Buying A House Because It’s An “Investment”?
Financial Expert Greg Pogonowski, author of many significant financial publications, smiles when he remembers the times people have said to him of their homes: “It’s the best investment I’ve ever made!” His reply: “Is that because it’s the only investment you’ve ever held onto?’” He’s got a point. There was a long-held belief that property values never go down – then came 2008 and housing market crash. In reality, home values historically keep pace with inflation and not much more. And the cost of ownership — not to mention moving in, furnishing, taxes, insurance and the maintenance that costs between 1-2% of the value of the home per YEAR (according to Harvard’s Joint Center for Housing Studies) — is high.
Buy a house you want to live in and make it a “home” not an attempt to kid yourself it is an “investment” — or continue to rent for now and “pass on” running costs to your landlord. That list of costs means it doesn’t make sense to buy one at all if you don’t expect to stay for at least five years. If you do stay long-term, the equity you build by paying off your mortgage (if applicable) becomes supplemental savings you can use for retirement. But you should never stretch to buy a house that you can’t truly afford just because you think the property values are due to go up. If you do, you’re neither buying nor investing — you’re speculating. And unless you’re a professional real estate investor, that’s a bad idea. If you are lucky and find yourself at the start of a property bubble, and are prepared to cash in at the “top” of the market, then great; but these are few and far between and hard to know where to find them.
Don’t believe me? Assume interest rates never go up or down again. Multiply your current monthly mortgage payment by 12, then multiply that by the number of years of your loan. The resultant figure is what your house has truly cost to buy – perhaps two/three times what you paid for it? What does your house value have to increase by just for you to stand still overall?
Please get in contact if you want a “real” investment, because “you can’t eat bricks!”
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