In order to determine which of these two places is the home for you, let's determine age and marital status. If you're single, out of high school, or in early college (and commute to community college), I would suggest you find and interview a same sex and about same age roommate, and share an apartment or house until your completion of college. If you are a young adult after college, and married (or not), with children, I would suggest a comfortable economical flat, or small 2 bedroom apartment in the city, close to where the lowest paid partner works. Taking these economical measures insures that more of your payroll will be alotted to repay school loans, and auto loans, and will allow you to have the disposable income young folks need without denying your financial responsibilities you have entered into contractually, which will severely damage your credit, that could cost you that progressive movement into another company when seeking higher paying job placement. There is no need whatsoever for anyone in their mid-twenties coming out of the home, or coming from college to go into further debt by making a home purchase. The amount of financial loss far, far outways any misguided gains presented to you buy parents, friends, family members, or any so-called financial advisors that "only have your best interest at heart". If they really do have your best interest at heart ask if they will pay off your school loans first, or give you the 20% down payment required to have the proper amount of equity to avoid the private mortgage insurance you will have to pay on your mortgage. Moreover, these same professionals will fail to explain the increase in a mortgage payment by as much as $150 - $300 or more in this insurance, which will be neatly wrapped into another mortgage separate from the main loan - these are called 80/20 loans. Stay away from this topic like the plague, this is as toxic for your future as it gets. There is one and only one money issue for folks of this age group and that's paying off school or car loans. I say this over and over again not due to the lack of other important things to suggest, but to try to express the importance of eliminating these depressing and life crushing debts, that the sooner you remove them from your balance sheet, the better prepared you will be to start your wealth building process.
So far we have covered and talked of single people or young couples with no children, assuming that at least some will have some serious debt by now. Let us venture now into an older age group, say 30 somethings that for the most part may be married and will (a few or small percentage) have at least one child by now. We also for the sake of this blog topic will assume either one person of this couple has moved into their second level of their career. Moreover we will assume that most of at least one person's school loans are paid off, or about to be. You may or may not have moved from your hometown to pursue your career ambitions. All these assumptions are meant to set the clear understanding that we are discussing mostly college bound people, but this example is not exclusive to them. Anytime there is an option to choose spending a large amount of money, or taking on large debt, the application of common sense and fiscal prudence is not exclusively reserved for college grads. As much as it is important for some to benefit from financial freedom, it is more important for those that have not been formally educated to have that opportunity, as they are most likely to be the strain later in life on social resources, paid by all, even college graduates, through higher tax burdens. The examination and temptation to make the big move to home ownership at this point should be... delayed!
YES, I said it - in my opinion here are the reasons why. Mostly I would argue that if single at this age group of 29-34, or married/living together, with or without child, that your primary goal right now in life would be to completely pay off all household debt, school loans, car loans, credit cards, and to build a savings account of around $10,000/$15,000. After which time you should begin working with a financial planner to start investing in stocks and mutual funds of about $12,000/$15,000 a year. TIME is what builds wealth and nothing else (outside of hitting the lottery or an inheritance) which most, a vast majority of us, will never receive. As you can see by now at age 30 or 35 it's still not in your financial best interest to buy a product that causes you to give away a large portion of your savings with little return on investment (roi - a term I will use a lot later on). At some point in the next few years one of the persons in these scenarios, if coupled, will find an opportunity to move inner company or possibly a move to another company in another city or even state. Having this flexibility by not owning a home, gives you the possibility to pursue more gainful employment. If you are still single at this point it would be even more acceptable for you to chase your career and life experience - without owning a home you too will have the freedom to make these life enhancing changes. We need to see that buying a house is not to be the emotional coming to adulthood moment that we have been led to believe for the last half century. Buying a house has nothing to do anymore with having a home, it is whether it's financially beneficial or not to buy. As long as we can generate money through working and investing, there is no real reason to give it away.
I know by now you want to have two questions answered: first, at what point do we buy the house? and second, tell us the reasons the house is a bad investment. OK, first I would say after you read the next answer you should be able to answer the first question yourself. In order to purchase a home the right way, you need a 20% down payment, and with stricter banking regulations, the down payments will absolutely have to be larger than 3%. There is a temptation to buy more than you need so we will assume you over borrow when you're 30, say $150,000. You will need $30,000 down, in a suburban community that will have at least a tax rate of around $2000/$3500 a year. These property taxes are due every year even if the loan has been paid off. Contrary to popular misconception, I estimate the return on real estate growth over the next 10 to 15 years won't exceed more then a 3% growth a year. Moreover the rate of deterioration in the property, and maintenance and upgrades will outpace growth year over year. There are other factors to include in the equation, such as water bills, that will need to be paid. More often then not this bill is not part of an apartment usage. Water usage, as well as the heat bill in some leases, are included in the rent payment - this could be as much as $2000 a year depending on location in the country.
Let's now look at just the down payment that you would spend on your new home, that you will never get back - $30,000. Here are two scenarios this money could have been invested: on the one hand you could be aggressive and seek a rate of 15% a year on your money which amounts to $4500 a year while you still maintain initial principal. Over a period of 10 years you have $45,000. On the other hand, a more conservative approach would be a 5 to 8% rate. There are even more savings to one's life which is the ability to move readily from one place to another and seek and achieve the highest pay scale. At the end of it all, if you are not financial slaves to any man or institution, you are at the pentacle of freedom, freedom to work were you want, live were you want, and in the worst case if the economy tanks, the folks with mortgages and their safe homes, they still owe money to the bank.
Go forward in life with confidence, remember - almost 50% of all marriages end in divorce , and the #1 argument married couples have is over money
