These Are the Right -- and Wrong -- Reasons to Buy a House, According to Ramit Sethi

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KEY POINTS

  • Ramit Sethi is the author of I Will Teach You To Be Rich.
  • He believes buying a house only makes sense in certain circumstances.
  • For example, he notes that buying a house is a good idea if you have kids and want to settle into a home, but it's a bad idea to buy one as an investment. 

Don't buy a home until you've read this advice.

Buying a home is a huge decision because of the financial commitment. Before you get a mortgage, you'll want to make sure you are really prepared for the realities of owning your own property. And you'll also want to be emotionally ready to take on the task of homeownership, as it's very different from being a renter.

Unfortunately, many people jump into purchasing before they are ready, or they buy for the wrong reasons and end up regretting it. To reduce the chances of this happening to you, you may want to consider this helpful advice from Ramit Sethi, the author of I Will Teach You To Be Rich and the creator of a blog with the same name. 

The right reasons to buy a house, according to Sethi

According to Sethi, there are several good reasons to purchase a property. 

First and foremost, you should consider buying a house if "you have kids and you want to stay in your area, school district, and build memories in the same house for at least 10 years."  

Sethi recommends not purchasing a home if you plan to be there for less than a decade, because of the high transaction costs associated with buying and selling real estate. "If you move in a short period of time -- for example, four years -- those fees will dwarf any equity gains you may have," he explained. "Imagine driving a car off the lot: We all know that it instantly loses value. The same is true of your house, and it takes time to amortize (or spread) the costs over a long period of time."

Sethi also said the right reasons to buy include wanting a house your parents can move into with you or one you design with your spouse; enjoying tinkering with and personalizing a home; or harboring a strong desire to own your own property.  

Here are the wrong reasons 

Although there are good reasons to want to purchase a property, Sethi also cautions that there are some bad reasons as well. Specifically, you do not want to purchase a house if you feel like you need the value of your property to rise. 

"If you are buying because you believe the price of a house always goes up, reconsider," he warned. "Real estate is not always the best investment."

While you can sometimes grow your net worth by owning a home and benefitting from building equity and property appreciation, a home isn't necessarily the best way to maximize your money. And there's no iron-clad guarantee you will see your home's value rise, so if you're counting on making money from the purchase then you may want to think twice. 

Sethi also said you shouldn't buy a house due to peer pressure, or because you feel guilty for renting. "If you’re approaching buying a house with dread -- like a heavy feeling of obligation or peer pressure -- just stop," he said. This is important advice because many people feel like buying a house is what they have to do since homeownership has been sold as part of the American dream. 

If you're thinking about purchasing a property, you should carefully consider Sethi's tips for determining if you're moving forward for the right reasons. If you aren't sure homeownership is really right for you, it's best to wait before jumping into such a big financial commitment and potentially ending up regretting it. 

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