Homeownership Advantages and Disadvantages

What are the advantages or disadvantages to homeownership?

1 Answer

The answer, of course, depends on the type of homeownership you're talking about, but as a baseline, let's just say that it's always better to have an asset than not to have one.

Let's start with homeownership that way most people envision it and then go from there. When you purchase a home, you usually borrow money from some lender to purchase a parcel of land and the residential building that stands alone on the land. To ensure you repay the loan, the lender takes a security interest in the real estate that allows it to repossess your home and sell it to recover the costs of the loan to you in the event you fail to repay it. Sometimes the residence already exists; sometimes it gets built for you.

You're probably already familiar with the advantages of basic homeownership: homeownership is a forced savings plan since mortgage payments accrue to the homeowner as equity - free and clear ownership of an asset; homeownership is a good hedge against inflation since prices and incomes rise over time but mortgage payments stay the same; property taxes, mortgage interest, and some origination fees can be deducted from federal income taxes; and homeownership affords more privacy and control over your environment.

On the other hand, homeownership is the basis of the American Dream and a cornerstone of the American economy, so people tend not to talk too much about its disadvantages. Still there are some: homeowners are completely responsible for the upkeep and maintenance of their property; real estate is an illiquid and usually slowly appreciating asset - it can take 20 to 30 years to get a couple thousand dollars out of the property; if property is foreclosed on, the owners can lose their equity; up-front costs of homeownership can great; and homeownership limits mobility.

If you are thinking about homeownership and are put off by some of the disadvantages of traditional homeownership, consider some alternatives. For instance, if maintenance and upkeep is something you don't want to deal with, then look into a co-op or condominium unit where the homeowner's living space is accompanied by a very small area of land, if any at all. A condo or a co-op is also a good idea for a person who is still mobile or semi-transient. It's much easier to hold onto and rent a condo or co-op unit than it is an entire house. As well, renting the unit won't damage the equity value as much as renting a house would.

Homeownership is a big investment of time, energy and money, and it is good to investigate both the advantages and disadvantages before jumping in. Still, if you can afford it, homeownership - whether it's a traditional single family home or a condominium or a manufactured home - is usually more than worth the trouble.