A lot of first-time homebuyers view their houses as investments. For the most part, they’re not wrong – but there’s a lot more to property ownership. Ultimately, your plans determine whether or not you’ll make money from your purchase. A smart financial decision doesn’t automatically equate to a dependable investment.
Take a look at these ideas before you buy a house.
When we consider investments, our minds often turn to stocks. You put funds into a business with the expectation that you’ll earn returns as a result. You could even think about college tuition or a car loan as an investment. You pay bills to take classes, which lead to a diploma and a job – or you spend money on a reliable way to make it to work on time.
Any expense that earns an income later on qualifies as an investment. If you think about homeownership from this perspective, it becomes slightly tricky. After all, you can only generate money from a property when you’re a landlord or decide to sell. A house may be cheaper over time, but that doesn’t mean that it’s an investment. That said, there are still some financial benefits when you buy a home.
1. Owning vs. Renting
For many years, people believed that it’s more inexpensive to purchase a house than to rent an apartment. Sometimes, that’s true – but it all depends on a few unique factors. The most significant of these circumstances tend to be where you live and for how long.
For instance, let’s say that you live in a city where a two-bedroom apartment costs $2,000 per month. If you plan to stay there for a few years and then move, it makes a lot more sense to rent than to buy. Your mortgage payments could be slightly higher – and who wants to sell their house after they’ve lived there for less than five years?
In an ideal situation, you’d buy a property and remain there for at least five years until you can break even. Otherwise, you’ll lose money on your initial purchase. Remember that a home can only be an investment when you gain from it financially.
2. Does Appreciation Matter?
The concept of appreciation tends to be a meaningful point for homebuyers. Unlike other large purchases, such as vehicles, property can appreciate over time. Mainly, your house may be worth more than its original acquisition price down the line. That said, real estate isn’t exactly predictable. The market can change on a whim – and your home’s value follows suit.
Currently, there’s a lot of concern about a possible recession as a result of the COVID-19 pandemic. Similar circumstances can cause problems with appreciation. If you needed to sell your house right now, it’d be a lot harder than it would’ve been two years ago. In any case, when you ask, “is buying a house always a solid investment,” you should know that you can’t always rely on appreciation.
Don’t bet on a high resale value to earn you money later. Plus, when you want to remain in one home forever, appreciation doesn’t matter anyway.
3. Continuous Costs Don’t Help
When you buy a home, you agree to take on all costs. These expenses include mortgage, insurance, utilities and repairs. You also need to pay taxes. If you consider other investments, they don’t require continuous maintenance and upkeep. Over time, these carrying costs can put you out for more cash than you intended. Then, they may eat into any potential returns.
Despite potential appreciation, your home might not always become an actual investment. It’s understandable to put money into a property that you want to keep for the rest of your life. The longer you stay, the more it makes sense. Even then, you’ll make little money from a potential sale – and that’s fine!
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Is Buying a House an Investment?
There are plenty of financial considerations to make when buying a house. Ultimately, though, what matters most is what you’re looking for in a living situation. When you buy a house, it should be for the sheer fact that you need a place to live. Many homeowners choose this path because they want to design their own space, have more freedom and feel settled in a location they like. Do you like the front porch? Is the driveway large enough? If you love your home, that’s what matters most.
Is buying a house always a solid investment? No, but it can make sense for your future plans. It all depends on your wants and needs.