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Don’t Buy A House (Yet)

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House on the HillAs you read this, you might be wishing that you graduated just a year earlier and could take advantage of the $8000 first time homebuyuers credit. It’s not every day that Uncle Sam is willing to give you $8,000 for anything, let alone for something widely regarded as a fantastic investment.

But consider yourself lucky… buying a home within the first year or two of graduation can be a huge mistake for new graduates. My personal recommendation is that you don’t buy a home within five years of graduation.

This post is part of Bargaineering’s 2010 New Graduate Guide series where I’ll share my insights and offer my financial guidance to the graduate class of 2010. This post is part of day 3, putting down roots at your first place.

The basic idea is that you don’t want to put down roots at a time when flexibility and mobility are so important. You are about to enter a period where your career can grow significantly in a few short years. To take advantage, you may need to change locations or change employers. Being able to move easily, without having to sell a home, will be crucial.

Another important point to remember is that in all the stories about how much a friend or a relative “made” on their home, they never talk about how much they paid out throughout the years. Homes are expensive. You pay insurance, property taxes, interest, maintenance, repairs and so many other costs people don’t mention. As a new member of the working population, do you really want to sign up for all that?

Wait a few years, you’ll be happy you did.

(Photo: overgraeme)

{ 12 comments, please add your thoughts now! }

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12 Responses to “Don’t Buy A House (Yet)”

  1. I very much agree with this unless you think you can meet ALL 3 of these requirements:
    1. you find an amazing deal
    2. you think you can swing the mortgage payment plus a second one (for the next home, if you move somewhere else and buy another there
    3. you are interested in being a landlord (more specifically, an absentee landlord)

    If you buy a house and move, you will most likely take a huge loss (if nothing else, just in Realtor fees – think 7%, ouch!). One alternative though, is that you buy a place, and live there for now, renting rooms to your friends. Then, later if it turns out that you want to move, you can rent it out.

    It’s definitely NOT a path that everyone can go down. There are plenty of risks, headaches, and time drains, but the results can make it all worth-while if it works out.

    I did that exact scenario, and am really enjoying it. I make a little money each month, while the house pays for itself.

  2. uclalien says:

    I like the fact that you point to mobility and flexibility as being vital for new graduates. For years, I have been telling people the same thing. Yet I take it a step further. Mobility and flexibility are two of the most important assets a person can have, period. It doesn’t matter whether they are 1 year or 20 years into their career.

    The fact is that we don’t live in our grandparents’ world, where we expect to work for the same company for 50 years and retire with a pension. The world has and will continue to change. And buying a home severely limits a person’s ability to change with the times.

  3. I guess I should also add that Jim’s other point is also very valid. If you get an amazing deal that makes you want to go ahead and buy a house now, it probably means that it needs a bit of work, which means dumping in more money (even if you know how to, and can do the work yourself). That money could be much better “spent” if saved by renting…

  4. Clare says:

    Any thoughts or discussion on purchasing a house, and living with roommates that pay a good chunk of the mortgage?

    I’d think a lot of recent graduates would fall under these circumstances. It is a unique time in which most of your friends are also looking for housing post-college. If you’ve lived away from home for the past several years in college, you’re very accustomed to living with roommates.

    Any thoughts, I guess?

    • That’s what I did. I worked out ok, but I would caution that it can put a strain on the relationship if they start to fall behind on their payments.

      In the end, I was able to make the payments on the house for over a year, personally paying only about what I would for an apartment, but I did have a payment issue with one friend, and the hard feelings never went away.

      But yeah, if you have good friends that you know will be good about paying, it can be a good way to live for a few years.

    • Scott says:

      Just be sure to have only one person own the house and friends pay rent, not have multiple friends co-own the house. It might seem like a financially good idea to pile up money and split the costs with others right now, but remember you can’t sell the house later unless everyone wants to, and rarely does everyone want to sell all at the same time. I’ve had a few friends get stuck with this.

  5. After graduating college, my mom kept pushing me to buy a house saying that “I would be wasting my money by renting”. I did not listen to her and waited a few years after renting to buy my first place. I am glad I made that choice as I was able to adjust to the real world without the extra hassle of having to worry about a mortgage or the entire process of buying a home.

  6. A big part of what factors in the decision for a graduate to buy a house is the negative stigma against renting. It’s so common to hear how you are throwing away money buy not purchasing a house. Most college grads don’t understand that this isn’t true and figure that since they can now afford it, why not stop throwing away money on rent?

  7. eric says:

    I know there’s a ton of debate between buying vs renting a home, but in this case as it applies to recent graduates, I completely agree that renting is better. Your finances are usually not settled and you probably will be moving around a lot when you’re younger.

  8. Mark says:

    It will be an even better decision as the next leg of the housing market has the potential to be whacked. Interest rates have only one place to go. What happens to housing when they go up? Incomes are still not rising. The dynamics do not bode well for reality.

    **Note, I just sold my house in Maryland…and I am now homeless in Alabama….HAPPY am I.

  9. Shirley says:

    I don’t see buying as even being an option unless you are absolutely positive without a doubt that this is where you want to be for at least the next ten years.

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