If/When: The Real Estate Conundrum

Living in New York City it seems like the dream for most is to own real estate.  Free from rent hikes, able to redo your bathroom or kitchen, paint your bedroom without the concern you may have to just paint it back to white in 12-24 months, hang things on the wall without considering your security deposit and the overall pride of owning something that grown up!  Recently, I have had clients surprise me with purchases of both either before consulting me or flat out against my recommendation.  Which made me thing, what is it about the allure of home ownership that causes one to just go for it?  Well, it could be for all the right reasons.  The mortgage and maintenance payments are less than your rent.  You want to build equity.  The area is becoming gentrified property prices should go increase over time.  Or it may be a kneejerk reaction to reaching a certain point in your life.

But the truth is, purchasing a house at its best, is a financial decision, not an emotional one.  And there is much to consider.  After the down payment, closing costs and moving expenses will your emergency saving be depleted?  Will you be forced into credit card debt for additional expenses?  Also, once the money is in the house in the form of mortgage payments and equity, there is no longer the guarantee that you can get to it.  Home equity loans and house sales are no longer the sure thing they were pre-2008.

If your mind is set on buying a home it’s important to remember that some money on your balance sheet is available to you for that, and some isn’t.  For example, the people who have been maxing out their 401k contributions for 10 years and now have 90% of their savings sitting in there.  That money is not liquid.  You cannot use it for a down payment. Best to keep to the boring way, save money in your savings account.  Even in a taxable investment account values could go down causing you to have to sell investments at a loss for the down payment.  And listen to your financial adviser, that’s what they are there for.