This is a truism which gets great support by mortgage brokers, real estate agents, title insurers, and sadly- policy-makers. But from a financial perspective, it is NOT always true, and it behooves folks to actually do their own math to determine if it’s true in their situation.
I lived in a small midwestern city and was in the process of selling my house (job relocation) when one of the big 3 automakers announced they were closing the plant which sat about 5 miles outside city limits.
Property values plunged by about 20% overnight. Nothing you can do about it- no amount of staging or paint or carpeting or landscaping can change the essential dynamic of an entire neighborhood-- and about 50 similar houses hitting the market the same week.
So sure- buy low and sell high. Great advice. Except for the folks who need to sell when the market does a nose dive (financial crisis of 2008? recession in 2001?) in which case renting-- especially if someone is only living in a place for 5-6 years-- is usually the more rational choice economically. Stick your down payment money in an index fund…
And I won’t even get into the issues caused when a young couple divorces… financially, they almost always would have been better off renting. Lease is up- they move on. But the house (sometimes referred to as the “marital mausoleum”) causes a whole lotta pain- emotional, financial, tax/cash flow, etc.
But the real estate industry likes to deal in tropes- handsome husband, pretty wife, two photogenic children- staring from the sidewalk at a 4 bedroom center hall colonial. Of COURSE it’s better to own than rent!!!
I think what people mean is that usually it is better to own because a) the federal government favors ownership by giving tx breaks, and b) the debt is not mark-to market, and more importantly non recourse. So the suggestion is to bias towards owning, other things (as you correctly pointed out) equal
I know a lot of people who believe that the tax breaks make ownership better than renting. They have never actually done the calculation (and since they don’t prepare their own taxes, they don’t understand that in some cases, depending on SALT, they are clearly WORSE off owning) but believe what they hear. Mostly from the real estate industry!!!
I’ve got friends who are retired, underwater on their mortgage, and still believe that owning is financially better than renting. The notion that your adult kids will need to bail you out if/when you need to move into assisted living- yikes!
Dh bought a house at age 24 before we were married. He moved home for a year after college to save up the down payment, and then rented an apartment for six months or so before actually buying.
Of ds’s high school friends, who are now all in the 26-27 age range, several already have homes. The married ones who do not have homes are still in graduate school. But, he also has single friends who have bought homes as well.
I think acquisition of a home while younger is somewhat a function of where you live. That influences affordability (to some extent) as well. I think those in the South and flyover country are probably more inclined to buy homes than those who are in large East or West Coast cities.
Over-extending is always a problem. But taking on a modicum of debt in markets with structurally falling interest rates and inflation for almost 40 years is definitionally not a bad idea. You can always have too much of a good thing. And of course you have illiquid exposure to the local economy when your job is also exposed to the local economy.
Renting first can give a first time home “liver” figure out so many things. How their budget can accommodate rent $, management of utilities, recognition of space and what is needed or not, recognition of things that can go wrong in a dwelling - so many things that young adults may not have recognized when they were living at home or living in a dorm situation. Much easier to rent with a year contract or whatever and then make adjustments ($ spent monthly, space needed, etc.) before signing on the dotted line for a home mortgage.
I think we could have bought earlier but we saved for three years after we married, having two incomes. I think it made us ‘stronger’ owners. Yea prices went up in those three years bought we still had more stability than had we bought sooner.
I never understood the tax break thing. So I spend more to get a break ? A house will cost more than a like apartment - especially a home vs a townhome. It has utilities and landscaping and more expensive insurance and you have to buy blinds, etc.
What I like is it’s my place. I can paint and decorate as I want. I don’t have to smell the neighbor’s food.
But I am responsible - the pipes break, the roof caves in.
Is it better financially ? Hopefully but not always.
But I love there, spend more time there than anywhere. And that’s why, to me it’s important.
How I’ll help my kids I dunno. But we had none other than my dad bought us a sofa at macys - which we still have another house and 20 years later.
In the end, they’re going to get my money eventually. While I’d like to I can’t last forever.
So what’s the difference if I help them now vs. later?
At 22 and not even working for 5 more months, there’s no way it’d be now. I’m not a believer in being a landlord. Too much risk so I likely wouldn’t suggest the duplex thing where he lives in one and rents the other unless he could persuade me. But even then - work a few years, show me you can save b4 I help you buy.
It’s an interesting question though and it’s great to read all the experiences and perspectives. …a good thread to revisit when the kids start talking about buying a home to see the diversity of thought.
I’m going to add that NEVER did I ever think buying our first house was anyone’s responsibility to afford but ours. There was never any expectation for either set of parents to hand us some cash. Help us move in, do a repair or something - sure.
As for our kids, again I don’t think they would ever think that we would- let alone if we could - help them secure a home through a significant gift of cash. Buy them a nice house warming gift? Sure. And help move in, do a repair, etc. Yep. But especially if they are a couple, home ownership is part of living within your means, pride in saving and affording it, etc.
I guess it’s really a perk if you can do more than that. But I sometimes think that this is an extension of parents feeling like they have to provide so much, make things easier, get things in place faster, etc. for our kids. Please don’t take offense to that! In SOME cases, this feels like coddling for possessions - one of the things parents in our generation have been accused of doing for the past 20-30 years!
We rented an apartment on the 30th floor of a Chicago high-rise overlooking Lake Michigan when we were first married and enjoyed the city life while we were young and carefree. No car, no kids, no debt, no worries. It was a grand time in our lives, and we look back on it fondly. At 26/27, we bought a condo after we moved back to Michigan. When we moved to Boston, we again enjoyed city life renting a loft in the Back Back and, later, bought our first house in the 'burbs when we were 31/32. We’ve owned houses ever since, and each has paid off handsomely.
I’ve posted before that the Army bought our son’s first house for him (VA loan, no money down) at 23 and is basically paying it off for him through his Basic Allowance for Housing. Best racket going. He will be 26 next month, getting married in June, and moving to Pittsburgh in August. He has not yet decided if he wants to rent out the GA house while he and his wife enjoy city life (suggestion from mom and dad?) renting downtown for a while. Right now, he has about $125K in equity in the GA house, and his VA loan eligibility will reset when they move to PA, so he is comparing markets to decide if he’s realized the most he can from his current property and it would make sense to plow it into a better market or if keeping the house and its income stream makes more sense long term.
In any case, regardless of all the issues I have with the Army, housing isn’t one of them.
My parents helped me with a modest down payment when I was a few years out of college to buy my own home. I married someone with a home a couple years later. We sold mine, lived in his a few years. And moved to a new home. Every sell resulted in really good profit. And we no longer have a mortgage now at all. On the topic of this board, this really hurts us on the CSS. We cannot remotely afford our EFC, with our without home equity for that matter.
I think that was a perfect launching help. It was not a huge amount but did make it so I could get into a home faster and stop paying rent. I did have renters in my own house a couple years too. So I was still paying a mortgage, budgeting, and independant. My parents certainly could have helped MUCH more if they had wanted to, but this really helped ground us for early financial sucess.
My brother went through a divorce and my mom bought out part of his mortgage. Now their finances are all tied up and frankly, I am irrirated he wasn’t just maybe gifted a straight sum to get him through a hard time and then adjust to living on his income - he is not low income by any stretch. Anyway - I wouldn’t do anything for one kid you aren’t going to do for all. And there can be implications if you suddenly need rehab or assisted living and having assets tied up like this.
I also wouldn’t risk your own savings, emergency funds, retirement to help. I think gifting a down payment is the safest and best plan and keeps your finances seperate. Having a starter mortgage is also good for credit ratings, etc.
I do think if you are concerned about combining finances with a partner, I wouldn’t require a prenup. I personally think that is overstepping. I would do something like if you sell the home over some profit margin, you would want the down payment paid back (which you gift right back to them potentially in the case of a divorce). If I had big concerns on a relationship, I’d probably just watch and wait.
DS with our help bought his first townhouse right after the college. Now ten years later it’s valued three fold what it was then. He is looking to buy a house now but the prices are in millions now where he wants to live.
We would really loved if DD was able to buy something now and willing to help with down payment. She makes great money for someone at her age but she is in the HCOL and anything livable goes well over 1 mil. She lives with roommate now but is ready for her own place now. If she rents solo it will be over 3k per month.
Prenups protect everyone- not just the higher earning or more affluent partner.
They protect the unborn kids, they protect a family business, they protect the lower earning spouse from a higher earning spouse who is busy “sheltering” assets where they can’t be found in the last year of the marriage. They protect someone with low educational debt who is marrying someone with higher educational debt, and they protect someone who marries someone with a dead-beat sibling who always seems to have a financial crisis or two or six.
No, I am not a lawyer. But the popular position which is that prenups are for very wealthy people or where there are “big concerns” on a relationship often means that someone, down the line, is getting $%^& financially. And it would have been easy to avoid.
A lot of women (women statistically fare worse in divorce vs. men) are living out their retirements in poverty, thanks to “always choosing the relationship”. But hey, you do you.
Most people think of prenups as vehicles to divide assets. Prenups can also spell out who owns debts. Do you want to be responsible for your ex’s medical debts or margin loans? In a community state, all marital assets and debts are 50/50. Something to think about.
I know a young woman, in the middle of a divorce, who is on the verge of declaring bankruptcy due to soon-to-be ex-husband’s debts. It’s one thing to walk away from a short-duration marriage with no assets (contrary to popular view, a prenup is NOT about “sticking it to the other party”.) It’s another to walk away with a pile of debt you didn’t create.
An hour with a lawyer and a few hours of a paralegal’s time would have prevented this. Deb’s D is very prudent.
My understanding is that in Community Property States prenup is not enough you need postnup. For example my DD is currently making more than twice of her BF. If they get married and something not work out she will be required to pay him alimonies. The amount of alimony stays the same for years and doesn’t depend if the person still makes the same amount or employed at all. This part is more scary in this scenario when people come to marriage with relatively not much of the assets
Was “not a bad idea” for the last 40 years. Now that’s no longer true unless house prices collapse to reflect the recent jump in interest rates and inflation.