This is the fourth article in my personal finance in your 20's series. In the past few days, I have covered investing, career and insurance for people in their twenties. Today, I wanted to discuss the big real estate question: should you buy a house in your twenties?
Many people consider owning a home the epitome of financial success and stability. I have a different point of view. Buying a house is not always a good idea and is frequently not a good investment. A house is a large, undiversified investment, it is not liquid and there are big opportunity costs for all the money you sink into brick and mortar. However, all of these points are not unique to individuals in their 20's.
In my opinion there are four factors that make buying a house less attractive specifically for people in their 20's:
1. A House Ties You Down - in your 20's, you want to keep yourself open to opportunity. You never know where life, career, love or family may take you. A house slows you down and ties you up.
2. Lower Tax Benefits - in your 20's your income is typically lower than it will be further on in your career. For people in higher tax brackets, the mortgage interest deduction can mean big savings, however if your federal tax rate is 10% or so, you are not really getting a big tax break.
3. You Will Need to Move Soon - if buying a house makes financial sense, it makes sense after several years of owning the same place. If are buying a house in your twenties, you are probably buying a house that will not be sufficient to meet your future needs. The house you buy as a bachelor or married couple without children is not the same house you would buy as a parent of two (or three...). If you have to move in only a few years, there is a good chance you will take a financial hit.
4. Do You Really Need More Debt? - many people in their 20's are fully loaded with student loans, credit card debt, car payments and so forth. Do you really need more debt to weigh you down? In my opinion, in your twenties you want to keep yourself as free of obligations as possible, so if the mood strikes you can head out on a three week tour of South Korea. Worrying about the mortgage does not improve your chances for such adventures.
Anyway, call me biased, but in my opinion, until you get married and decide to start a family, owning a house does not make a lot of sense, from either an economic perspective or from a lifestyle perspective.