House Hunting?!

As we look ahead to life milestones, Peter and I often scratch our heads at where home ownership might actually fit. Growing up in America with proud Vietnamese immigrants instilled me in an overvalued belief that home ownership is the ultimate dream. Own your own home in America and you’ll have fulfilled all your and your ancestor’s dreams. My parents have often harped on the importance of home ownership growing up. And they continue to do so, especially now that I am a fully realized adult with a fully realized adult partner. Of course, we haven’t written off the idea of owning a home entirely.

Peter has never had a sense of urgency or perhaps even desire to own a home. In our discussions of alternate universes where we did not meet each other, he’d be merrily FIRE’d in a little apartment eating chicken breast for the remainder of his long life. According to him, I’ve made his life inherently more expensive as he’s never thought about children or home ownership (as a primary occupant). Though I’ve always been wary of the perils of rushing into home ownership, Peter opened my eyes more than ever on the pitfalls of buying a home altogether.

Several of my financially savvy friends also share the same mindset: that buying a home can easily turn into a gargantuan financial or lifestyle blunder. One such friend sent me a video from Ramit Sethi, a YouTube personality and author who delves deep into attitudes around financial decisions. He is also the same creator who provided me and Peter the foundation for planning all of our travels for this year. I really enjoy Ramit’s content because he emphasizes living a rich life regardless of income level. He also provides very psychologically sound advice when it comes to making difficult financial decisions. I recently watched a video from Ramit that delves into the myths that surround purchasing homes.

He vehemently opposes this idea that somehow renting is “wasting” money. He is similarly against the idea that buying homes automatically allows you to “build equity.” This concept is one that has been hammered into our heads, and certainly is the same messaging I received while growing up. Building equity is often associated with generational wealth which is naturally a part of every parents’ wish to leave something of substantial value to their future lineage. As Ramit points out, a home can be such a vehicle for wealth transfer but with many contingencies.

The first is that buying a home may not always turn a profit, especially if we don’t hold onto it for many decades. Instead, we would just have paid a tremendous down payment to be geographically tied to a region and financially handcuffed to years of paying down interest. The down payment is already a giant opportunity cost in of itself. It makes even less sense when we willingly give into the opportunity cost and simultaneously bind ourselves. Right now, that feels too suffocating for us.

Poor understanding of amortization lure potential buyers (like myself) into taking on loans that might just turn out to be years upon years of interest payments—all before even touching the principal. This means that if anything goes awry, and we have to sell our home, we may not have actually garnered substantial equity to offset its numerous other costs.

Being tied down geographically also sucks for us who see our futures as brimming with potential for relocation. Statistically, it would only make sense to buy a home if we are committed to the region (and the home) for at least 5 years. Otherwise, we would again lose money from the upfront costs of buying the home originally and having not built any equity. Especially for me and Peter, we are in a stage of our lives that can be easily uprooted. I don’t think either of us are ready to be irrevocably and geographically anchored for a minimum of 5 years, even if the financial burden of home ownership were not a concern. Our jobs, families, and lives may take us elsewhere and we wouldn’t want to be tied to a piece of property.

Even though equity could be built over the course of decades, the total cost of ownership over those years would still be substantial. The list is pretty exhaustive when accounting for total cost of ownership, including repairs, maintenance, insurance, upgrades, HOA fees, taxes, closing costs, and the opportunity cost of the down payment (could be growing elsewhere). It blew my mind to learn that maintenance alone amounts to 1-3% of the purchase price every year! In the market we’re surveying where an average, dinky shack is well over one million dollars, we’d be looking at an average cost of $20,000 per year just to maintain its dinkiness. On the other hand, renting is so straightforward… there’s only the rent, utilities, and renter’s insurance to calculate. How much are we actually left in “profit” after so many payments just to own and live in a home?

In the event those aforementioned conditions were satisfied and we’re able to store substantial wealth in the house, we still wouldn’t consider a home purchase as a primary mode of asset transfer. It is such an illiquid form of asset. The concept of wealth transfer is explored in such great detail in Die With Zero by Bill Perkins, and really drives home this point. We aim to transfer our wealth to our children when they need it most. The most likely time of passing on inheritance in the form of a house will be on our deathbeds, at which time our children may be well into their 50s or 60s. Statistically, the time of biggest financial need is between 30s and 40s—this is precisely and sensibly when we’d want to gift our future children their inheritances.

Further, how does one even split a house if it were to be the primary mode of inheritance? It seems to create more family drama if there is more than one child awaiting their inheritance. Ramit likens it to a bomb for many families, one that they drop upon their deathbeds: here is something for everybody to quarrel over while I make my exit. That is not to say that there is no value in home ownership. In fact, it could very well be part of an inheritance plan. It just shouldn’t be the singular method if thinking about creating generational wealth. Maybe it could be the cherry on top or a way to even out the assets and inheritance amongst multiple siblings.

In the end, I started thinking more actively about the ways in which we’ve been sold this dream of home ownership. In doing so, I certainly do not want to make decisions based on scarcity (feeling as though the market is “drying up”) or on what I think I can “afford” (total cost of ownership that actually strips away all financial freedom). I absolutely would want a house sometime in the future, but only when it makes sense. For us, home ownership only makes sense for a few select reasons, none of which have risen to the top when weighed against these cons. For Peter specifically, the reasons are even fewer as he could live in a shoebox for eternity unbothered. I still want my secluded Japandi resort.