When I talk to most people, they all wonder what’s wrong with me. “What aren’t you buying a house?” “Why are you paying someone else’s mortgage?” Those are all common questions that I have to answer all the time. It’s bad enough that I’m not following what the majority of Canadians are doing, since over 70% have their own homes, but being Asian is even worse. Not owning your own home is almost as fatal a decision as sawing off your right arm.
My disdain for house owning doesn’t come from the fact that I think they are poor asset to purchase, but when you live in a major urban center where home prices are exorbitantly high, it gives me pause to think whether or not home ownership is truly for me. Whether you live in New York City, Toronto, Vancouver, Hong Kong or any other expensive jurisdiction, home ownership really starts to take a bite out of your finances once you take the dive into owning one.
To really understand whether home ownership is for you, you should really be asking yourself whether that is the lifestyle that you choose to live. Are you willing to make the sacrifices necessary to own your own home? They don’t call it a mortgage for nothing. “Mort” meaning death. Yes, you’re gonna be paying that till you die. How’s that for pessimism?
Cash Flow First
If you’ve read my past posts, and I hope you have, you’ll understand that I value cash flow over anything else. What does this mean? I value the fact that the income that I generate, whether active or passive, meets the expectations that I have for myself on either a monthly or annual basis. That’s the whole point of being financially independent. You want to be able to pay for your lifestyle by doing what you want to do.
Buying into a home is no different. It only makes sense to buy a house if you can truly afford it. When I mean truly afford it, I don’t mean the ability to pay off the monthly mortgage. It has to fit into your lifestyle and your own philosophy on how you want to live life. If you have to give up your morning coffee, your weekly soccer team and perhaps even have to take your kids out of ballet class just to buy a house, then perhaps you should rethink home ownership. Is it really worth it to give up everything you want just to own a house?
Many pundits point out how a good an investment a house is because prices always go up. What many people don’t say is how it really affects your monthly cash flow. Make no mistake, if you try to purchase a home in expensive, popular metropolitan areas, it’s going to cost more money monthly than it will be to rent. That extra money can be saved used to generate additional cash flow. There are less financial responsibilities with renting than there are with home ownership.
The question from a personal side is “do you want to make those sacrifices?” This really isn’t being pessimistic as it is trying to be realistic. Unfortunately, expensive homes bite into our monthly cash flow. That’s just a fact. So are you willing to change your lifestyle? Is that too negative a question to ask?
It’s true that once you have paid off your house, you will no longer have to worry about expensive monthly rental bills. This is an extremely valid point, because having a paid off house in the future means that your monthly expenses in retirement will fall compared to your working years.
Where I have reservations about buying, perhaps, is that in expensive cities a home can well approach a million dollars. That is quite a lot of money. People may think a million dollars doesn’t go as far now in 2016, but the fact still remains; making a million dollars after taxes is still hard to accomplish. I’m either wrong about that point or I’m definitely doing something wrong writing this blog for free.
Buying a million dollar home means it’s going to take quite a long time before that mortgage is paid off. For instance, making a $100,000 salary in Ontario means take home pay of $75,000 a year after taxes. If one had a $750,000 mortgage, it means that at a minimum the house won’t be paid off for a decade. Realistically, with every day and other expenses that figure is more like 15-20 years. All those sacrifices I listed above. Is that something you would be willing to forgo for the next 15-20 years? Is paying off a mortgage to own a home a rewarding lifestyle that you wish to have?
These are tough decisions to make. Quite frankly, for me personally, buying and owning a home isn’t what my life goal is about. Owning a home isn’t necessarily the lifestyle choice that I want if I have to give up on the other things in life that matter more to me. That is my opinion. For other people that can be entirely different. Owning a home can bring much more comfort and satisfaction than anything in the world. It could have the feeling of winning the lottery, but for me it just doesn’t hit me the same way.
Owning a home and not owning a home all comes to personal choice. What are the values that the most important to you? What type of lifestyle do you want to live? Either way you go, there are still ways that one can achieve financial independence. It’s not a black or white decision.
There are many people who are able to achieve financial independence owning their homes. If you look at the past, a lot of the previous generations have done quite well owning their own homes. If you look at the present, there are others such as this famous couple, who have done it their own way without owning a home at all.
What’s best for you is ultimately a decision that is best made by yourself.