Want to know why home ownership is actually a terrible investment? Read on!
To the average person, purchasing a home is considered a great investment.
Nonetheless, it just might not be the smart investment a lot of people believe it is.
Why Home Ownership is Actually A Terrible Investment?
Beyond not being a wise investment, is owning a home an investment?
Since you do not buy a home to sell it and make back your money, how is it an investment?
According to Peter Mallouk, the Wealth Management Firm Creative Planning president and a certified financial planner, investing in a home is not the best way to grow your wealth.
This might seem strange to people that have always beloved that owning your own home is a trusted way to grow wealth.
Nonetheless, it is the truth.
How good is the Idea of Owning a Home?
When looked at critically, owning a home is generally a bad idea.
While there are many reasons for this, one major reason is you will always spend money if you have your own home.
You will spend on insurance, maintenance, and property taxes.
While this does not look like a lot, it is usually not very palatable.
Beyond the already mentioned expenses, you will also spend money on lots of other unseen expenses.
Owning a home might seem great.
However, it is associated with unseen costs and lots of young people that own homes discover this only after they have paid for the house.
Due to this, lots of millennials living in their own homes have regrets.
They might not talk about these regrets.
Nonetheless, they do exist.
If you own a home, it could increase in value with time.
However, this increase in value might not be a good repayment for the amount you have to spend on the house.
If you do not buy a house and decide to save up some money, you could invest this money you would have spent in a house in any venture that can be trusted to grow rapidly in value.
These include bonds and stocks.
If you go this route, there is a huge likelihood that you will have more with time.
Let’s assume you live in a part of town where you pay $2,500 on rent every month, and you might end up paying $5000 every month on taxes, mortgage, and other expenses.
Going by this, you might eventually spend 40% more than someone that rents an apartment.
Since you will be spending less when you pay rent monthly, if you decide to save the difference between what you will spend if you own your own home and what you spend on rent, you will be better off.
This is because, after a while, the amount saved will be more valuable than your home equity.
If You Must Buy a Home, Get the Numbers Right
If you have any plans of buying your own home, you will have to be good with numbers.
It is important you know the right numbers.
You must be aware of your financial standing before making a move to buy a home.
After doing this, you should know the average cost of renting a home, as well as the average cost of buying a home.
With the two figured out, go on and compare prices.
This way, you can easily tell which is better for you.
Renting or buying.
After running the numbers, you might find out that you will be better off renting a home based on the part of town you live in.
While certain people buy a home simply because they want to be regarded as homeowners, others buy for reasons such as their children’s desire to attend a particular school.
Regardless of why you want to buy a home, always take out time to go through the numbers.
While owning a home does not have to be the biggest purchase one would make, sometimes it turns out to be the most expensive purchase of some people’s lives.
This, therefore, makes it important that you know the math and what it is most likely going to turn out to be in the future.
Although buying a home might not be a perfect decision for many people, it comes with some advantages.
When one buys a home, the persons can be said to undergo forced saving.
This is because when you make payments on a certain mortgage every month, you are indirectly putting money into an asset, and you might decide to sell later.
Putting money into a mortgage is not the easiest of things.
You must have the right funds to put into the mortgage every month.
This way, you are forced to build equity.
Always bear in mind that you will give your lender interest when you own a mortgage.
That’s not all. When you buy a home, you can retire on time if you can deal with your mortgage.
If you have the discipline that is needed to invest whatever amount you have been able to save from renting, you will do a lot better in future than you would if you had put the money into buying a home as a home will always make you spend
When lots of factors are considered, it becomes obvious that a single-family home is not an investment.
However, this does not mean you should not put money together towards purchasing a home.
Nonetheless, if your major aim of buying a home is because you want to invest your money, you just might be making a wrong move.
How much of an Investment is Owning a Home?
Many people believe that their home is an investment because of the increase in real estate value.
Many of us have come across people who bought a house a long time ago, and the home is now worth more than what they paid for it.
While it’s true that homes are meant to appreciate, the fact that family enjoys does not in any way make it an investment.
For any expense to be regarded as an investment, it should have more than just the potential of increasing rapidly in value.
An investment gives its owner the freedom of being in charge of the timing of ownership.
The implication of this is you can always buy and sell under certain circumstances and in periods that will most likely give you maximum returns.
At this point, some regular investments like mutual funds, bonds, rental real estate, and stocks come to mind.
That’s not all. Your home is a place where you and your family live.
Due to this, you do not exactly have control over its sale and purchase when it is looked out through the eyes of an investment.
If you need a house for shelter, you can get one and sell it when it does not meet your need anymore.
However, apart from this purpose, you might not get much from buying a home.
Due to the fact that you are not in control of the sale and the purchase of your home, you will be dealing with some factors that make it obvious that a home is not an investment.
If you have no plans of selling a house, how, then, can it be an investment.
You can only call a house an asset if you want to sell it.