Today, I’d like to conclude our video series on Buying A Home and Today, I’d like to discuss When Homeownership Is A Mistake.
Afterall, I’d be remiss if I didn’t mention some of the mistakes folks make with homeownership in the frum community that can negate the financial benefits. These include the following imprudent decisions:
First is Overextending oneself: When families purchase a house that they either can’t afford or decide to do extensive work on using borrowed money, it may be a recipe for disaster. Don’t buy a home or do work on your house if it causes your cash flow to be strained. It will lead to financial hardship.
Next is Using your home as an ATM: Banks are happy to lend you money against your house, working out terms that are favorable for them. However, homeowners should not use their home to afford their daily lifestyle. I know this is common in many Orthodox communities where costs are high and the pressure to keep up financially with those in your social circle is significant. Resist these urges as it will lead to higher monthly expenses and the inability to develop a sufficient nest egg.
Another is Upsizing in retirement: Occasionally, someone will share with me that they decided to buy a larger home in retirement in order to host their entire family over Yom Tov. This is the wrong decision. Financially, increasing your costs with limited ability to increase your income is imprudent. Practically, as time goes on, your children will have their own families, move out of town, both of which make spending significant time in a parent’s house unlikely. The realistic trend is for parents to stay with their children over the chagim and family gatherings, not vice versa. Downsize in retirement and use the remaining proceeds to help finance your lifestyle.
There is also the common poor decisions of Retirees buying a home in Israel: Do yourself a favor. If you’re a retiree, do not rush to purchase a home in Israel. The real estate market in Israel can be quite expensive, oftentimes making the rental market more attractive. Renting may be a far better decision than wiping out most of your nest egg to buy property in Israel. It’s imperative to speak with your financial advisor and determine what is financially prudent for your family.
As I conclude this series, here is a Final Thought: Over the years, the biggest lesson I have learned from purchasing a home is that regular mortgage payments, compounded over a long period of time, even at modest returns, can build a substantial nest egg for many frum families. Even though a home is objectively not a good investment, the discipline it gives us and the wealth it generates can offer optionality later in life. Hopefully, new home-buyers will use these thoughts and approach their home buying decision with eyes wide open.