Is owning a home worth it? No, it is not worth it. It is much less efficient to buy a home to grow your money than the alternative of using the capital for a better investment that generates more returns. However, owning a home is worth it if you are buying to have a good place to stay over your life.
Real estate agents will always say that owning a home is worth it. However, I have no real estate to sell and I speak objectively from a numbers and factual basis. Home prices appreciated nationally around 3 – 5% per year. That’s not a good return on capital to park your hard earned money in.
However, life is not all about making the best financial decision. That doesn’t mean you should never buy a home. Owning a home is worth it if you are buying for a non-financial decision. I personally paid rent for the past 7 years and I do not own any assets in exchange.
Ownership has its benefits, although it is costly. I’m personally looking to own a home in the next 2 – 3 years, if I don’t get laid off and if the housing market cooperates. Too many people don’t ask the question is owning a home worth it? and they blindly follow the advice of others.
“You should buy a house because if you rent, the money is just down the drain. If you own a home you build equity”. Is one argument real estate professionals use to get you to buy a home. It’s not a sound argument. The opportunity cost of the down payment is too high.
So with that, let’s go over the pros and cons of homeownership.
Is Owning a Home Worth It? 4 Pros
Below are the 4 pros of owning a home. Just because it’s not worth it from a financial standpoint doesn’t mean it’s never not worth it.
1) Homeowners are Wealthier, on Average
According to the Federal Reserve, homeowners are 40x wealthier than renters. Homeowners had a median net worth of $255k while renters had a median net worth of $6.3k. However, while homeowners are wealthier, that doesn’t mean that homes caused the wealth gap.
Homeowners have more wealth to begin with to purchase a house in the first place. It’s not the home that caused the wealth to increase, it’s a correlation that people with money are the ones purchasing the homes. However, you still can’t ignore the statistic.
Home equity rose so high in the 2020 – 2021 real estate boom. Some even doubled their money in just 2 years. While the returns are unrealistic and it will return to the mean at some point, a home can build wealth just as well as any other investment.
Except for anomalies like 2020 – 2021, homes generally only appreciate 3 – 5% per year, on average. However, you can’t ignore the wealth effect of owning a home when answering the is owning a home worth it? question.
2) Is Owning a Home Worth It? Fixed Monthly Payments
There are no landlords increasing rent at the end of the lease period. There are also no landlords decreasing rent at the end of the lease, either. I personally negotiated rent every place that I rented from and succeeded in lowering it, come renewal time.
However, with a home, you don’t have to worry about that. You have fixed monthly payments consisting of principal and interest payments. The cash flow outlay is predictable. There’s no guessing and thinking about what to do next.
Is owning a home worth it? Yes, if you are looking for fixed monthly payments don’t want to deal with the hassle of negotiating with landlords. Your cash flow outlay is predictable and there’s no need to guess year after year what your payments will be.
It’s better than having to research the real estate market come lease renewal time to negotiate rent.
3) Tax Benefits
Mortgage interest, mortgage insurance, real estate tax deduction, and capital gains exclusion are tax benefits exclusive to homeowners. Is owning a home worth it? Yes, if you consider the tax benefits and if you are taking advantage of the tax benefits.
You may actually qualify to exclude a quarter million dollars of that gain from your taxes. That’s a HUGE advantage, especially for those who took advantage in the 2020 – 2021 real estate boom. Home prices skyrocketed and the sellers kept tax free money from the gains.
There are no similar tax benefits when it comes to stock ownership. Although a low long term capital gains tax applies to stock, there’s no amount of gains that are excluded from taxable income. Real estate can be a very lucrative choice, but it always depends on the circumstances.
It’s a specific asset class that only the few truly know about the benefits and power of it.
4) You Are Free to Decorate to Your Liking
This is the biggest benefit when it comes to ownership. It’s yours. No one else can mess with it. With a rental unit, you can’t decorate it to your liking as a tenant. However, when you own the real estate, you can do whatever you want with it without worrying if the landlord will charge you for it.
Is owning a home worth it? Yes, if you like decorating and using your home space to however you would like. When you improve your environment and conditions around you, you become more productive. Because you’re forming your environment to your liking.
Instead of the other way around. It’s a small thing but it makes a huge impact. I personally can’t work if I don’t have a quiet workspace to write quality blog posts in. Or to think. Or do any of a hundred other things that make me more money.
The reason you might not be thriving and flourishing is because you don’t have space that you can call yours. When you have that right, you can think much more clearly and your actions follow.
Is Owning a Home Worth It? 4 Cons
There are certainly cons that comes with homeownership. It’s not all peaches and cream. Is owning a home worth it? Below are the 4 cons to watch out for!
1) It’s Not Financially Sound
A 3 – 5% national average home price growth isn’t anything to celebrate about. Stock markets return 7 – 10% per year on average over the long term. Is owning a home worth it? Not if you’re looking to get wealthier. People think your money on rent is throwing money down the drain.
No it’s not. When you buy a home, you have to come up with a down payment. Down payments are more expensive than people realize because it has an opportunity cost. The $50k you put down on a house can be put in the stock market earning 7 – 10% per year.
Instead of the 3 – 5% per year with homeownership. In the short term, home owners win because they used leverage to get those returns. In the long run, stock owners win because the difference in investment returns to get compound interest is staggering.
Homeownership is not a financially optimal decision. The opportunity cost with the down payment is expensive.
2) You Can’t Move Cities Easily
When you own a home, you can’t move cities as easily. It was hard for me to move between cities when I was renting because I was locked into a one year lease. However, once my lease was up, I was free to move about. A home has a mortgage for possibly 3 decades.
Is owning a home worth it? Not if you prioritize moving cities, states, and even countries. When you’re early in your career, flexibility matters significantly. I moved from Birmingham Alabama to Houston, TX, then to Austin TX in a span of five years. That’s a lot of moving.
Because I was early in my career, I did not want to lock myself into one city by buying a house. Then I would have to negotiate relocation, in which it isn’t always granted. I enjoy being flexible because that’s how I can grow my career.
Selling a house is not as easy as breaking your lease, either. I broke leases for free before. It’s all negotiable. Knowing how to negotiate rent is beneficial.
3) Is Owning a Home Worth It? Property Taxes are Unpredictable
In 2023, houses are selling for less than tax appraised value. Which is shocking because tax appraised values are almost always lower than actual appraised values. However, governments overestimated how much homeowners benefitted from the rapid increase in home prices.
Therefore, property taxes went up along with the tax appraised value. Some homeowners had no choice but to sell because they couldn’t afford the increase in tax bill. Is owning a home worth it? Not when you consider just how much the government schemes to get you to pay more money.
Even though principal and interest payments are fixed, tax payments are not always fixed. If the government mis-appraises the value of your home on the upside, your property taxes can even double overnight. You can fight your taxes but that doesn’t always work.
You are at the mercy of the government. It’s almost impossible to win against the government because they’re the ones who make the rules.
4) You Pay the Maintenance Costs Out of Pocket
A landlord takes care of the maintenance expenses with an apartment. With property ownership, you are solely responsible for all of the maintenance costs. One of my friends spent $10,000 fixing up his AC unit. In the hot weather of Texas, AC is a necessity.
The maintenance costs are expensive. Things you didn’t pay for as a tenant is more costly than it seems. Things like switching out the AC filter, fixing the plumbing of pipes, and pest control all costs money. When I first came to my apartment, I put in 10 service requests for the property.
All got fulfilled within a day and cost money for my landlord. Contractors were not cheap in 2022. Plumbers were so busy they were turning down so much demand because they just couldn’t get around to the jobs. Is owning a home worth it?
It may not be when you factor in all of the costs related to maintenance.
Is Owning a Home Worth it? The Final Verdict
Owning a home is not worth it for a financial reason. It costs a lot of money to maintain, buy, and keep a home. More than anyone ever gives it credit for. Many homeowners found out the hard way just how much a single AC change costs. Upwards of $10,000.
The opportunity cost that comes with the down payment is significant, especially in the long term. Is owning a home worth it? It is not. However, that doesn’t mean you should never buy a home. It just can’t be a money reason to buy a home.
I personally want to buy a home because I’m tired of renting and want to own real property, like a home. I don’t like moving around between cities and would prefer if I could stay put in one area of town. Changing jobs is not in the cards for me soon. The cases for homeownership are emotional cases.
This answer is not for real estate investment homes. This answer is for primary homeownership. Real estate investment homes provide predictable and steady cash flows, tax benefits, plus home ownership. It makes financial sense to have investment properties.
However, for primary homeownership, it’s a different case. Too many people see their homes as an asset when it’s a liability. The costs of homeownership are all hidden and something that people don’t talk about. Even for new build homes.
Sellers love to hide problems past a prospective buyer. It’s time to make smarter buying decisions.
Is Owning a Home Worth It? Shortlist
Pros
- A home builds wealth
- Is owning a home worth it? Fixed monthly payments
- Tax benefits
- You are free to decorate to your liking
Cons
- It’s not financially sound
- You can’t move cities easily
- Is owning a home worth it? Property taxes are unpredictable
- You pay the maintenance costs out of pocket
