Here is a column from the New York Times, "Your Money" section that we, at The Gardens apartments in Glen Allen, VA, thought we would share with you:
My family and I are renters, and most of the time that feels fine. But last week I found myself in a state of temporary panic when I read this Twitter post from the financial journalist Felix Salmon: “John Paulson: if you rent, buy. If you own, buy a second home.”
When I read it, I immediately felt anxious. After all, if John Paulson, the guy who made “The Greatest Trade Ever,” was saying I should rush out and buy a house, I’d better get on it!
After allowing myself to get all worked up about this, I did what I’ve done several times before. I pulled out a piece of paper and a pencil and worked through the emotions and the numbers. In the end, I was reminded of something incredibly important.
John Paulson doesn’t know me or my situation.
There is absolutely no reason I should be making decisions based on something he said. The same is true for any other “expert” who decides to share his guess about what he thinks will happen next in the housing market.
The same holds true for the other three people who just happened to express similar concerns to me about buying right now. They were convinced that if they didn’t buy a house now, they’d be priced out of the market, and maybe they will be. But I heard that argument a lot in 2005-6.
Buying a home is one of the biggest financial decisions that most of us will make in our lifetimes. And yet it’s often a decision in which the person with the most knowledge about what makes the most sense gets overlooked: You.
There’s a simple way to fix this problem. All it takes is a piece of paper, a pencil and some time. So if you’re struggling with this decision to buy, take a minute to think through these questions and write down the answers, you’ll need to refer back to them the next time somebody decides to share what he thinks will happen with the housing market.
- Can you afford it, and do you have enough saved for a down payment? Make sure you include the cost for things like property taxes, homeowner association fees and utilities.
- Can you qualify for a loan? If the answer right now is no, then you can stop torturing yourself, because it doesn’t matter if the market is about to take off. You can’t buy a house.
- How long do you plan to live in the home? There’s some debate about the minimum time you should live in a home for it to be worthwhile, but if it’s less than five years, forget about it.
- What guess are you making about housing prices? It is a painful reality that the one variable that makes a huge difference in this decision is unknowable. What is going to happen to housing prices in the short term is anyone’s guess. But for your own sanity, just assume that housing prices will continue to increase by about the long-term average of inflation, or 3 percent. You really can’t afford to buy a house if the decision depends solely on what the house might one day be worth.
The answers to all of these questions will depend on you and your individual situation. And that’s the point. Hopefully it’s clear now how ridiculous it is to buy a house based on some stranger’s advice.
Through this process, you may discover that buying and owning a house isn’t for you, and that’s O.K., too. But these questions can also help end your anxiety around what is probably the biggest financial decision you’ll make. Don’t you think that’s worth a piece of paper, a pencil and a little time?
For more information on renting an apartment in Glen Allen, Va, contact The Gardens.
New York Times