Why You SHOULDN'T Buy A House | DON'T Buy A House

Why You Shouldn't Buy A House. Don't Buy A House without watching this video first. In this video I explain 4 reasons why it may actually be better to rent instead.
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Reason 1: Opportunity Cost - 0:35
Depending on where you live housing can be so expensive. The median price for a home in LA County is currently over $600,000 which is insane! Obviously, most people don't carry $600,000 in their bank account so they'll typically finance their house with an fha or conventional loan. On a $550,000 house you could be spending up to $40,000 out of pocket just to get in the door where as if you used that money to invest at a 10% Return on Investment, you could increase your income by $4,000/year.

Reason 2: Higher Monthly Payments - 2:28
Again, depending on where you live, your payments could potentially be higher if you buy a house vs if you rent one. The monthly cost of buying a $550,000 house in my market would come out to a total of about $3,754 a month not even including maintenance costs where as if you were to rent the same house in my market, it would be around $2,500 give or take without being responsible for any maintenance on the property. This could save you $1,250/month or $15,000/year. Now if you were to invest that $15,000 extra each year at a 10% Return on Investment, you could be increasing your income an additional $1,500/year every year all while living in the same quality home. This will be specific to the market that your in but for areas like Southern California, New York, and San Francisco, it's really a no brainer.

Reason 3: The Equity Myth - 4:55
We get told all the time that buying a house is the best investment you can make because you can pay down a mortgage and build equity vs paying somebody else's mortgage. When you deal with a mortgage amortized over 30 years, you'll find that in the beginning you're paying mostly interest and not much principle until later down the road. This could be bad if you plan on getting a starter home and you don't plan on living there longer than 5 years. If this is you, unless you gain a bunch of appreciation, you won't gain much equity at all. After 5 years of paying down the mortgage on this $550,000 property, you would have gained $47,804 in equity. The problem with this is your transaction fees including realtor fees, buying and selling closing costs will come out to about $53,500-$58,500. This means you're losing money! This means you'll be completely relying on appreciation to bail you out which makes you a speculator and not an investor.

Reason 4: Lack of Flexibility - 6:58
When I talk about flexibility, I'm talking about flexibility to move whenever you want as well as financial flexibility. Once you purchase a house to live in, you're at the mercy of the housing market. If the market crashes and you have a small amount of equity in the house, you could be stuck in that house waiting it out until the market recovers.

Financially it can also restrict you. People tell me all the time that they'd like to invest in real estate but first they want to buy a house. The problem is that if you're buying an expensive house and you aren't making a ton of money, this will dramatically effect your DTI or Debt to Income Ratio which is one tool mortgage lenders use to determine if your eligible to purchase an investment property. For investment properties, you won't qualify for a conventional loan if you have higher than a 43% or 50% DTI. In this example if you were to buy this house with an $8,000 income, your DTI would be too high where as if you rented the same house for $2,500/month, you would lower your Debt to Income and be able to qualify for an investment property. There's definitely more that goes into qualifying someone to buy a house than this but this gives you an idea how you could be restricting your future investment opportunities by buying a house.

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