- Many people dream of owning a home, but financial planner Nicole Morong thinks home ownership is overrated.
- Home ownership can have hidden costs. The money you save by renting could be better on the stock market.
- Morong encourages people to ask themselves what their real motivations are behind buying a home.
For many, buying a home is part of the American dream. Homeownership represents stability, security and financial success, even though many millennials feel like they will never reach this milestone.
However, financial planner Nicole Morong of Peterkin Financial says buying a home isn’t all it’s made out to be. She told Insider, “Buying a house isn’t always a good idea.”
Regardless of how home values fluctuate during a possible future recession, she argues that the hype around buying a home may not be about giving people housing stability.
Morong says, “When you look at closing costs and interest on mortgages, you see what a huge source of revenue it is for different municipalities and banks. There are real estate agents, lawyers and many different professionals who touch that one home buying transaction.”
She adds: “I think there’s kind of a racket around home ownership because of all these emotions. People sort of accept. Everyone makes you feel like a loser if you don’t don’t buy.”
The hidden costs of home ownership eat away at any profit you might make from the sale
In his experience of helping hundreds of clients with financial planning and investing, Morong says buying a home and selling it at a profit a few years later is actually one of the least profitable investments he’s ever made. she was a witness. “Buying and selling a home is very expensive. It comes with all these hidden costs,” she says.
According to Morong, the hidden costs of buying a home include:
- Homeowners Association Fee
- Closing costs
- Maintenance fees
On top of that, Morong points out that the road to home ownership is long and involves improving your credit, saving for a
and repay debts.
On the other hand, she says the hidden costs of selling a home include:
- Estate agent fees
- Home staging
- Improvements or renovations needed to sell the house
Morong says, “Some people thought they made $300,000 [from the sale of their home]but when we crunched the numbers, based on how much they paid for ancillary homeownership costs, they only walked away with $30,000.”
Morong says your money could work harder in the stock market than in real estate
“Every market is a good market to buy somebody, right?” she said. In the example she gave of a client walking away with just $30,000 in profit by investing in a house, Morong says, “They could have invested the money they’ve spent over the past 10 years instead. They could have walked away with over $30,000.”
She gives another hypothetical example: “Let’s say, for example, that someone lives in Boston and rents an apartment for $4,000 a month. Some people might say, ‘Oh, you could buy for $4,000!’ But they would have to go 20-30 minutes outside of their desired neighborhood, and after HOA fees and all that, they end up paying $7,500 a month. They better pay $4,000 and then invest the difference in the market.
Morong rents an apartment in San Diego, although she also owns an investment property. She says: “I bought my first house when I was in my twenties, and it was an apartment building. It worked for me, but I now rent intentionally because where I want to live, the prices are crazy. It’s better financially to invest that money [that I’m saving from renting] than buying a house.”
Examine your motivations for buying a home
For anyone saving for a home or comparing themselves to their peers who are already homeowners, Morong says, “I would really encourage anyone who is aggressively saving for a home to assess what their motivations are.”
She encourages people to ask themselves: Are you trying to live in a city you absolutely love? Are you just buying a house because you’ve been told that’s what will make you feel good? Are you trying to buy a specific school district for your children? Are you trying to invest in a house just to upgrade it and flip it in a few years?
“Unless you plan to live there for 10, 15, 20 or 30 years, it usually doesn’t make sense to buy a first home and then turn it into something else five years from now. No,” adds she.
Finally, she says, “Don’t feel guilty about not buying. If people rented and invested the difference, I think we’d have a lot more millionaires.”