“I’m waiting to buy a property.”

I hear this statement a lot. I hear it attached to a handful of different rationalizations as to what, exactly, we’re waiting for. That being said, it’s most often attached to some sort of financial issue. That’s what I’m aiming to address here. My goal is to quantify the costs of not owning a home, or waiting to own a home, especially in a market that’s not really moving in any direction.

I’ll be the first to say this: don’t rush. There is no sense in making a hasty decision, overpaying for a property, or purchasing something you ultimately don’t want. I’m not in the business of helping people make bad decisions. In my experience, the easiest way to help someone make a good decision is to give them as much information as possible, so here we go.

The cost of not buying a property.

Let’s say you find a satisfactory property to invest in. It’s not exactly what you wanted, but it’s close. It’s about 60-75% of what you wanted. You could be in a handful of different scenarios:

  • You’re a first-time homebuyer who is currently renting. Each month you wait, you pay a sum of money towards someone else’s mortgage instead of yours.
  • You’re an investor who is holding cash. Each month you wait, you are missing one month of rent paid on a property you’re purchasing.

Again, I’m not trying to sell anyone on expediting their search journey, but rather trying to illustrate that there are quantifiable costs working against you if you decide to wait. It’s worthwhile to weigh this opportunity cost against the benefits associated with waiting.

The timeline of change.

The timeline of a change in property value is something that’s so far beyond predictability by the average person, it is, quite frankly, not even worthy of consideration. Don’t buy for capital appreciation. Warren Buffett would tell you to buy a good company, not for price growth. I’ll tell you the same thing, buy a good asset.

For illustrative purposes, let’s assume some of these people are right, and they’re going to properly time the market, and the house will be worth 5% less next year. On $500,000, that’s $25,000, or $2,083/month. A good property in this price range would rent for somewhere in the neighbourhood of $3,000. In this example, even if you’re right, you’re still offside by $917/month anyways.

This could serve reasonably well as an example of why making a real estate transaction based on the investment thesis that price will move in the short-term is not a mindful decision. There’s a reason mortgages are on 25-year amortization periods.

– d

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