My financial avatar gives money freely and happily for me to have a happy place to lay my head at night and enough good, happy food to eat. These two expenses probably take up the largest part of my budget and I am more than okay with that. 
I’m happy to sign a lease for a nice apartment for 18 months. I’m happy to pick out happy, sunny Airbnb places in different countries for a month. I’m happy to laze about in a hotel for a night. Happy happy happy.
I tell you this as a preface because I know you’ll probably disagree with the rest of my post. That’s okay. We can still be friends. For me personally, I don’t plan to purchase any Real Property for the foreseeable future. Here’s my reasoning in numbered format.
(1) Real Property is expensive. 
It’s very likely the most expensive thing any of us have ever considered buying. For a not-really-small chunk of change, in fact for a significant chunk of your total net worth, you can have your name on a piece of paper in a basement office of some government building, proclaiming you responsible for your little slice of the earth.
(2) After forking over a significant chunk of your net worth, you still have to pay rent. Even if you own this Real Property completely and indisputably 100% outright, you really don’t. You still have to pay some monthly amount to someone to have that happy place to lay your head at night. The government is going to tax you on that property every single year. Whether it’s your landlord or your taxman, you will need some cash flow for “rent”.
And I know that I am just a vegetarian hippie at heart, but tween-Thriftygal strained her neck by vigorously nodding her head in righteous agreement while Pocahontas sang The Colors of The Wind:
“You think you own whatever land you land on.
The Earth is just a dead thing you can claim.”
We’re all renting. From Mother Earth. I know that’s cheesy. I’m not deleting it.
The initial price and the fact that you still have a recurring rent are two of my top three reasons why I don’t think I’ll buy, but that could change in the future because it’s changed in the past.
Yes, I’m still a hippie, but I don’t necessarily oppose having your name on the paper. In March 2012, a friend emailed me the listing of a 1 bedroom, 1 bathroom condo for sale in Chicago right across the street from where I lived. At that time, 29-year-old Thriftygal, five glorious months into post-student-loan-debt-life and building up a balance that sat in a bank account, was reading investment books and contemplating a path to financial independence. Your Money or Your Life guided my thinking about money and my charts, but I wasn’t sold on my older edition’s investment advice.
I wasn’t really considering buying an apartment, but the price tag screamed at me. I loved my neighborhood. I loved that family lurked around several corners. My commute to work was perfect. My plan at that point was to continue working at my firm in Chicago until I hit my financial goals, a prospect that was at least two years away.
The apartment showed well when I toured it and I put in an offer for $70,000 cash for the short sale. That figure was a scary percentage of my net worth at that point, but I had an old 401(k) chugging along as well and I knew that I could quickly replenish it if I only stayed the course at my current job. Most importantly, buying the condo would lower the monthly amount I paid for a happy place to lay my head at night to only $350/month, for taxes and association fees. To put that number in perspective, over the years renting in various neighborhoods in Chicago, I paid anywhere from $750 to $1200 rent per month.
I transferred $1,000 earnest money and then sat and waited for the bank to approve the short sale offer. Deedle deedle deeeeee.
(3) Buying Real Property is complicated. Since the idea of owning a specific location on earth is so fundamentally different to the items we typically buy and consume, there are a lot of rules and fees and you need a whole cadre of people to navigate your way through this labyrinth. I had a realtor show me the house. 
I’m a lawyer, but I still consulted a real estate lawyer who specializes in short sales. The banks debated accepting the short sale offer. I filled in a lot of paperwork. My god, the paperwork.
(4) Since buying Real Property is complicated, it’s also expensive. If you want to buy Real Property, you not only need the money for the actual property, but you also need money to pay for title searches, owner’s title insurance if you like insurance, transfer taxes, recording fees for the deed, a competent home inspector to tell you of its flaws, possibly a surveyor to tell you its exact boundaries, lawyers to review cumbersome contracts, and homeowner’s insurance.
(5) Financing Real Property is complicated and (6) expensive. I had enough to pay for the condo outright, but I know that is an extremely rare occurrence. If you don’t have the entire not-really-small chunk of change for the property up front, you have to get a mortgage!
Sure, the government lets you claim some money off your tax returns for the interest you pay to the bank for the property in a convoluted distribution of wealth, but there are still fees galore for the pleasure of financing Real Property. If you don’t have the entire price tag, you have to ask the banks for help. And the banks will help, but they’ll demand a lot of things in return: loan origination fees, credit reports, title insurance, points, flood life of the loan fee, PMI insurance, and appraisals.
I’m not going to mention the interest you pay to the bank again because that math makes me uneasy. I know I just did. I’m not sorry.
In March 2012, I didn’t care about reason #6. I just chilled with my earnest money sitting idle while the bank that had the mortgage with the seller and the seller’s real estate lawyer traded occasional phone calls because of reason #5.
Deeedle.
(7) Real Property is not a fluid way to keep a significant chunk of your net worth.
If you’re not financing from the bank, you’re still tying up a significant portion of your net worth that doesn’t pay you dividends in the interim.
(8) Real Property is expensive and (9) complicated to sell.
Real Property is not a fluid way to invest your money because it’s as expensive and complicated to sell as it was to buy. You will likely have to pay real estate commission for the realtor working on your behalf and real estate commission for the realtor working on the buyer’s behalf. Depending on the negotiation, you’ll likely pay for closing costs and certain repairs.
You’ll hire a lawyer for the paperwork. You’ll vacate your house while it’s shown. You’ll stage it appropriately and live like super-clean monks for as long as it takes. Your only potential buyers are a tiny pool of people who are looking in that particular area at that particular time.
(10) Real Property is not liquid place to store a large percentage of your net worth because it is expensive and complicated to buy, finance and sell. This limits your ability to wander and adapt.
This reason rounds out my top three for why I personally don’t plan to buy Real Property anytime soon. Having a good chunk of your personal savings in Real Property leaves you less able to squeeze life’s lemons to make your lemonade.
What if climate change picks on your particular neighborhood and batters your house repeatedly with killer floods, stronger tornadoes, hurricanes, earthquakes, sinkholes and killer bees? What if your state becomes ground zero for the next Zika? What if a major industry collapses and leaves the city desolate and depopulating rapidly? What if you have a crazy, psychotic neighbor? What if you get divorced? What if someone dangles the job of your dreams 5,000 miles away?
Dealing with any of those above scenarios becomes a lot harder when a significant portion of your net worth is to tied to not just a single country, but to one state, one city, one neighborhood, one block, one tiny, suffocating plot of land. I’m not saying that you won’t be able to squeeze life’s lemons, but it will take more squeezing.
In September 2012, almost 30-year-old Thriftygal had been waiting for the bank to make a decision on that short sale for nearly six months. I paid a home inspector to tell me about the property and what I could expect. I hadn’t wanted to pay for this unless it was reasonably certain the deal would go through, but I went ahead for some feeling of progress.
I followed the home inspector around as he pointed things out to me and made notes and took pictures. The roof would need to be replaced in a couple of years. The air conditioner was not put in correctly. The back of the condominium had drainage problems. There was a significant amount of mold growing in the building that would likely require a large assessment from all the condo owners.
My lawyer suggested asking the sellers to pay the probable assessment, but the idea of throwing a wrench into the already creaking wheels of this process and asking sellers who were already distressed financially to give me money left me feeling gross. The ominous mold smell and the truly uncertain costs made the decision easy. The bank was still deliberating and, per the contact, I could still walk away. I paid ~$400 for the inspector and $300 for the lawyer and skipped away.
A year later my firm asked if I wanted to move to Sydney. If I had bought that house, that decision would have been a lot more complicated and stressful.
(11) You have to pay to maintain it in the medium-term and long-term as long as your name is on it. I always do my best to maintain my tiny slice of the earth in the short term as much as I can, so I would pay for the expense “maintain your happy place to lay your head at night in the short term” regardless of whether I was renting or buying. Cleanliness is next to godliness.
Why is there only a wrench in my toolbox?
But, if anything big breaks through no fault of anyone except the inevitable decline of stuff turning into junk, then the owner pays. Whenever something big (or even small) has ever broken in my apartments that I’ve rented, I would just call my landlord and it would get magically taken care of. If the price to fix whatever just fell apart was more than the landlord anticipated and budgeted, I assume the landlord would consider that when negotiating the new lease terms when the contract expired.
Maintenance for Real Property can get expensive. What’s lurking behind the walls? What improvements have been made along the way that weren’t done correctly? What has already far exceeded its life expectancy and will need to be replaced? What necessary updates and renovations will you have to make to ensure it retains its value and doesn’t look dated? Owning Real Property is chock full of unpredictable and annoying costs that you just won’t deal with as a renter.
My attempts at minor home improvement projects at my parents’ house prove that carpentry is not one of my talents. I’ll be a carpenter one day, but right now I’m a petite and weak person without the tools, physical strength or know-how to fix what’s broken, so maintaining the asset would not be cheap for me.
(12) Buying and selling Real Property is time-consuming. This article is getting long and that title is pretty self-explanatory, so that’s all I’m going to add.
(13) The government can pay you for it and kick you out if they really, really, really wanted. Eminent domain, y’all. I know it’s rare.
This analysis only applies to buying Real Property as a home and not about buying properties to buy, spruce up, flip. I am not talking about properties to buy and then rent out for other people to have a happy place to lay their heads at night. I am not talking about properties one would think of as a traditional investment. I know you can make money like that. I can’t. I don’t want to. I watch too much Judge Judy and I have no desire to landlord.
A house, for me, would not be an investment. At least not the type of investment that I like. It’s not fluid and doesn’t pay me any dividends and might occasionally require large cash infusions. The returns are uncertain and possibly negative depending on the state of the market. I know you can say that last sentence about VTSAX as well, but I at least get dividends and can sell small bits.
Make a little birdhouse in your soul.
I know there’s an emotional argument to the idea of owning your own home that I won’t discount. I completely understand and empathize with the lure of developing roots in a community, the nesting impulse, stability for your children, the desire to claim a place as your own, to do with what you please, to renovate and paint and customize to your own taste.
If that’s your reason to purchase Real Property – I say, “awesome sauce” to you. Pure sauce. It’s an official part of the American Dream and maybe, if you’re lucky, the house will have appreciated when you decide to sell it and you’ll make enough to overcome the expensive hassles. I personally know several people who have bought their house, lived in it for a decade-plus, loved and tended to it as required, paid the taxes happily as it was less than rent would have been for something similar in their area, sold it for a hefty profit and moved to another house where they repeat that process. There’s no accounting for luck.
But I think I already depend on luck a little too much as it is, and with my wanderlust, I don’t see myself staying in one place long enough for the cost and bureaucracy to be worth the bother.
Love reading your posts. Monday I finally paid off my home mortgage so thanks a lot. Lol.
But here is a question for you which may give a different perspective. If you were like me and owned a great home free and clear, would you sell it to rent a place to live?
Gotta do what’s right for your particular situation. There’s more than one way to skin the cat of financial independence 🙂
I agree with many of your points. The American dream of owning a home is being reevaluated in our generation, and I think that’s a good thing. Many people spend crazy amounts of their income on buying a home, further digging themselves into a pit of the work-til-you-die society.
BUT…no dividends on investment properties? Maybe it’s a difference in choice of words, but dividends would be net positive cash flow of a rental property. That’s the source of my family’s entire income! You won’t produce positive cash flow on every real estate investment, but you have the power 99% of the time to crunch the numbers ahead of time to fairly accurately predict if you will produce short-term income or not, before you make the investment.
I’d agree the many fees, taxes, and home maintenance expenses can make ownership of your own home fruitless. However, I don’t think appreciation in home value can be called “luck.” Appreciation is based on economic inflation+market growth (aka population increase); these are the same things that affect index funds or any other investment. So if a home going up in value is luck, it’s also lucky index funds ever make anyone money.
Haha, why did all my i’s disappear in my comment?! Thriftygal is all like, “What’s that? You disagree with some of my points?! I shall remove all the i’s from your comment. Take that!”
My husband and I are homeowners, but I think maybe we’re outliers. We bought 13 acres at a tax sale (way under market value, cash), moved onto it in our camper for four years (they don’t tax those!), split and sold off 3 lots, and then built our own log home. We’re mortgage free in the place we can live in until we die (barring any apocalyptic events). It does irk me a little when I write out the taxes and insurance each year (just on principle), but at about $250 a month it’s still a deal. I don’t recommend home ownership to everyone, especially if it means getting into debt up to your eyeballs. This post is spot on. People should be aware of all the costs and issues involved with buying and owning a home before they jump on that bandwagon.
The case of the missing “i”s. This proto-Hebraic alteration has extended to all the comments, not just yours, and not just the fresh ones. If we lose a lowercase vowel a day, it will be nothing but consonantal comments by early next week. f w ls lwrcs vwl d t wll b nthng bt cnsnantl cmmnts b rl nxt wk.
I updated Plugin Jetpack by WordPress.com from version 3.9.3 to 3.9.4. I love Google. i’s back in the comments.
Ryan: I’m not talking about property as an investment, only for me personally, and only for having a place to sleep at night.
Greg: If I could find a similar place in a similar area for significantly less in rent per month than what I was currently paying: Yes, I think I would. But still, huge accomplishment – Congratulations!
I’ve been on this mantra for a while. Real property (as a primary residence) is, in general, not the best place to put vast amounts of capital. I liken it to digging a hole in the front yard and burying your down payment, never to be seen again until you decide to sell. What a fantastical waste of capital. Then you sit on that hole in the yard, feeding it even more money as time goes on (as you have so eloquently written about). Unless you’re like our grandparents and your plan is to buy a house and live in it for 30+ years (but paying it off much sooner) and other outlier situations like Meghan above, you’re much better off renting and putting your money in other more liquid investments. For me, I invest in myself and my businesses. That brings me WAY more return than a pile of neatly arranged lumber on a plot of earth, can ever provide.
We’ll build a cabin on our rural property some day. But I don’t think we’ll ever own a primary residence ever again. It’s just not worth the hassle and the fact that it ties us to one location. We’re not okay with that. Right now, we’re traveling around the world, worldschooling our kids (letsjusttravel.com), so it’s not even a possibility right now. But had we owned prior to taking off, it would have been much more difficult to do what we’re doing.
Love your blog, TG. Keep up the good work.
“tween-Thriftygal strained her neck by vigorously nodding her head in righteous agreement while Pocahontas sang The Colors of The Wind:”. Hilarious. Thanks for another fun post. Keep up the great work. -Ap
“A house, for me, would not be an investment. At least not the type of investment that I like. It’s not fluid and doesn’t pay me any dividends..” That was the paragraph that had me confused. I was thinking you were still discussing if it could be a good investment as a, well, investment. I think you were meaning “investment” in the sense that homeowners call the homes they live in “investments” versus actual property investments (you rent them out to others, flip, etc.) And in that case I agree 100%, buying your own home to live in can rarely be called “investment.” It’s an expense from which you might recuperate some of the money many years down the road.
Thanks, good points!
OMG the paperwork, indeed. It’s what the Dodd-Frank act hath wrought. Took me 8-10 hours to complete the ~50 page loan app and gather all the supporting doc – for a refi with the bank where I’ve been a customer for 30 years?!?! The risky loan days of the mid-2000s have caused the pendulum to swing the other way and now lenders are extremely picky and risk-averse. What good is having a decent credit score, proof of steady employment, and a home in a popular, growing area if none of those aspects can fast-track you past all the Draconian rules and regs that now dominate mortgages? Home ownership is not for everyone. I laugh at those who lusted for the single family homes with the huge lawns and soon become weary of keeping up with their maintenance demands. It’s a money pit and a time suck even if it’s in good condition. I can hardly wait to see what effect autonomous cars have on property & casualty insurers – once risk is eliminated from driving, will home insurance rates skyrocket to cover all that lost revenue?
Ah, but if you’re not opposed to property management (or paying someone else for that), you can leverage (i.e. minimum payment to avoid PMI) your nest egg into having others pay your rent for you, while also building equity in Real Property.
I have a house (fee simple absolute) worthy of 0.11 million $ so that I can not get any financial support from Seoul government, because it considers me rich. In fact, I am the student now, my property is too old to live (no one lives there). My property only gives me tax. I shouldn’t have bought that property, but it is too late.
Poor student. To be short, I don’t get any financial support from government, because of useless house. Without my house, I could get job opportunities and a supplementary living allowance.
I have been a home owner for a couple of decades now and I would say that it has been my lowest performing asset over the long term to date, its a far more emotional investment than practical one… I bet it barely keeps pace with inflation after netting off insurance and property taxes and repair/maintenance from the value appreciation. Where it may be a marginally ok investment is as a means of diversification … Hiding small eggs here and there vs all in one place (stock market for example) …
Now …. Change gears like a 10 speed bicycle. Clunk…..
The real question – housing and food are not my highest costs / expenses. All form of Insurance added up is ….
I’m Curious what you do for health insurance in the USA ans when you are out of country for extended periods on travel. I’ve been buying short term global coverage…. You ?
#12 is a bit of a stretch.
On the other side of the coin though, I do in fact have a friend who is on his 3rd rental property since I’ve known him. His landlord divorced and had to move back into the first house so he had to leave. The second place had a death in the family and the daughter who took control raised the rent so high, that they had to move. And the house they live in now may be sold because property values are soaring and the landlord wants to cash out.
Actually, #12 is more of a negative for the renter argument than a positive.
A good thing about owning your own apartment is that it insulates you from rent increases. I bought an apartment in Singapore and since then rents have more than doubled, so it has worked out very well for me.
ahhh….the classic buy vs rent argument. Perhaps one of the most controversial topics when it comes to financial independence.
– from an investment point of view: it doesn’t get worse than this: costly to exchange, immobile, susceptible to maintenance and government taxing itches.
– but as a place to put your head to rest, the only alternative is renting of some sort, staying with your parents or a cozy bridge.
It really depends on your wanderlust and local buy vs rent market. I live in a place where buying is quite subsidized, and renting notoriously limited and increasingly expensive. So I’m in the buying camp.
ThriftyGal, I totally get that you are referring to your primary residence. Yes, a primary residence is always a liability. In fact, when calculating net worth, I believe you are not supposed to include the value of your primary residence. I know I don’t. My concern with this post is that some young readers may take you at face value and decide owning real estate is bad, bad, bad! I want my 22-year-old son and others like him to take the plunge and buy that townhouse that just seems astronomical in price because he can rent out rooms to friends to help pay his mortgage payments. If he gets married and has kids, he can sell the townhouse to help fund the down payment for a detached single family home, or he can turn the townhouse into a great investment opportunity by renting out the whole thing and continuing to make a monthly dividend even if he chooses to rent for his primary residence in the future. There are so many 20-somethings who think they don’t make enough money to even start a retirement fund. Buying real estate at that age for their primary residence may just morph into a retirement investment sooner or later. Then they will be able to look back and realize that they DID have the ability to start investing for retirement in their 20s, and, in fact, they actually did.
Thriftygal – Love your writing, many thanks. Home ownership? Here’s a quick version of my story. Bought house 26 years ago; first the lovely cedar roof rotted away, but replacing that was a relative bargain compared to the concrete foundation failure that subsequently occurred. Replacing the foundation consumed 60% of the house’s value (not sure “value” is the right word to use in this context) – need I point out that the insurance company went AWOL on these problems? So, I think you’ve got this real property thing figured out just right. It’s nice to “own” a home for raising a family, but unless you’re in a glamour city, it’s no kind of investment.
ThriftyGal, I’m a noob in housing matters in the states so I apologize in advance for bombarding you with questions. If you don’t buy a house, does that mean you will rent forever? Or like what Dan said, build a cabin in the woods? What if the rent keeps increasing? What about buying a condo apartment?
I didn’t know much when I bought my home. We were at the top of the bubble, banks were approving more than what people could afford and I had no savings but the FHA got me in. Utilities were high, I spent thousands on landscaping (and DIY time) and the whole idea of this responsibility put me into a twighlight of panic for 5years where I became too paralyzed to do much else but sit in my house on the internet. Then I lost my job, found one and lost it again and had to rent it out. It was vacant for months. Mortgage + utilities was on me. I got lucky with good tenants (or did I) for 5 yrs
I moved back in 2 months ago. The market is back up, I may refinance again to lower my pmt so I can pay off high interest credit cards. I hope we don’t have another crash. Meanwhile I’m getting ready to become an AirBNB host. I had to buy new furniture, new towels, new rugs…but I’m having a blast and I hate apartments. This is a personal decision for everyone