Homeownership with the Happy Hour Ladies
Today is the last Friday of the month and my regular listeners know that on the last Friday of the month, I host the happy hour on the podcast where I gather great friends with me to drink cheap drinks and talk about money topics. Today we’re talking about homeownership - why we’ve done it or why it is not even a life goal of ours, and the pros and cons. I hope you enjoy!
What are we drinking?
Melanie from Dear Debt — No drink - Dry January
Tonya from Budget and the Beach — Kombucha - Dry January
Liz, Mrs. Frugalwoods, from Frugalwoods.com — Bota Box Nighthawk Wine
Shannon — Tito’s Vodka & Tonic
Podcast Notes
Shannon went to the Angel’s Envy conference and spoke to their employees about financial wellness and being financially fit. In her first session, someone asked about homeownership, and she said she doesn’t think it is a necessary goal and there are other ways to build wealth.
One of the participants went on a rant about how you are throwing your money away, and as that story made its way around the conference, the topic of homeownership came up in every single one of Shannon’s sessions. Everyone had an opinion about it.
Tonya and Melanie have never owned a home.
Melanie is a happy renter and thinks it is foolish for people to say that renting is throwing money away. She has a roof over her head and renting gives her the flexibility to move if she wants to. She likes that she doesn’t need to fix things when they break, she just needs to call someone. Her parents also don’t own a home and she didn’t grow up with it and she is not interested in owning a home. She has never had a dream of homeownership.
You need to be honest with yourself about the cost of homeownership. Comparing rent to a mortgage is not comparing apples to apples. You can still build wealth when you are renting.
A house is an asset and a liability at the same time. If you have a mortgage, it is pretty much a complete liability.
Liz owns two houses, one in Cambridge, MA, which she bought in 2012, and another house in Vermont, which she bought in 2016. The Cambridge house was their primary residence for a few years, but they bought it with the idea to eventually rent it out, which they started doing in 2016, when they moved to Vermont.
Liz and her husband met when they were 18 and got married when they were 23 and combined their savings. They saved $65,000 in six years that they used to put down on their $460,000 house in Cambridge in 2012.
Liz and her husband used Redfin to purchase their house and Liz recommends it, if you know what you want and you only need someone to do the paperwork. She had a 3.8% mortgage and refinanced and got it down to 3.6% or something close to that. She has a 30-year, fixed-rate mortgage.
When Liz and her husband moved, they analyzed if they would be better renting out their Cambridge house or selling it, and they evaluate that every year. Cambridge is an expensive city, but 65% of units are rented, because of the colleges near there. Professors and students need somewhere temporary to stay. Her tenants so far have been graduate students.
Liz has a property manager for her rental, and so far it has been a good return. She sees that house as an asset. If you are going to rent out a house that you used to live in, you need to divorce yourself from the emotional connection.
Liz has a mortgage on her Vermont homestead also. They have chosen not to pay off their mortgages, because they think their money is likely to deliver a higher return invested in the market.
When you have a low, fixed-rate mortgage, the stock market return, on average, is around seven percent over the long term. It is a hedge against inflation and it diversifies your investments. There is very little you can do with a paid off house. It is a numbers game, but it only works if you invest your cash.
The number one goal at the Financial Gym is having a fully funded emergency fund. Clients feel better once they have that money in the bank.
You can’t build wealth by paying off houses. You need to take the emotion out of it. A paid-off house is not a liquid asset.
Tonya has never owned a house and she is neither for or against it. There are a lot of online calculators that can make the answer a little more clear. She has lived in a lot of high cost areas, but had she stayed in Detroit, it probably would have made sense to purchase a house because of the home prices and cost of living. In L.A., it makes almost no sense to buy a house.
If the right circumstances occurred, Tonya wouldn’t be against it, but homeownership is not something that is on her radar. She loves HGTV and is obsessed with homes from a viewer standpoint. She loves architecture. For her, the pros of renting outweigh the cons.
Shannon has been a homeowner and a renter. It depends on the situation - if you can rent for $900 or buy for $700, maybe it makes more sense to buy if the other circumstances are right.
In the initial thought process, you need to think about several things. Can you afford the down payment on the home? What if you have to get out of the home? Do you have to pay realtor fees to sell? Where do you want life to go in the next few years? It usually takes about six years or so to recoup the purchasing fees.
Make sure you have a contingency fund when you buy a house, because it becomes your liability. You need to either be handy or have someone on speed dial. Think about your competencies and how you want to use your time. If you have to hire out small repairs, they can easily be $600 or $800.
One con of renting is that the landlord can raise the rent or they can sell the building.
Liz chose a 30-year, fixed-rate mortgage, because the interest rate was low. It is all about the interest rate. You might be able to refinance, but you might not. It is helpful to know about the area you are buying in. She considers her homestead a $0 asset, because it will be very difficult to sell, where she sees the home in Cambridge as an asset.
Owning a home is not always an asset. You are not necessarily building equity or value. It depends on your market and it needs to be a minimum of a six-year commitment.
If you want to buy a house, think about all of the costs and start setting aside the extra amount you would need if you had the house now.
You do not need to buy a house, because you have kids. They won’t even remember it for the first five years of their life.
We are sold this dream that you go to college, get a job, get married, and then buy a house. Life is not linear and the American dream is what you make of it. There is so much more information out there now than there was 20 years ago. People are out there living in vans or RVs or abroad.
If you want to own a house, do it for all of the right reasons, but question why.
Shannon loves renting.
Every house project is an expense. Even new homes have things that need to be fixed.
Liz is married to someone who loves home projects, but it doesn’t take away from the fact that there is always a string of things that need to be done. It takes time. Do not live rurally, unless you are super handy.
Liz likes having a property manager, so she doesn’t have to think about what the tenants are doing to her house, and she wants her tenants to be well-served.
The answer to the question “should you buy a house” is all about math and your lifestyle.
Don’t let the “renting is throwing money down the drain” rhetoric get to you if you like renting. Get rid of the propaganda. Look at the math.
The equity isn’t real until you sell the house.
Owning a house, or not, is a personal decision. Whatever your decision is, own it! Love where you live and live where you love.
TAKEAWAY: My biggest takeaway is to make your financial goals your own. If homeownership is a goal of yours, make sure you go into it with eyes wide open. If it’s not a goal, no big deal. It is not a requirement in life to own a home. It is important that you have life goals that resonate with you, not someone else.If you want help identifying life goals and how you can achieve them, I hope you’ll reach out to my team at the Financial Gym. Ninety percent of our clients are hitting their financial goals, and I hope you do as well. Starting in 2019, we now offer a Martinis and Your Money listener discount of 15% off your membership, so head over to, or send friends to, financialgym.com.If you have any topics you would like for us to talk about during happy hour, please feel free to email me at shannon@finblonde.com or tweet to me at blonde_finance or join the private martinis and your money Facebook group and let us know. Until next time, take care!!