Maybe you’ve reached a place in your life where the road forks in front of you with two options: Buying a house vs setting up a business. Which path do you take? On one hand, buying a house seems very much like an American rite of passage into “true” adulthood. What’s a grownup without a mortgage, after all?
On the other hand, buying a house is financially risky and has long-term consequences and effects. Buying a house vs setting up a business are two very different investments, and one pays off a lot more than the other.
Buying a House vs Setting Up a Business: How to Decide
One method of persuasion is not by listing everything that’s great about one method or idea – it’s by listing everything that’s terrible about the rival method or idea (hello, 2016 Election!). Here are the details on the two options you may be considering right now: Buying a house vs setting up a business.
[-] How long do you want to be in debt?
But really, how long can you handle being in deep debt? A mortgage is no joke, and unless you’ve been saving up wads of cash every month for the last 30-something years, your down payment won’t make much of a dent in the price of your home.
At the least, you’ll be tied down for 30 years, paying not only on the cost of your home (the principle), but plenty of interest as well.
“A 30 year mortgage may look like it’s cheaper than renting in the long run (for example, say rent=$1200/month, while mortgage=$800/month). This can be deceptive, however, because owning a home comes with the added costs of home maintenance and upkeep, interior and exterior decoration, routine and major repairs, etc.” – Start a Business or Buy a House: Which Comes First?
If you start setting up a business instead of purchasing a home, you can take whatever cash you’ve saved for your down payment and funnel it into your new venture. Continue renting while you flesh out your business to save money on closing costs, maintenance and upkeep, interior and exterior decoration, landscaping, repairs, mortgage interest, etc.
[-] Are you investing for the returns?
Answer honestly – are huge, imaginary returns the reason you’re thinking of investing in buying a home? We really hope not. Buying a house is one of the worst and most unreliable ways to invest your money. Depending on your state and location within it, the real estate market varies widely – wildly, even – and in the worst case scenario, you’re hemorrhaging money.
In the best case scenario, you jump on a housing boom and manage to come out with a nice little profit – it’s unfortunate that the best case scenario is also one of the least common.
If you really want to invest in something that will give you high returns and a sense of satisfaction, invest in your own business. There’s nothing more noble than investing in your own ideas, and it’s a lot less risky than investing in a home in an uncertain housing market.
[-] Is this really the place you want to settle down?
Maybe you’ve lived in your city all your life. Maybe you’re moving around the country every so often, looking for the right place to put down roots and start your life there. This question seems obvious, but it’s one every person in this predicament must ask themselves: Is this really the place I want to settle down?
It would be foolish to purchase a home in a city you’re not committed to staying in, even if you think it makes fiscal sense right now. You have to be certain that your current location is really where you want to stay before you purchase a home.
If you go ahead and start your business instead of buying a home, a little time running the company will give you a better idea of where your location should be. You don’t want to buy a home, start your business, then realize the best place for your company is in another city or state. Once you buy, you’re stuck until you sell.
[-] Can you handle being house poor?
House poor is the state of being a home owner that, after paying rent, maintenance, association fees, repair costs, etc. each month, has little to no money left over for non-home-related expenses, like gas, groceries, and utilities.
The best way to avoid becoming house poor is by starting a business before you try to purchase a home. Once your business income is steady and predictable, you can move into buying a home that fits your budget.
Don’t be overwhelmed with the desire to live above your means – buying a smaller, more affordable home will leave you with more money left over each month, allowing you to build and work toward the life you want rather than drowning in debt or coming up short every month.