Real Estate
In most cases a personal home is a bad investment. Why?
In most cases a personal home is a bad investment. Why?
A personal home is a bad investment because of the yearly cost that every homeowner will incur along the way. Far too many people focus on the yearly appreciation (3% is fairly normal and it usually tracks the inflation rate) and the “wonderful” tax deduction (getting back cents on the dollar is not a great deal so don’t ever buy a home because of the tax deduction and don’t let some Real estate agent or government official convince you that is wise). The truth is, owning a home is very expensive.
You will have property taxes, interest on the loan, insurance, maintenance (think about the cost of mowing, shoveling snow, and all that goes into keeping a house from falling apart and looking shabby), upgrades (new floors, kitchen countertops, decks, bathrooms, etc.), and finally other (the upfront and closing costs could easily equal 10% of the value of the home, which would average 1% per year if owned 10 years).
So what does all that add up to? You could very well be looking at 10% or more in costs per year to own your home. For example: If you own a $200,000 home, you could expect to pay $20,000 per year in costs (it could certainly be higher). That far exceeds a 3% appreciation of $6,000 and whatever tax savings you might garner (this includes the tax free sale when pulling equity from the home).
Here is the bottom line. Do not buy a home because someone told you it was a good investment. It is not and it never was. The housing bubble in the early part of this century was one example of what happens when folks get caught up in this idea that Real estate is some great way to get rich. It is not. Buy a home to raise a family. Own it long enough (at least 10 years) and it should work out fine in most cases (you will not make money after costs, but you will gradually pay it off and stop paying interest on the loan).
When in doubt, rent until you become more knowledgable on the issue and you have the proper money saved up (20% for the down payment at least). You want to avoid ending up house poor (stuck in a house with a big payment and no extra money to do anything). Learn more on this issue by reading Financial Happine$$. A financial education can set you free!