One of the biggest scams perpetrated on the American public is that owning a home is the "American Dream." It's more nightmare than dream as millions of Americans now know. But it has always been that way. Here's why.
1) No diversification. Most people put the bulk of their net worth in their house and then they borrow money to pay for the rest of it.
2) It's illiquid. When times are tough and you need cash, you can't sell it.
3) It costs a lot more than renting. Most people think you are "throwing money away" when renting. Quite the reverse. There are many hidden costs when buying a house:
- Transaction costs (legal, real estate agent, title check, inspections, etc.) often come to 7% to 10% of the cost of a house. So you are 7% to 10% down immediately.
- Home improvement (adding a bathroom, upgrading the kitchen, installing double-pane windows, landscaping, etc.)
- Ongoing maintenance and repairs (periodic roofing, plumbing repairs, yard upkeep, fixing things, etc.)
- Your real estate taxes (which will ultimately be more than the tax savings you get on your mortgage interest)
4) It's not fun. I'd much rather have my landlord shovel the snow than me shovel the snow. And, by the way, heart failure goes way up during a snow storm. A sedentary lifestyle doesn't lend itself to the arduous task of shoveling our driveways.
5) Your down payment is not a down payment. It's the sound of a flushing toilet. Think about it: You never get that money back. Even when you sell the house, you just put it into the next down payment for tax reasons. You can say goodbye to that money once you put it into a house.
6) No job flexibility. Why did owning a house become "the American dream"? Not to sound socialist (since I'm the opposite), but Corporate America was happy to propagate that myth so it would be harder for you, the homeowner, to leave your job if there were few jobs in your area. You'd have to both move and quit your job if you wanted to leave your job. Moving is harder when you own.
7) I think in the long run, housing prices go up. But if you really believe in housing as an investment, then own a good REIT or two and diversify by buying REITS that own residential homes throughout the country so you aren't tied to any one area. If you really want to borrow 300% and put 50% of your net worth plus debt into one investment, then that's what you should do. But I wouldn't really recommend that either.