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Don’t Buy A Home Within 5 Years of Graduation

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Farm House with Rising SunWhenever I or my wife tells people what I do (personal finance blogger), invariably one of the next few questions they ask is if I have any stocks picks for them. After I’ve explained that I don’t do that sort of thing, the next topic usually has to do with buying a house. After graduating college, the next “big thing” on peoples’ minds is usually buying a home.

My belief is that you shouldn’t buy a home within five years of graduating college or high school. First, a little about my home buying background. I bought a house four years after I graduated, after living in a few apartments, about six months before the height of the housing boom. I’m one of the fortunate few homeowners who have seen their home prices remain the same (no increase, no decrease – chalk it up as a win in my book!) but the reason I argue you shouldn’t buy a house within five years has to do with the non-financial reasons.

Don’t get me wrong, I love owning a home. I love owning our home. But don’t do it within five years.

Loss of Flexibility

When you buy a home, you lose flexibility. When you buy a house, you are putting down roots in the community and you lose flexibility in many aspects of your life. For the first five years of your professional career, your flexibility will be one of your greatest assets. As you learn what you are good at doing and figure out what you really enjoy doing, you may want to change jobs or even careers. When you buy a house, you’re restricted geographically. That could mean that a great opportunity on the other side of the country is something you can’t pursue (easily).

Homes Require Maintenance

And maintenance, regardless of how handy you are, is both a headache and time sink. There’s a reason my friend Fred at One Project Closer never runs out of topics to write about. Things in a house break and you’ll have to fix it. When you rent, the landlord is responsible if the roof leaks. When you own it, you are responsible if the roof leaks and roof repairs are not cheap. In fact, we replaced our 18-year old roof and it cost several thousand dollars.

Learn What You Like

In the five years, take the time to look around and see what it is you like about the places you live in. What do you dislike? Until you’ve lived in a few different layouts and setups, you won’t really know what to look for. Do you really like a big kitchen or just like how it looks in photos? Will you really want a hot tub or do you just like the idea of a hot tub? Is a garage something you really love and can’t live without? Unless you’ve lived in places with these amenities, you won’t know how important they really are to you.

Burden of Debt

A mortgage is a huge weight. As I said earlier, your first few years of graduation should be spent enjoying and exploring your freedom, not saddling yourself with tens to hundreds of thousands of dollars of debt. Believe me when I say that you can be even financially irresponsible for the first few years of your life, buckle down, and still retire a very happy and fulfilled person. As long as your financially irresponsibility doesn’t rack up a debt itself, you’ll be fine.

Waiting Doesn’t Hurt

Home ownership is wonderful, but it’s not the golden path to wealth. Before the housing bubble and subsequent burst, the general consensus was that the path to wealth was through home ownership. You heard stories of people selling their houses after 20 years and making half a million dollars in profit. It was wonderful! Then people did some math and saw that homes appreciated in line with inflation. While you did generate some wealth in owning a home, since you were paying down the principal of a mortgage rather than into the abyss of rent, it wasn’t what many made it out to be.

While it may be hard to hold back given the first time homebuyer credit, which is pretty substantial, consider your options before jumping head first into homeownership. Owning a home is very nice, but renting is nice too.

(Photo: orvaratli)

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46 Responses to “Don’t Buy A Home Within 5 Years of Graduation”

  1. Jim, you’re giving outstanding advice here, and you know it is because it’s virtually counterintuitive with the cultural influences.

    In my many years in the mortgage business, it was clear that not everyone is meant to buy a house. So many people buy for all of the wrong reasons. Most I think buy for investment reasons (even though they plan to live in it), and buy for fear of missing out.

    I understand the time value of money, but if a house is a great investment now, it will be in five years, so there’s no rush. Your own personal circumstances are more important than what’s happening in the market, and that’s where your advice becomes critical. A few things need to be established before buying a house.

    • Jim says:

      “I understand the time value of money, but if a house is a great investment now, it will be in five years, so there’s no rush.”

      Exactly! And a house may be great investments in aggregate, but one particular house may not be for your situation.

  2. Soccer9040 says:

    I wonder whats going to happen in 3-4 years when all the young people who rushed to buy a house for the 8k tax credit have to move. I have tons of friends who have lived in apartments for a few years and then all the sudden rushed out to buy. I hope they bought for the right reasons.

    • Gates VP says:

      I too have seen this phenomenon and I really do wonder. One actually lost her job just a few months after buying the house. Another just watched her company lay off 30% of it’s staff just before her home purchase.

      However, what I am seeing are lots of 20-somethings getting in to homes primarily b/c these are the lowest prices they’ve seen since they could even think about buying a home. It’s unfortunate, b/c homes are still above historic averages, but sometimes the drive to get place just beats out the logic.

      Personally, I’m looking 10 years down the road and really wondering what housing will look like when all of the boomers want to down-size?

  3. Laura says:

    I bought my house about less than a year after finishing my masters (and 2 1/2 after undergrad) and I don’t regret it at all! I have rented out two of the rooms to good friends of mine, so that helps with the mortgage. Yes, there are some aspects that are a pain, things break and have to be fixed, but to me the benefits out weight all that. I bought my house from people i knew, who gave me a good deal, and made the transition easy. I’m in a great school area and a nice established neighborhood so I have fairly strong resale value. I’ve been in the house for 2 1/2 years, and I know its just a starter home for me for now, but I’m glad I went ahead and did it.

    However, I am a stability person. I love to travel, but I love coming back home and having a place to call my own. I work for myself and am confident in my ability to do so. I have another, more office job (but similar field) that provides a more constant paycheck. I went into my house knowing I could afford the payments, and got a fixed rate.

    Not everyone wants that type of stability. Or the hassle, but for me, it was worth it.

  4. Gates VP says:

    @Jim, you definitely have some nay-sayers here. But I honestly think that the numbers and averages agree with you very strongly.

    The first 5 years are the most volatile years of a modern career (some would argue the first 10). And normal 20-year mortgages are basically just a risk for the first 5 years. Especially on any house you can afford in the first 5 years of a new career.

    I think your points dance around a central theme, which is really that buying a home is a risk. In fact, buying a home is a significant risk.

    - It’s potentially a locational tether. Such a tether can costs thousands in future earnings.
    - It requires regular time-consuming maintenance, just to maintain its basic value. – It doesn’t appreciate faster than inflation and it may be “cheap” when you need it to be “rich”.
    - It’s subject to multiple over-heads: taxes, “condo fees”, insurance, etc.
    - It carries an interest risk, you could fail to “lock-in” at the right time or you could “lock-in” at a rate that really wipes out any appreciation in the home value.

    And these risks work against young grads and people starting on new careers. Accumulating a safety net and building up savings and “human capital” is far more important in the 20s that making early payments on a mortgage.

  5. Leslie says:

    I made the bad decision of purchasing a home in July 2009 and, gulp, I want to move already. I’m 25 years old (was 24 at time of purchase). I rushed into buying the home – had only looked at 4-5 properties and felt it was the best deal and just snagged it up. I was “dying” to get out of my apartment at the time. There were so many things I just didn’t think about it. Now I want to move back to my home state of Tennessee to be closer to family and I don’t see that it’s going to be possible…not for at least 3-4 years which depresses me beyond belief. I’ve only been here for six months… UGH.

  6. Penny says:

    Bought a fixer-upper house in 2005 at age 22. No down payment, interest only. Had no kids or hubby at the time, but one roomie who was handy with tools. I worked a 2nd job for awhile and dumped the $$ into the second mortgage. Fast forward just about 5 years: I am now married (to the roomie!), just had our first child, and will have paid off half the purchase price by years’ end.

    GATES: What you’re saying is logical, but for some (whether age 22 or 32 or 52), commiting isn’t so scary. Yes; there’s a risk. There’s a risk when you buy a home anytime. There’s a risk when you marry. There’s arisk when you get into your car and turn the key. But there are inherent upsides to those of us mature enough to man-up and live within our means.


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