Maybe you’re married now, and thinking of starting a family, which leads to thoughts of where you’d like your kids to grow up. Or maybe your parents are making not-so-subtle hints that it’s time to get out of that rental place and into a starter home of your own.
There are good reasons to buy a home versus continuing to rent. But Billshark wants you to know that buying a house as an investment isn’t one of them.
1. Real estate beats stocks.
No, it doesn’t. Forbes magazine recently compared the return on investment (ROI) of homeownership vs. stocks. Since 1975, housing has appreciated by an average of 4.5 percent a year. Stocks, on the other hand, an average 9.8 percent annually, including dividends.
2. It’s cheaper to own.
No, it isn’t. If you’re renting and the water heater dies, or the HVAC system goes out, all it takes is a quick phone call to the landlord to have it repaired. You’re not out a penny.
When those things go on the fritz in a home you own, you have to come up with the money to fix them. Here are just a few items you’ll be on the hook to repair or replace, often costing thousands of dollars, for as long as you live in the home:
- all appliances
- the roof
And if you intend to borrow against your home’s equity to pay for such maintenance, remember that: a) you’ll be paying interest on the amount borrowed; and, b) you could end up “underwater”—that is, owing more on the house than its assessed value. That is a dangerous path to take.
3. Your mortgage won’t rise the way rent will
Are you sure about that? The “T” and “I” portions of your mortgage payment—that is, the principle, interest, taxes, and insurance, known as PITI—can and likely will increase over the term of your mortgage.
Insurers have been known to raise the insurance on properties when homeowners put in a claim for damage. And the taxes are based on your local jurisdiction, which can raise them as often as every year. Not only that, even if you’re in the house long enough to pay it off, you’ll still always have to pay taxes and insurance.
4. Real estate always goes up.
Wrong again. But the house your parents bought 40 years ago is now worth five times what they paid, so of course housing appreciates, doesn’t it? The fact is, though, the largest portion of that “appreciation” was due to inflation.
Unless you luck into a “hot” area early, you’ll be lucky if your home’s value keeps up with inflation, and you don’t need to sell during a downturn as we saw 10 years ago. One study showed that from 1890 to 1980, home prices on average declined by 10 percent after adjusting for inflation.
So why buy?
Buy a home if you want a place to live where a landlord can’t tell you what to do with your property. Unless you live in a community with a homeowner’s association (HOA), which are famous for imposing all kinds of restrictive covenants on members, you can paint the house any color you like, have as many family members, roommates, and pets as you want, and remodel the home, none of which are possible in a rental situation. In addition, the landlord can’t sell the property out from under you.
So think about all these factors when you’re considering buying a home. And rest assured that Billshark will always be looking out for your money. Let us find hidden savings in your bills. It costs you nothing unless we save you money.