Five Key Reasons for Not Buying a Home

Buying a home can provide many benefits beyond have a place to live that you can call your own, such as creating a forced savings plan. However, buying a home is not necessarily for everyone. For example, I rented for quite a while since coming to the US, as I wasn’t sure about my job and house prices where I lived in California were through the roof (excuse the pun) in the previous decade. I couldn’t see much value in buying a home at the time, and fortunately renting allowed me to escape this housing bubble. Thus, I would suggest it may not always be in your best financial interests to buy a home, and such key reasons for not buying include:

1. You view your Home as an Investment.
Let’s be clear about this, the house you live in is not much of an investment. The reason is that an asset pays you money, while you have to pay money to a keep a liability, such as your primary residence, your car, etc. For your home you will have to pay for your mortgage, HOA fees, property taxes, upkeep, etc, etc. However, if you turn your property into a rental unit that can provide positive monthly cash flow, it now becomes an asset.

2. You do not have a down payment.
If you cannot save up 3 to 3.5% of the purchase price for a home to get an FHA loan, or 5% to get a conventional one, it’s most probably not in your best interests to buy a house. You likely have little room for maneuver if some financial bumps come along your way. Also, even with 5% down you have to pay PMI for the privilege of not putting 20% down, which is essentially wasted money.

3. You do not plan on staying in one place for long.
It is quite likely that you will not stay in one place for a long time, especially when you are younger. I’m a pretty clear example of this, where I completed my undergraduate degree in London, then went off to Cambridge for my PhD before flying to the other side of the world to Berkeley, California for a post-doc and then I moved down to San Diego (which is perhaps my favorite city). It’s classically thought to be a good time to buy when you are going to stay in one location for at least 5-7 years, do to added expenses of buying and selling a home.

4. You think that Mortgage Interest deduction is a good savings.
The maths doesn’t seem to work out well for the mortgage interest deduction if you are buying a typical middle class house, mainly because to get above the standard deduction in your taxes you would have to buy a significantly expensive home that isn’t likely to be all that frugal!

5. The Area you live is particularly prone to Natural Disasters.
Coming from the UK I am less familiar with natural disasters, where perhaps the biggest risk over there is flooding. Out here in the US, it seems to be a lot, lot risker. For example, here in SoCal we can have raging forest fires, and where a number of years a go I had to evacuate the place I was staying, as there was a huge fire in San Diego that was working it’s way to the coast. Fortunately enough the winds changed direction allowing the brave firefighting crews to put out the blaze. We also have significant earthquake risk, and in certain parks mud slides too! Other areas in the US are subject to significant flooding, tornado’s, hurricanes and for Hawaii even potential tsunami’s. Be aware of the risks and get suitable coverage if you do buy.