IWillTeachYouToBeRich - 4 myths about owning a home

Reader,

I’ve talked to a lot of people recently whose dream is to buy a house.

Looking at their finances, they realistically won’t be able to afford a house in their city for 15+ years.

This is depressing for them to hear. Some find it hard to believe.

Buying a house CAN be a good decision — even a good investment — but many times, it's not. IWT readers know to run the numbers before making the biggest financial decision of their life.

Here are 4 myths about owning a house that any prospective home-buyer should consider:

1. “Prices in real estate always go up”
House prices do not always go up. You would think people would understand this after the 2008-2009 recession, but there are powerful forces at play — NAR, family, psychology, even government — all encouraging you to buy a house.

2. “The value of a house doubles every 10 years”
House prices don't always double in 10 years. In fact, even when they double, most people neglect to factor in costs. Even if you sold your house for more than you bought it for, once you factor in “phantom costs” like maintenance, taxes, or interest, you may have lost money.

3. “You can leverage to increase your money”
Leverage — making money when your home value goes up — can work great. But remember, leverage works on the way up … and it works on the way down. That means if the value of your house decreases, your "investment" can be wiped out.

4. “You can deduct mortgage interest from taxes and save a bunch of money”
People used to say "do it for the tax deductions.” Sophisticated investors know better than to let tax decisions primarily guide their investment decisions. 

YES, I'm presenting a lot of critical facts about buying a primary residence. That is intentional. There are entire multibillion-dollar industries feeding you bullshit about all the reasons to buy. I want you to be an educated consumer when you make the biggest purchase of your life.

If you’re ready, make sure you run the numbers. Here’s my checklist of questions to ask yourself before buying a house:

1. Will I live here for 10+ years?
2. Is my total monthly housing cost lower than 28% of my gross monthly income?
3. Have I saved a 20% down payment?
4. Am I OK if the value of my house goes down?
5. Am I excited about buying?

If the answer to any of these questions is a hard “no,” then it might be worth reconsidering the purchase of a home. It might not be your time to buy. 

By the way, lots of people will ask if they really need to put 20% down. When buying, my rule of thumb is that in some cases, you don't need to (especially with low interest rates), but you should have enough that you could put 20% down. If not, you are not ready to buy.

Remember, there's nothing wrong with renting — it can be an excellent financial/lifestyle decision. I rent by choice!

Do you rent or own? Why? Reply to this email and let me know. I read every response.