Is it worth buying a house? If you are looking out for good investments, there are options for investing in houses or real estate as well as investment in stocks.
According to The Financial Samurai, stocks offer a return of 7.9% a year, whereas real estate investment returns are 2 to 4%, based on studies over the past 60 years.
That said, real estate investing is considered a viable option for some. It offers a financial portfolio diversification and a great means of passive income for your retirement nest egg.
In addition, you have probably always dreamed of this big four-bedroom house investment property, with that cute little picket fence surrounding it. It’s all part of the American dream.
Investing in Real Estate/Buying a House
John Jacob Astor, one of America’s famous property investor, multi millionaire, was asked on his death bed if he would have invested differently if he could begin his life all over again. His response was that he would have bought every bit of Manhattan.
It reflects the truth that your grandfather and many a father might have told his children: Every time you sell a property, you are sure to regret it. So make sure you take advantage of the best real estate investment opportunities.
Consider this story. Your mom and dad bought a house in the 70s for around $30000. They then sold it in 2010 for $1.5 million and then lived a happy retired life.
But did they account for inflation? According to Robert Shiller, a Noble Laureate from Yale, the returns on home properties was zero from 1890 to 1990, after accounting for inflation.
Other Side of the Coin
On the other side of the coin, there are those who swear that buying a house is financial suicide. Is home ownership or buying a house a good investment?
Warren Buffet is considered one of the best investors but he is not a real estate investor. In fact, he accepts that he’s lost plenty of money on his real estate decisions. He still lives in his house at Omaha, which he purchased in the year 1959 for around $30,000. He surely didn’t build his fortunes with his old house, but rather by wise investments in stocks and bonds.
- So what is the real truth about buying a house?
- Is investing in property or considering where to invest in property a wise move?
- Is real estate a good investment?
Let’s Check Out the Hard Facts Before Getting Started in Real Estate Investing / Buying a House
Is Mortgage Debt Worth it?
- Banks make most of their money with mortgage debts.
- Presently, there is around $15 trillion in the form of mortgage debts in the banks of the country.
- Banks encourage buying a house, as they want you to take housing loans or they’d be out of business.
- Banks and real estate agents claim that it’s the American dream to own a house.
- Also Read – 7 Awesome Tips to Pay Off Your Payday Loan
Is Property a Good Investment? Is Investment in Business Better?
- There are several ways to invest in real estate. For instance, the cost of an average house in the US is around $250,000 and the figure could vary based on the region.
- Instead of investing in buying a house, you could use the money for a business, hire more people and even improve the employment scenario in the country.
- You can save yourself a heavy debt by avoiding the best property investments and avoiding buying a house.
- If you are considering is it a good time to buy a house right now, invest in yourself instead of buying an investment property. For instance, you can take a course in WordPress development, 3D rendering or ghostwriting skills and get freelance jobs to make around $5000 a month. These courses surely cost less than a monthly mortgage bill.
- If you are a persistent entrepreneur, you are sure to get back 100% returns in no time, as against residential real estate investing.
Throwing Away Money/Repairs
One of my acquaintances told me he’s paying $1000 towards rent. So he should surely be able to afford the same amount towards mortgage payment and get a house for himself in the bargain.
There are people who will tell you that if you keep paying rent, you are just throwing your money down the drain. So how true is this?
- If you are not able to pay the amount in one go, and you probably cannot, you need to create a mortgage setup.
- 80% of the mortgage payment goes towards the interest during the initial five years. It’s crazy.
- Repairs and Expenses. In actual truth, you might be throwing away a lot of good money when you become a homeowner, with a lot of phantom costs.
- Renting a house is far better than buying a house, as far as repairs are concerned. It is also cheaper to pay the rent than to repay a loan. Without repairs, your dream house could turn into a nightmare.
- Renters don’t own a thing in the house, so they are not responsible.
- If the refrigerator or any other equipment in the house breaks down, be ready to send thousands of dollars to solve the problem. This is only the tip of the iceberg.
- There are heavier expenses involved in buying a house, like house insurance, property tax.
- Renters have more flexibility. Take my example. My company recently changed its location. Most of my colleagues were forced to commute long distances from their ‘own’ homes. On the other hand, I just moved out to a rented apartment near by. It takes me around twenty minutes to get to my workplace.
- You might miss out on a really good job or a once in a life time opportunity, because you cannot sell your present home or rent it out.
- Flexibility is more than just the amount of time it takes to get from one place to another. You could be tying up most of your finances with a housing loan. This means you are losing opportunities other more lucrative investments, a good vacation and many other luxuries of life.
- Statistics show that housing appreciation is slow at around 3 to 4%, with the actual returns being zero.
- In case of disasters like the housing bubble, all the years of appreciation can be completely wiped out in one stroke.
- You cannot control the investment. This means that you cannot just sell your house and get out of the mortgage debt whenever you fancy. There is no market guarantee.
Of course, living in your own home offers stability and a sense of peace. But it comes at a cost. You never get rid of the expenses. Even after your mortgage payments are done with, there are still taxes and insurance payments to be made every year of your life.
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Buying a house is one of those invisible scripts that you feel you need to follow. It’s part of the getting a degree, finding a nice girl and getting married, having kids, getting a house, a dog and so on. But it could end up being the biggest money sink of your life.
In my humble opinion, homeowners don’t own a home; rather it’s the other way around. Your home owns you.