When to buy a house: now vs later vs never

Buying a house is often an emotional decision and as I have argued before, it makes no sense to use buy vs rent calculators. In this post, I discuss the pros and cons of buying a house as soon as possible vs later vs never. Regardless of what decision we make (or have made) it is important to list all considerations, spend some time on each item and then decide.

Yamini Sood, VP sales of DSP Blackrock argues that buying a house is more important than investing or building wealth as it is an animal instinct in this fantastic post: Home IS where the holy grail is.

As a kid who spent the first 14 years of my life in a what is a bungalow/mansion (by today’s standards) and forced to abandon it for a flat, I can empathize with the urge to own a roof (at least a part of it). Growing up, I was also surrounded by relatives who lived in rented matchbox style houses in Triplicane/Parry’s areas of Chennai. I knew how they felt and when their kids grew up, the first thing they did was to get a house.

The only reason I was able to invest as much as possible and attain financial freedom is that I neither had to pay rent nor EMI. Just sheer dumb luck that my great-grandfather held a good position in the British Raj.

I list the pros and cons of each choice below. This is only my view and my con can you be your pro.

Buying a house as soon as possible

pros

  • A sense of security. Peace of mind to focus on other issues. Those who are well educated, skilled and with a reasonable chance of income growth can opt for this.
  • A home is a utility when lived in and an asset if we choose to sell it (either in one shot or via reverse mortgage). While reverse mortgage eligibility diminishes for early purchases, a home can always be sold for a decent sum of money to fund retirement or other goals
  • We get a satisfaction (true or otherwise) that by buying early, we will not have to pay more if the purchase was delayed.

cons

  • The sense of security might result in not having enough money to fund other goals and aspirations. This implies working for more years. Being chained to the desk (although most people do not recognise this).
  • If a person’s skills are not indispensable, they face the prospect of job loss or low-income growth.
  • We have emotional strings attached to a house. Many people view it as a legacy and want to leave it to their children (in the hope that they will take care of them in old age). A house is an asset only if we wish to sell it at the time of need.
  • Logistics matter the most when it comes to a house purchase. A 1000 sq ft flat in a well-developed area of a city could be more valuable than a 3000 sq flat in the outskirts built in a marshland. An emotional/hurried purchase can blind us from these aspects.
  • The prospect of changing jobs, cities and even countries can complicate matters.

Buying a house later

The idea here is to consider house purchases only after we are firmly established in our jobs/career.

pros

  • The EMI could be lower if we decide to build a corpus for partial down-payment
  • If we recognize the need for investing early and investing right, goal-based investing would be on auto-pilot by now
  • delaying can sometimes get us a better deal as we may be in a better position to judge.
  • They can get a better reverse mortgage deal as the residual life of the property would be relatively higher.

cons

  • prices could shoot up; interest rates could be higher
  • Getting a home loan later in life implies we are chained to our desk for longer.
  • The probability of job loss, lifestyle diseases etc. is higher.

Never Buying a house!

pros

  • Can move closer to children later in life or to a retirement village (these are relatively cheaper to buy than a house).
  • More money to spend and invest (but must do it right!)
  • Suitable for early retirees who wish to travel.

cons

  • Logistics in a retirement community may not be the same as that in a house located in a well-developed part of the city. Adjusting can be tough. Living out the evening of our lives in our own home (terra firma) with people we know all our lives (paid help) can be a better deal than moving to a retirement community and getting used to a new environment.
  • A house is a last-resort asset. If we do not own one, then we better have enough money to be financially independent. This is easier said than done!

Like with all choices in life, buy a house is down to our personality trait. Some people prefer to buy a house first and “manage the rest” later. Some people prefer to rent and have more money and freedom. It is simply a matter of choosing what works for us instead of passing judgement on others.

The arguments on poor rental yields and how emi-rates are high just do not make sense, the moment I see the house as a possession. Something to covet.

That said, retirement planning is not an option. So those who intend to buy a house early in their careers are also chained to their jobs like those who buy it late. Investing right is not an option for those who never wish to own a house.

At least in principle, the house can be sold in exchange for a pension (tax-free reverse mortgage) or for a lump sum if there is a shortfall in the retirement corpus. Therefore, whether purchased late or early, the house can become an asset if we want it to.

As for me, I will give anything to be able to buy an independent house with a patch of green and huge terraces. It took me a while to recognize that I can never do it again in the city centre. My dream is to be able to afford the rent on such an independent house at some point in my life. My dad was born in an independent house (literally), I grew up there. Hopefully, I will at least die in one.

Over to you: Your thoughts on this. Let me know if I have left out any aspect.

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9 thoughts on “When to buy a house: now vs later vs never

  1. Pattu Sir,

    A very mature post – I like the way you have put the buy vs rent calculators in its proper place. Speaking of personal experiences, I have two houses – one is a custom-build independent house with custom rooms for my parents (railings to enable easy walking), gardens etc and another is a regular apartment. The regular apartment (bought in 2008) is in good location while the independent house (built in 2000) is on the outskirts.

    Looking back, possessing a house was the only thing driving my wife and I during the 1990s and we really enjoyed staying in the independent house for a few years (lots of visitors, ample parking, ample place to stay). However, with children growing up, access to colleges/schools and convenience amenities like swimming pools, club houses, community functions became more important. With parents getting older and unable to travel anymore, the independent house now looks out of place (it was our dream place then). Maintenance is now a serious issue.

    Circle of life? What was our driving objective in 2000 is now a burden?

  2. Hi

    I have bought 2 houses in Pune and put it on rent. I have put both on rent and I am living in a rental property in Mumbai. I see my 2 houses covering my rentals and I have the flexibility to go anywhere.

    One thing which no one says is about the financial discipline we get in buying real estate. I bought my property on loan and repaid in 7 years. I doubt I would have done the same in any other asset class.

    1. creating a situation where payment is necessary has nothing to do with discipline!

  3. Does that mean that a person cannot be called financially independent if he doesn’t have an own house?

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