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Buying a Home is NOT a Good Investment

10 Apr 2018

Posted by Joseph Coupal

HHHunt Apartments

Some Americans believe that buying their own house is the best and smartest investment they'll ever make.

There are several valid reasons for buying a home. But buying as an investment or as the cornerstone of your long-range financial plan should not be one of your primary motivators. If your home doubles in value over the next few years, then great! Consider it a bonus. There are several reasons you shouldn't look at your home as an investment, especially in today's economy.

An inefficient investment

The main reason not to buy a bigger or fancier home simply because "it's an investment" is that there are much better ways to put your extra dollars to work. Real estate has generally appreciated around 4% to 5% per year on average, and this can be higher or lower depending on your specific location. Depending on what statistic you look at, home prices have historically appreciated at 3.4% to 5.4% annually over the past 20 years.

Compare this with an average annual return of 9.1% for an S&P index fund, 7.2% for the average mutual fund, and 7.16% for the ultra-safe 30-year Treasury, although it pays less these days, around 3.65%.

Simply put, the risks are not worth the rewards.

Don't forget about mortgages

Your mortgage will cause you to pay much more for your home than the agreed-upon price, which also will eat away at your returns. Let's say you buy a $300,000 home and put 20% down, so you finance the remaining $240,000 at 4.5% (about today's rate for a 30-year mortgage). If your home appreciates at 5% annually, by the time your mortgage is paid off, it should be worth around $1,296,583.

However, because you are paying interest on your mortgage, when you add up all of the payments, you're really "paying" a total of $497,794 for the house. This implies a total return of $798,809 after 30 years, or just 3.2% per year on an annualized basis.

Poor risk/reward ratio

When you consider the risks involved with owning a home, it is not really a prudent long-term investment. In fact, the risks associated with owning a home are quite comparable to the level of risk associated with investing in an index fund. From top to bottom, the S&P lost 58% of its value before bottoming out. It has since recovered to a level that is 13% above its pre-crisis peak.

In contrast, the U.S. real estate market fell about 35% from its peak and is currently well below its pre-crisis peak.

There are good investments in real estate, but your home isn't one of them

If you really want to "invest" in real estate, the only worthwhile way to do it is to buy an actual investment/rental property. These can be very lucrative if done correctly. In theory, an investment property should be a house (or apartment building, commercial space, etc.) that you buy and someone else pays for over time.

To sum it up, there are several ways of putting your investment dollars to work that simply make more sense than buying your own home. It just doesn't make sense for "investment" to be the reason to spend more on a house in the hopes of producing long-term gains.

For more information, contact HHHunt Apartment Homes.

Source: Daily Finance

Buying a Home vs. Renting: Key Factors to Consider

23 May 2017

Posted by Joseph Coupal

Buying a Home vs. Renting;

As Millennials age and start families, many are compelled to own a home instead of rent, but this should not be an automatic response. There are a seemingly overwhelming number of variables at play in making an informed decision on renting versus buying.

Common factors that influence whether you should rent or buy include the length of time before your next move, the difference in cost per square foot between renting and owning comparable properties in your area, mortgage rates, access to credit, and the affordability of a down payment for a home purchase.

Of course, anticipated repairs and maintenance costs are a serious consideration. But there also are smaller factors that can wind up playing a large role in the decision to own a home. What are the neighbors like? Are there homeowners association fees? What has the crime rate been in the neighborhood?

First-time homebuyers often make the dangerous assumption that they will make money on their home when they eventually sell it. The reality is that after all of the costs of home ownership have been factored in, many homeowners do not make out like a bandit. Increasing property taxes are a big reason why. Before committing, always know the annual taxes for your nest, and do not assume that they will remain static.

When it comes to renting, other questions come up, including how often and by how much the rent will increase and whether there is a pet policy. How many parking spots are included in the lease? Proponents of home ownership say renting is like throwing money away, whereas renters will say they have more flexibility and financial independence. Renting often can give individuals an opportunity to live in an area where either they would not be able to afford a home purchase or they wouldn’t want to take on the maintenance required of older neighborhoods.

A soaring housing market the past few years has functioned as a double-edged sword – a good investment for those whose homes have appreciated in value and a barrier for those who cannot buy homes with skyrocketing values. One of the main reasons housing prices have climbed so rapidly is the limited supply of homes available for purchase. Since the recovery from the 2008 housing crisis, there has been a historically tight supply of homes available for purchase, including existing homes or new construction. This has left the homes available for sale priced at a premium. It’s a seller’s market.

Yes, home ownership is exciting and fulfilling, but it should be considered very seriously. It should never be entered into lightly. It can become a nightmare that wrecks your credit or hurts your relationship with your partner.

For more information on renting an apartment, contact HHHUnt.

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