If you’re like most people, you were raised with the idea that the ultimate sign of success is when you buy a home.
You may be shocked to find out that this mantra, which has been filtered through to all of us, is wrong. Think about it: a true ‘investment’ is something that pays you, showing continual profit. Buying a home not only doesn’t pay you, it actually costs you money. It has been even worse for those that made the decision to buy a home with little or no money down. Once the bottom fell out of the housing market, they experienced the heartbreak of complete loss.
Now that you are letting that settle in, understand that, in past generations, housing prices were fairly balanced with the economy and income of the average family. This is not the case anymore, and proof has been watching the economy rise and fall, with the housing market as one of the areas that suffered the most. If you checked out any homes, you quickly realize that increased prices of single family homes are out of kilter with income. While home ownership might give you peace of mind, it falls short of the definition of a good investment.
Investments need to make you money on a continual basis. If you examine anyone that has achieved the accomplishment of becoming rich, you will realize that their focus wasn’t on buying homes. Today’s world requires rethinking home purchases with the understanding that it no longer offers investment benefits. Perpetuating a middle class myth that has been generated by outdated philosophies that must be changed to meet your current situation.
Real Estate Carrying Costs Can Break the Bank
A home has more than just the monthly payment. The carrying costs that are wrapped around having your own house can be staggering. This is one of the hidden areas that people really don’t look at, when they are considering a home purchase, and once they do discover it, it is too late.
The hidden price tag that is embedded in a home goes beyond just paying the mortgage. You also have to consider your county’s real estate taxes, utilities, homeowner’s insurance, and, in some cases, even private mortgage insurance. Taking care of a property can be a constantly revolving door of repairs and maintenance. All of these are part of the carrying costs. When you add in the replacement costs of the larger ticket items such as roofing, flooring, doors and windows, as well as any of the remodeling and replacement involved in updating bathrooms and kitchens, your home becomes a money pit that you are constantly feeding.
Appreciation in Price Is Not Guaranteed
For anyone that has bought a home, the ultimate goal is for it to increase in value. However, everything is dependent upon the economy, the location, and the value of homes around you. It only takes one economic crash or a few homes in your area to sell at low prices, and you are left with starting all over. This is not a viable investment in the truest sense. You shouldn’t have to wait until you are retired to hope that your home has a higher value and have paid the equity down.
A Single Family Home Doesn’t Generate Cash Flow
Savvy investors know that when they invest in stocks, bonds, and annuities, that they can expect at least something in return in interest rates–not so, with a standard residential home. Even with reduced interest rates, the costs of home ownership are high, and, when all is said and done, the bank is still the owner. An investment should be paying you on a monthly basis, not the other way around.
Don’t Give up Yet
However, in spite of these drawbacks, there are some rather interesting ways that you can turn the idea of home ownership, so that it can bring income to you. If you use a bit of creativity and think outside of the norm, you can transition your home into a money-making investment.