When reading the Wealthy Barber there is a point in the book which I sort of dwelled upon and thought of for quite some time, as it really goes against everything which I have been brought up to believe. Also, with current financial problems such as the sub-prime mortgage crisis in the States which started the incredible sink of stocks and the entire market world-wide for the most part… well, it really got me thinking.
What if your house.. was not that great of an investment?
This is very top-level.. but think about it for a minute.. most people say that their house is the “best investment we ever made”.. well, that may be true on paper, but not in actuality. For example.. you hear about people that bought houses for $40,000 about 20 years ago.. and now it’s worth $150,000. Wow! What an investment right? Well.. not really.. first off.. they would have to sell the house in order to realize those gains, otherwise.. it’s a just a value thrown on paper… and what if they DID sell the house?.. Where would they buy a house that’s going for $40,000 now?? They likely wouldn’t find anything suitable for them less then $100,000.. so that would mean they would have made $50,000 over 20 years.. not $110,000. The sad part is, most people don’t actually sell the house, and don’t get to realize those gains at all. Most older folks simply live in the house they bought until they die or go to a old age facility.
Get my point?
This also brings up the point on whether it’s better to rent a home or apartment vs owning a home. The answer is generally, whatever lifestyle you prefer. Financially speaking, there are benefits to both.
Benefits to Owning:
- much larger yard, no ‘rules’ to adhere to (loud music!! ahh yeah!)
- pets!
- equity in the home (use it to improve your home with a new deck, driveway, etc)
- eventually will own and not have to pay anything (except taxes) (cha-ching!!)
- sense of ‘home’
- larger living space (necessary for family)
Benefits to Renting:
- cheaper (by a lot!)
- no upkeep of property (no lawn mowing, snow shoveling.. nice!)
- depending on location, security is greater (in larger building for example)
- great for single/couples (whom don’t need the room in the first place)
Those are just off the top of my head, and I’m sure there are lots of other pros/cons and expenses.. however I will say this.. when I’m paying double the amount of money that I know some renters are.. I go back to thinking that “yeah.. but I own my home”, but really.. that doesn’t make one lick of difference unless I sell my house at some point. We are both paying to live somewhere on a monthly basis. What would change if I decided to sell my house and rent? Nothing.. however hopefully my house would be worth a little money that I could use. The renters are out of luck in that regard.
The #1 thing I believe you could do to increase your wealth and cash flow is to pay off your mortgage as fast as friggin possible! Check out this calculator/post to see how many years it could take off your mortgage with simply adding $100 to your payment every month.. and I’ve just heard about a new book called Wealth without risk for Canadians by Charles Givens which I’m going to go pick up today and read. (expect a review soon!)
So before you go and purchase that house with a giant mortgage, take a look at some of the rental properties around (check out these high-end ones at Outer Banks rentals.. wow!). As it may be more beneficial to rent than own at this point in your life.