Buying a House - Seth's Blog

A long post from my big brother Seth Godin on home ownership in the US (see, he's a real estate expert as well!) which is well worth checking out...

My response to it would be: he's got the nail on the head with the idea that buying a house is a decision which tends to be accompanied by much more emotion and other trappings than any other purchase, this is how it can sometimes go awry. But I'd seek to get away from the emphasis on capital gains, something that seemed to have the UK in a fever-like grip when I was living there ('you bought at the right time'...oh yeah? How do you know?).

As he indicates there are different types of people and if you're a play-it-safe employee then a mortgage presumably goes with the territory (it did when I was anyway); however, if you're a freelancer, entrepreneur or investor without a guaranteed income, it's much riskier (the banks know this all too well I expect). Lose your job and there are all sorts of checks and balances in place (like getting another job in the same field) which can mean that foreclsoure's far from inevitable. If you don't have a job in the first place you don't have that luxury.

One possibility is to consider renting; It ain't necessarily throwing away good money after bad; depending on the downpayment you make and the nature of your mortgage it can potentially be cheaper month on month than buying these days with a lot of legislation aimed at protecting the tenant (notably in the UK as another PMC contributor has been finding out) and managing agents if things do go wrong. There's that old paradox, the monthly payments for buying can be less than renting (though I guess that's all changed now) and yet you can afford to rent somewhere that is nicer than you can afford to buy...if you want quality of life then why stake everything on somewhere that's not as nice?

Doesn't mean you shouldn't have a mortgage, but the mortgage should be on something that is a real asset, ie something that generates some sort of income, however small. Unless you wanna take on a lodger, it means buying to let of course.

B2L investors are well known for paying less for a property than many homeowners (perhaps 'cos it's not an emotional decision for them) so your mortgage may end up being smaller for a comparable property, if you're patient.

But in any case, don't bank on capital appreciation, that's called gambling, and if you do make anything on a sale, treat it as the icing on the proverbial cake.

So there you have it, rent your own home and have a mortgage on an investment property...not quite was Seth was saying but we both agree that property ownership ain't a bad thing..


Disclaimer: the PMC knows nothing at all about real estate investing and was merely thinking out loud with this piece.