,000 USD, and sold it for $115,000, with the net amount you would have gotten back after the transaction, you would in fact have suffered a loss! Not even to mention once again, the opportunity cost of the interest the money would have earned in a bank. Now don’t get me wrong. Some may have fallen into a minority, and perhaps despite the currency variable, cost of sale, and opportunity cost of money, they still experience a real appreciation. Kudos to them. Fact is, Residential real estate, historically (once all the variables mentioned are considered) has experienced little to no “REAL” appreciation in Jamaica.

What I won’t even bother to expand on, is what an Illiquid Asset a house is. Is a House your greatest Asset? Suffice it to say on the issue of illiquidity that for me, I prefer cash in the bank to a hard to sell house.

Speaking of cash, even when financed, there’s that big chunk of money (Deposit, Closing costs etc.) that you need to say goodbye to. Forever. Chances are, whenever that house is sold, you’ll be reinvesting that chunk of money into a bigger house, or even just a different one. RIP Big Chunk of Money.

Since we’re still on the Financial disadvantages (believe it or not there’s more), do remember that owning a house comes with the burden of maintenance and property taxes. No thanks. I’d rather have my landlord take care of that. By the way, Landlord, in case you’re reading, I think my roof is leaking. I hear Roof repairs are financially burdensome. Sorry about that.

Now many will argue that the monthly expense of mortgage, maintenance and taxes combined, equates to rental. In extreme cases, maybe. But more often than not, they don’t.

Another point to consider is Flexibility. Contrary to popular belief, “Home Needs” (Size, location, price etc) changes often. According to the U.S. Census Bureau, Americans move on average, every 5 years! So much for owning a “permanent home,” or “settling down.”

One important consideration, is, why do you want to own a home? For most people, the answer is psychological. It’s part of becoming an adult. Not to mention the great pride that often comes with owning your own home. Now, if that emotion is worth the financial costs to you, then by all means go ahead. This paper is about home ownership not being a financially sound decision, in my view. But it doesn’t negate the fact that Happiness is, and always will be, the goal.

Unfortunately, I don’t share the sentimentality of Ownership, and prefer the savings, flexibility and lack of maintenance and tax expense and stress that Renting affords me. Hence, unless some divine intervention takes place later, I will continue to Rent, and move freely as is necessary. I will end here, as I believe my Landlord is at the door, and must have taken a lot of time out of his busy schedule.

-Manoj Ramchandani