Why You SHOULD NOT Buy A Home

what's up you guys it's graham here so today we're going to be talking about one of the most debated questions of mankind something that philosophers have been pondering since the beginning of time and no it's not what's the meaning of life it's not do aliens exist or did robin hood disable the buy button to protect citadel but instead it's is it a good idea to buy real estate or is it too late to jump in okay maybe i'm exaggerating the significance of that question by a little bit but still the topic of real estate is easily one of the most common questions i get on my channel especially after real estate prices have hit brand new record high after brand new record high and starts making a lot of people feel like this and really that's for good reason november home prices rose nine and a half percent which is one of the largest gains in history that was fueled mostly by interest rates hitting their 17th record low all the way down to wait for it two and a half percent fixed for 30 years and like you would assume cheap mortgage rates means that buyers are snatching up real estate at any chance they could get and at this current rate we could run out of new homes in months so now the million dollar question that i present is it a good idea to buy a home or should you even buy a house to begin with because it's so competitive and prices are rising even higher well in this video i'm going to take the stance that you should probably not buy a home right now unless you're prepared to handle five scenarios that i'm about to outline for you because despite the popular belief that owning a home could be one of the best financial choices you will ever make in your entire life there are situations where it just doesn't make sense after all you don't want to be one of the 44 percent of people who regret their home purchase but first before i begin i need your help to smash the like button for the youtube algorithm recently it's gotten too strong for me to smash on my own but with your help we could work together and defeat the like button by giving it a gentle tap so thank you guys so much and also a big thank you to omaze for sponsoring this video by helping out the orlando pediatric hospital by either giving away a house or one million dollars in cash but more on that later all right so the first reason you should not buy a home is if you're not prepared to make the down payment yeah sure owning a home could be incredibly rewarding and it's so nice to be able to do whatever you want like paint the entire room black for youtube without worrying about your landlord taking the security deposit but very few people do the math behind it to make sure all of that makes financial sense that's because there's one term that almost no one thinks about when they buy a house and that would be opportunity cost or in simpler terms how much is that down payment worth to you if you just invested it somewhere else instead if there's one thing i've learned when it comes to buying homes it's that oftentimes having your money tied up in a house is not always the most profitable decision even if it means you don't have a landlord now generally lenders are going to want to see a down payment anywhere from 5 to 25 percent of the home's value just to be able to close and if you can't comfortably come up with that then unfortunately you're not in a position to buy a home quite yet now yes home equity is considered very safe and the likelihood of you losing money over 30 years as long as you just make your mortgage payment on time is pretty much non-existent but you're doing that at the expense of being able to invest your money elsewhere at a potentially higher return and that needs to be taken into consideration if you're buying a property solely for an investment you need to consider how much time are you spending finding the right deal doing the renovations and picking the right tenant how much money are you making every month in cash flow how much of the mortgage are you paying down every single month what's going to be your total expected return at the end of the day and how does that compare to other investments you could be making otherwise like dogecoin that was a joke don't do that and if you're buying a house for yourself you need to consider how long will you be living there for have you taken into account your transaction costs like commissions escrow charges lender origination fees appraisal charges and so on do you know how much it would cost to rent a comparable home instead and how much money would you be tying up in a down payment and how much money would that be making you invested elsewhere i would probably venture to say that almost everybody who regrets their home purchase which is about 44 of adults didn't do the math ahead of time to make sure that buying was really in their best interest and even though there are a lot of situations out there where buying certainly makes a lot of financial sense that does not mean that it's always the best move for everybody that's why i highly recommend that everyone consider the opportunity cost of their down payment recognize the true cost of owning a home versus renting and make sure you're prepared to comfortably come up with the down payment if the numbers make sense then absolutely go for it but otherwise it might be best to hold off second you should not buy a home if you've only budgeted for your mortgage payment this is one of the biggest mistakes i see people making when they decide whether or not they should buy a home and it usually begins with comparing the cost of renting a home versus the mortgage payment to buying something similar instead that kind of math just makes it seem like renting is throwing money away and maybe it is but as any homeowner will tell you the mortgage payment only makes up a small portion of how much that home will actually cost you and this is how much you're really looking at go to any mortgage calculator type in the cost of the home plug in the down payment type in that interest rate and instantly you'll come up with your monthly cost then if you want to take it a step further you could break down how much your payment is going towards home equity and how much is going towards interest and that way you'll be able to come up with your true out-of-pocket cost every month then second you have your property taxes this varies throughout the united states but it could range anywhere from point four percent all the way up to two percent annually of the homes assessed value that means in a four hundred thousand dollar home assuming a one percent property tax rate you're going to be paying four thousand dollars a year in property taxes that you're not getting back every single year you own the home now third you also have to pay insurance again this one depends on where you live and how much your home would cost to replace in the event of a disaster but generally this is going to range anywhere from 60 to 200 a month for basic coverage and potentially more if you're located in a high risk area for flood fires or earthquakes now fourth you also have your maintenance costs this could be the cost of regular lawn care or general upkeep or anything else you pay month to month to keep your home in good shape and fifth we have the dreaded repair costs i can't tell you how many things just randomly start breaking as soon as you close on your home and these are all things that you would never think about until you're in it like maybe the dryer just stops working or a roof tile falls off in heavy wind or the toilet won't stop running so you have to call a plumber all these little things just start to add up that you never consider until you buy a home that all means that even though you might have a fifteen hundred dollar a month mortgage payment when you add everything up that can very well total 2500 a month when you take into account property taxes insurance upkeep repairs and so on and that's something that definitely has to be taken into account and properly budgeted for that way you're never going to be caught off guard when your monthly bills turn out to be a lot higher than you initially expect and third the biggest reason you should not buy a home is all thanks to our video sponsor omaze who's literally giving one away while also helping out the orlando pediatric hospital in the process yes you've heard that correctly i've partnered with omaze who's giving you a chance to win either a florida dream home complete with six bedrooms five bathrooms a fully equipped chef's kitchen with modern appliances a cozy main bedroom a zen-like bathroom suite a private backyard with a resort style pool a rustic wine room and a spacious open dining room with plenty of natural sunlight or you could just take option two which is one million dollars in cash that you could spend however you like but the best part about all of this is that you're able to help the orlando pediatric hospital in the process through their partnership with caf america donations will help build out and enhance a state-of-the-art epilepsy monitoring unit at orlando health arnold palmer hospital for children a children's miracle network hospital epilepsy is a condition that affects around 470 000 children across the country and every donation helps support this cause so if you're interested and want to potentially win a dream home or 1 million dollars in cash and help the orlando pediatric hospital at the same time just go to this link down below in the description for your chance to win and also help support a great cause and just maybe the reason you should not buy a home is because omaze is giving you a chance to win one instead now third you also shouldn't be buying a home if you haven't factored in transaction costs anytime you buy or sell unfortunately this is the part of real estate that almost no one thinks about and very few people talk about until usually they're in the middle of a deal see as a renter it's so easy just to fill out an application and then bam you're done but when you're buying or selling it could be an expensive process that might range anywhere from three to six percent of the home's value right off the top just gone like when you're buying a home you're gonna have to pay for home inspections appraisal fees loan origination charges title fees notary fees and a whole bunch of other miscellaneous charges that just seem to get added on in addition to that the transaction cost when you sell is usually a lot higher because you're dealing with real estate agent commissions transfer taxes escrow charges title fees and a whole bunch of other stuff that again just piles up when everything is said and done selling a home could easily cost you about four to six percent of that home's value from start to finish and that means usually just to break even on the deal you're gonna have to sell your home about seven percent higher because otherwise you're gonna have to pay out of pocket that's why i usually don't recommend buying a home unless you know exactly how long you're gonna be keeping it for and once you've factored in the transaction cost of buying and selling generally speaking the longer you plan to own your home for the more you could spread that cost across multiple years but in the short term if you're planning to buy and sell a home within a quick period of time the transaction costs are absolutely going to reduce the amount left over to you as a savvy money investor and fourth because of that you should not own a home unless you're planning on keeping it at least five to seven years that's because the shorter you own your home the less likely you are to make money owning it things like transaction costs property taxes insurance and repairs are all non-recoupable costs that you're not going to be getting back so you're going to need to make sure that property values continue rising to offset that cost of just owning and buying a house like on a four hundred thousand dollar home over three years you may very well experience a four thousand dollar closing cost when buying seventy eight hundred dollars a year in property tax insurance and repairs and a twenty thousand dollar closing cost when you sell that's forty seven thousand four hundred dollars worth of overhead over three years which means you need to make sure you sell that home at four hundred and forty seven thousand four hundred dollars just to break even and that doesn't even include mortgage interest which would bump that number even higher that's why for the most part generally speaking the break-even point for a lot of homeowners is between five and seven years and that gets to the point where owning a home becomes cheaper than renting the same thing and in almost all situations the longer you keep the home the more likely you are to come out ahead and make money and if you're buying a rental property this is especially important because even though a property might cash flow really well from the very beginning it's potentially all for nothing if you have to buy and sell within a short period of time and those transaction costs end up eating into your profit so it's my recommendation that if you're looking to buy or invest in real estate in the short term probably not a good idea unless you're going in specifically with the intention of buying a property renovating it and then flipping it for a quick profit then in almost any other situation i would only recommend buying real estate if your plan is to keep it at least five to seven years or preferably ten years or longer that way those transaction costs are going to be averaged down over the years and you'll be able to write out any short-term fluctuations in the price and fifth you shouldn't buy a home unless you have three to six months worth of your home's expenses sitting on the sidelines as a reserve see just like all the financial experts recommend keeping a three to six month emergency fund at all times i recommend keeping a three to six month home emergency fund at all times to cover any repair bills maintenance cost upkeep taxes insurance anything else that comes up just in case for when that time inevitably happens something breaks or a tenant stops paying rent or something comes up outside of your control i've had pipes freeze and break i've had rats chew some of the pvc i've had the ac units going out i even had a tenant that i had to evict about almost 10 years ago now and that was not a fun situation but i also say this as a homeowner who owns where i live things just come up and you gotta make sure you keep cash on the sidelines to pay for it this is really gonna be one of those things that you're never going to need until the one day where you do need it when that happens you're gonna be glad that you kept some money on the side to be able to pay for it so if you're not prepared to keep money on the sidelines or have something that's easy to pull from in the event you need to pay for a repair or an expense then it's probably not a good idea to buy a home until you're financially ready and listen i'm not trying to dissuade you from buying real estate because in the right circumstances long term owning real estate could be one of the best choices you make and could end up making you a lot of money but this is meant to get you thinking about why you're buying a property in the first place and to really make sure you understand the numbers behind it to make sure it actually makes sense if you're buying a home for yourself to live in personally just make sure you run the numbers to confirm that owning a home is going to be cheaper than renting and also make sure you have a safety net to pay for anything that might eventually break and then of course if you're buying a place to use as a rental property just make sure you've analyzed all the numbers and factored in your transaction cost including vacancy find the right rental property in the right area could absolutely end up making you a ton of money just be prepared for the cost make sure you have enough time and make sure you have enough money in reserves so that you're able to make payments on things just in case something comes up now as for whether or not it's too late to buy real estate now the answer to that is no but you have to be especially considerate to make sure the numbers make sense and you have enough money in reserves to comfortably afford it for me real estate has been one of the best investments i have ever made but it's also been the most time consuming and the most challenging so yes it can be worth it but you have to consider the entire picture to figure out for you which makes the most sense owning a home or smashing a like button for the youtube algorithm and again big thank you to omaze for sponsoring this video if you're interested in potentially winning your own dream home or one million dollars in cash and you want to help out the orlando pediatric hospital in the process the link is down below in the description for you to learn more information and contribute so with that said you guys thank you so much for watching i really appreciate it as always make sure to destroy the like button subscribe button and notification bell also feel free to add me on instagram i post it pretty much daily so if you want to be a part of it there feel free to add me there as my second channel the gram stefan show i post there every single day i'm not posting here so if you want to see a brand new video for me every single day make sure to add yourself to that and lastly if you guys want four free stocks use the link down below in the description and weeble is going to be giving you four free stocks we need to deposit a hundred dollars on the platform and those stocks are potentially worth all the way up to 1 600 so if you want those four free stocks use that link down below let me know which stocks you get thank you so much for watching and until next time

Channel: Graham Stephan

Views: 511,861

Rating: 4.9226432 out of 5

Keywords: investing, investing for beginners, investing in your 20s, how to invest, how to invest in real estate, how to invest in stocks, stock market investing, stock market investing for beginners, stock options, robinhood, robinhood app, best stock trading app, how to be a millionaire, how to be a millionaire in 3 years, credit score, credit score explained, credit card, credit cards for beginners, passive income, how to build wealth, how to build wealth in your 20s, real estate 101

Id: xKLNioOx_ws

Length: 14min 32sec (872 seconds)

Published: Fri Feb 05 2021