Is Buying a Home Really a Wise Investment? 40 Comments
The following is a guest post about buying a home as an investment. If interested in submitting a guest post, please read my guest posting policy and then contact me.
Conventional wisdom says that buying a home is a smart investment. Instead of “throwing money away” on rent, you are building equity in a home that you own, which you can sell for a profit if you like or at least to recoup the money that you have put into it. If you manage to get a low enough interest rate, or if you stay in the home long enough that inflation effectively lowers the amount you are paying each month, then what you pay on a mortgage may be less than what you would pay in rent, making buying a house a smart investment. However, there are often many more reasons why buying a home is not a smart choice.
Here are just a few reasons why buying a home may not really be a wise investment:
You Plan to Move Around
Unless you’re planning to stay in your home for a minimum of 10 years — if not 15 or 20 — buying a home may not be a good investment. You pay so much of your monthly mortgage payment in interest, and so little in the principal, that it will take you that long to build up equity and to shift the balance to start paying more in principal. If you aren’t planning to stay in your home for the long run, it may not be worth buying. In fact, you could end up losing a lot of money if you move every 5 years or more.
Interest Rates are Too High
Your interest rate has a significant impact on whether or not buying a home is a good investment. The higher your interest rate, the more your mortgage will be and the longer it will take to for you to recoup the money that you have put into the home. If you are unable to get a low interest rate, it may not be worth it to buy a home — at least not for the time being.
The Cost of Repairs and Maintenance
When you buy a house, you don’t have a landlord to call when things break. You are the landlord. That means you have to buy new appliances when they break, you have to pay to have the air conditioning fixed, and you have to pay to get the roof repaired. These things can all add up very quickly. If you buy an older house, or you buy one that has a lot of problems, you may end up spending more on repairs than you are able to recoup when you sell the house.
The Value of Your Home Can Drop
If there’s anything you should have learned in the last housing bubble — and the one before that, and the one before that — it’s that there are no guarantees. The bottom can drop out of the housing market at any time. You can lose the equity that it has taken you years to build up in your home in a matter of months. The value of your house may even fall below what you paid for it in the first place. It may take years for the value of your home to bounce back — if it ever does.
Buying a house is not always a good investment. There are many things to consider to evaluate the investment of a home, including how much you will pay in interest, your tax bill, and how much you can expect to pay in maintenance and repairs. It is also worth analyzing the local market to understand what you may be able to expect in the coming years and whether prices are predicted to go up. Though buying may work out in your favor, it’s not a foregone conclusion. It’s important to research your options thoroughly to make the best investment for your personal situation.
Author Bio: Kelly Opferman is a seasoned writer who at this time focuses on her car loan calculator site. Her educational background includes finance, teaching, and economics.