Why Your First House Is A Liability
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Why Your First House Is A Liability
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Re: Why Your First House Is A Liability
#2Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home.
Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white.
Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a life where not everything is based around that mind-frame.
There is probably some useful advice in there somewhere but a more thoughtful, pragmatic approach will serve it better.
Re: Why Your First House Is A Liability
#3> I don’t want to reinvent the wheel, we’ll use the definition from one of the best personal finance book “Rich Dad Poor Dad”
I was trying to understand the perspective of the article, and that gave me the major clue.
RDPD is one of many books that basically says the key to financial success is real estate investment.
For a few people, and at certain times, maybe, but it is better for most people to make it a (small) part of a wider financial investment plan.
Your first house (or any house) should be first and foremost though if as a place where you will live, and “primary residence as investment” is almost never a good thing.
Re: Why Your First House Is A Liability
#4Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all?
Also, there’s tax advantages to mortgages here in the US.
Renting out a house isn’t easy money, believe me I’ve tried it. You have to find tenants, things break, a lot, that you have to pay for. In my case, the tent ants literally moved out in the middle of the night using their car headlights since they hadn’t pairs the electric bill in 5 months.
Letting your money generate appreciation (in the stock market I assume) is no guarantee and as we’ve seen the last 20 years, we could see annual gains and losses of 20%.
A house IS AN ASSET. It’s a non-liquid asset, but it’s not a liability. What’s the best test if it’s an asset or a liability? Would you want to just give it away to someone?? A house, of course not. A car loan, of course.
Re: Why Your First House Is A Liability
#5I agree that for someone who wants to frequently move around in their 20s, a house is a liability, especially since you don't know what the housing market will do so you could end up loosing a lot of money in the short term. But not everyone wants to move around in their 20s, some people find a city they like and want to stay there.
And I don't understand why the author suggests everyone wait until they can get a rental property, that just doubles your exposure to the housing market and adds the stress of having tenants. If you really want to have that much money at risk, just dump all the second house money in the S&P 500, and trade on margin or something.
Re: Why Your First House Is A Liability
#6Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all? Also, there’s tax advantages to mortgages here in the US. Renting out a house…
The tax advantages are pretty rare now that the standard deduction was raised to $12k per individual. Only something like 10% of homes still use the interest deduction.
Re: Why Your First House Is A Liability
#7This is mixing up liquidity with asset vs liability. A house is a depreciable asset. The land beneath the house holds it's value and doesn't depreciate. That's why the assesed value for tax splits them out. Both are less liquid than cash, but I can convert my equity in the asset to cash very quickly with a loan, or put the house up for sale and maybe it takes a little longer to get the cash. The loan would be a liability. But a house is never a liability on financial terms.
My current plan is to buy, live in the house for a few years, offer the house up for rent, and rent a new house for myself. I'm currently on step 2. I don't want to overcommit myself in real estate so buying a second residential property doesn't make sense for me. Because of rent appreciation I will have positive cash flow while renting out my current home. That hedges for any future rent increases in my future place of residence.
I'd consider buying an income generating vacation home too. But not another primary residence. That's just my opinion. And my opinion doesn't make my house an asset or a liability.
Now that said, I feel one non-financial aspect where owning a house is a liability is the opportunity cost of time spent maintaining the house. In a rental the landlord takes care of it.
Re: Why Your First House Is A Liability
#8Forget pure financial calculation -- It also gives you less flexibility to move quickly! I certainly wouldn't buy a house before age 30. You want to be able to pick up and move and chase an opportunity. (I'm awfully glad I got on a plane and moved to Silicon Valley in 1989 on a whim.)
Re: Why Your First House Is A Liability
#9Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home . Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white. Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a…
you can turn that argument on its head though. Caring about quality of life is why I rent rather than buy a home. No debt, no fixed costs (people typically say 1% of the value of the house per year, quite a lot of cash), no repairs I have to worry about, moving out is simple etc..
Here in Germany most people rent by the way, so I never understood the obsession with homeownership. Just look at the covid mess. If you're in your 20s or 30s and bought a house and live on credit cards I'd be sweating right now. Living in a rented place within my means, having a year worth of savings in the bank, it's a lot less stressful.
Re: Why Your First House Is A Liability
#10Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all? Also, there’s tax advantages to mortgages here in the US. Renting out a house…
Other major tax advantage is zero tax on up to $250,000 in gains ($500K for married couples)