Buying a home doesn't always turn out to be a good investment, especially when housing values sharply decrease after a purchase. In my case, the purchase of my townhome was a wise financial decision. Even though I may have spent less money living in an apartment, I still came out financially ahead as a first-time homeowner. Since I was not very good at putting money aside every month in my early 30s, my townhome purchase served as a forced savings account. Building up equity in a home is one of the easiest ways to save, in my experience.
Going from renter to owner
To rent a 2-bedroom apartment, I paid about $800 a month. My mortgage payment was about $1,100 when I initially purchased the townhome. However, eventually the PMI or private mortgage insurance of $65 came off because I reached 20 percent equity in my home. Also, I know my property taxes went from about $4,300 at a high point to a low point now of $2,800 per year. More of my money, therefore, went straight to the principal to help me build equity more quickly. Meanwhile, the money I paid on rent disappeared forever.
Having financial flexibility
If I had taken out a home equity line of credit, my home would not have been the forced savings account I needed it to be. However, I could have refinanced to a lower interest rate without ruining my financial progress. As a renter, my only option to reduce my housing expenses was to find a different apartment at the end of the lease. It became expensive and exhausting to move.
Waiting for a better return
After I lived in my new townhome for just one year, some of my neighbors decided to put their townhomes on the market. One of my friends said she had to take a loss to sell the townhome. Just one year later, another neighbor alerted me to the fact that the value of the townhomes were rising. She sold her townhome in a few days for a profit that more than paid for her two years of living expenses. I then sold my townhome in one day. I viewed the $30,000 as the money in my forced savings account.
Crunching the numbers
I didn't exactly make a $30,000 profit on my townhome because I put some money into upgrades such as hardwood floors. Also, I paid more for my mortgage than I did for rent. From past experience, I know that whenever I moved out of one apartment and into another, my savings account balanced remained the same. For me, it was better to put money into something that I couldn't easily access. Being underwater on a home and having negative equity for a while actually prevented me from using my home as an ATM.
Because I had $30,000 in my pocket after selling my townhome, I could use that money as a down payment on my current home. It allowed me to buy a step-up house. If we ever decide to move again, we will take more than memories. My current home is my new forced savings account that will help me in the future.
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