Buying a house is usually one of the steps “natural” to give throughout a life. As you grow, an expectation is generated about what “you should” do: get you a career, get a job, have a car, find a partner, have children, buy a house…

But doing these things not only may some people not fit, they can become a mistake if you do it due to social pressure or unsubstantiated personal belief.

Do you really want to own a home?

Some people have a need to create their home, in making it yours in every way. Buying a home allows you to get closer to that feeling. Also, it is an asset that gives you the emotional feeling of stability and permanence.

But, This is what you need? Have you considered that by acquiring a home you agree to stay in it? Maybe you feel more comfortable being able to go to the landlord when an appliance breaks or a pipe leaks..

How long do you plan to be in it?

When you rent a house you commit, at least one year of permanence. The commitments that exist are short-term. But when you decide to buy it you must be very clear about your time horizon because it will have great economic consequences if you fail.

When you buy a house there are commissions that you will pay on a mandatory basis. The longer you stay in the house, more distributed it will be in time. However if you decide to change soon, those costs surely you will not recover.

What if you need to stay longer?

A normal approach is usually that you acquire the house you need and if your needs change, you are looking for another one. This idea that a priori is conservative involves a series of problems:

• The real estate market is usually illiquid. Maybe you want to sell the house today but it takes 2-3 years of finally selling it.
• The costs of change are enormous. Bank fees, bureaucracy, transfers, services and insurance that surely overlap temporarily.
• If time is pressing and you want to change, Will you be willing to reduce the sale price of your old home? Did you consider this in your financial forecast?

These issues must be addressed prior to purchase, that way you can reduce your future mistakes.

Do you have the 20% (the but) to deliver input?

Some financial institutions will grant you until 80% of the value of the house in exchange for mortgaging it. But there are other expenses when it comes to getting a home:

• Initial notary fees.
• Expenses of early amortization of the mortgage (between 0,25-2%, depending on the date and conditions in which it was signed).
• Mortgage life insurance (desde 200 EUR a 600 EUR annual).
• Notary fees and registration upon completion of payment.

It is necessary to take into account these expenses that a priori are exempt from the initial cost of the house but it will be necessary to take charge of them over time.

Can you bear the maintenance costs?

Once you have the house, expenses don't end. There are some expected and other unforeseen expenses that must be addressed, such as:

• Real estate tax.
• Ordinary and extraordinary community expenses.
• Common maintenance (home appliances, installations…)
• Eventual reforms (furniture change, room extension, painting…)

While at the time of renting the house these expenses are usually included in the price, the same does not happen when you are the owner. You have to be prepared for this type of contingencies.

What is your opportunity cost?

When we make a decision on what to invest our time or money the concept appears “opportunity cost”. This is the cost for us to choose one option or another. How can this be measured??

Let's imagine, in a simplistic way, that as input, for our new house, we have to deliver 50.000 EUR (and of course we have them). That money has the possibility of providing us with endless benefits. One of them will be the entrance to our apartment. But we could also invest them in a new business (that could bring us economic benefits), on a trip (emotional benefit) or in our professional training (that could help us improve our economic position).

When we choose to invest that money (that we now have) and our future money (the one that we still have to earn -if we are going to mortgage ourselves-) we're giving up those other options and that's called opportunity cost.

The New York Times prepared at 2014 a tool to calculate, according to many parameters, when we should rent and when to buy.

Do you know the risks?

As we have seen so far, paying a mortgage is not the same as paying a rent. While if you can not afford the rent at a certain time, you can end the contract in the short term, if the water heater breaks you can ask the landlord to change it or if the community decides to change the elevator it will be something that will not affect you, when you own these expenses appear.

On the other hand, your bank will be as generous as it can be with the amount it will deliver to you and the real estate agent will adjust to your maximum budget before the minimum. You can easily see yourself increasing your maximum budget and taking risks that you may not be seeing with the naked eye. Well, the higher your monthly income with respect to your salary, the greater financial pressure there is on you.

Have you considered investing in something else (including you)?

When it comes to using money to buy a home it is often seen as an investment.. However, I think this concept is wrong if we take into account certain special aspects that occur when buying a home.:

• Annually it has high maintenance costs, that over the years grow.
• You cannot sell the investment without causing major disruptions in your life.
• There is no liquid market where you can go to sell your house quickly.
• If you buy the house through a bank mortgage, that “inversión” it is not yours.
• Selling it has high commissions.
• It would mean investing almost 100% of the heritage of a family in a single asset.
• It will not generate any income / economic benefit (as long as you live in it).

With this I want to transmit, that as an investment it presents a series of problems (leaving aside the fluctuations in its price).

If you consider it an investment, you should know that there are other vehicles in which you can put your assets in operation and get profitability:

• Stock market.
• Pension plans.
• Invest in your training.

Advantages and disadvantages

As a summary, having a house has advantages, como por ejemplo:

• Provides you with that security, feeling of stability and permanence in your life.
• It allows you to choose exactly what your house will be like and give it your character.
• That there is no regular financial transaction and a temporary rental agreement makes you feel safe.
• A mortgage with a fixed interest rate can help you with your financial planning.
• In the long term you have a better chance of a positive revaluation.

Although there are also disadvantages:

• Lots of indirect costs: repairs, insurance, taxes, interests..
• Financial profits or losses are almost impossible to calculate accurately due to the multitude of variables.
• Having a home gives you stability but also takes away flexibility.
• You can't get anything of value out of the house unless you get rid of it completely (ex-AirBnb).
• The costs of changing houses can be tremendous.
• A house is assimilated more to a consumer good than to an investment.
• By mortgaging you, you leverage with debt. What can act in your favor or against in a very big way.

What conclusion is there?

Each person will see the opportunity to buy a house one way. Some will be prepared to take responsibility and others will prefer other options.. This diversity of opinions brings a dynamic buying and renting real estate market that will be able to cover the needs of each individual and if it does not cover them, the individual will always have another option.

In this case there do not seem to be any incorrect decisions by nature, but people not prepared or who have not considered enough the option they are going to choose.