Many think that buying a house is the ultimate investment. But is it? It depends on what your goal is and if you are financially and mentally ready to own a property. It also depends on your circumstances and if it is a wise choice at that time.
Let me give you an example. Say your job requires you to move frequently as in once a year or every two to three years. Or you like to move frequently because you like the change of scenery or because of a family situation. As you can see it is not the best choice to invest in a property in these cases because it is not a permanent situation. Permanent means staying 3-5 years at least at your residence.
Owning a property is not as liquid as having a rental lease every 6 months or a year and moving on from there. Once a lease is up you can grab your things and go whereas a property can stay months on the market to be sold. It can put you in a position to be stuck or even financially be a burden if you decide to still move out and have to pay mortgage in the meantime.
Also, owning a property has additional annual costs not including your mortgage payment which includes your principal, PMI (private mortgage insurance) and escrow which has property insurance and property taxes built in. Additional costs out of pocket is other expenses as in snow removal, lawn maintenance, maintenance of furnace and A/C and other repairs that go along with that.
Although renting might seem to many that it is money down the drain, it is not automatically. You have to also remember that renting is still considered housing and you have a roof over your head and your own place to live in. You can also save money while renting as cost of rent is a bit lower (depends though how fancy that rental unit is and what it offers) than buying and all maintenance and repairs are covered by the landlord.
If you did own a condo or townhouse you would still get charged an extra fee called homeowners association and those maintenance costs are covered by that association, but not all of them though. The more they cover, the costlier that monthly payment will be.
I know first hand in owning properties and have owned 3 properties throughout my life so far. I had owned a townhome, a condo and currently a house. I would say I experienced some hardships due to owning a home and on the flip side I did well owning a home.
My first home was a townhome and had no problem paying my portion of the mortgage as it was 50% of it mine to pay and the other my sister paid. I bought it with her which thinking back might of not been the wisest choice at the time as we were both single and not ready to settle permanently anywhere. But the time came that we needed to sell as she was getting ready to get married (hence renting might of been the easier choice here). But we were lucky to be able to sell the property fairly quickly and made a decent profit.
On the other hand I did not do so well with my second property. I bought another property with my other sister and unfortunately that was the time the real estate market bubble burst wide open and all home values dropped significantly. We could not sell our property at the time due to the value dropping so much.
But the real issue was the economy got worse and many businesses let people go from their jobs. Unfortunately, my sister was one of them and so I could not afford to pay the mortgage on my own. Long story short we rented briefly but then short sold the property with owing quite a bit to the bank. It affected our credit significantly and for a long time financially because we now had a debt to pay to the bank.
I learned my lesson that in this case I should of rented instead of buying but who would of known the real estate market would drop like that? This is why I should of weighed the pros and cons and not think owning a property was the best choice every time. This was my mindset based on how I was raised and was told by my parents that renting is losing all your money and that buying was key.
I also should of been aware that the market does fluctuate and not assume that I would sell at a profit anytime I sold my property. As you can see these are the choices we make in life without thinking through the steps a bit more wisely. Through my experience I learned a lot more about buying properties and that the American dream is not for everyone or at least at certain points of our lives.
As for my current home, I bought 6 years ago and is an old 1930's bungalow, key word here is OLD. My husband and I bought it at an affordable price and love this place but it was affordable because it needed some upgrades and I mean many upgrades. It has that awesome charm to it and we absolutely love it! But at the same time I have spent quite a bit on remodeling a very old outdated kitchen, replace kitchen appliances, fix many repairs and recently they are becoming more and more.
We did buy because we were ready and was worth our time, money, and effort in owning a property instead of renting. We also knew that we were going to stay there permanently for a long time.
We are proactive and save for those times we need to repair something. Our recent repair that was an emergency was plumbing and that could not wait. Sometimes you need to be prepared for those times when something breaks and needs a repair immediately especially when its an emergency.
Therefore, owning a property is a huge life commitment and responsibility and requires time and money.
And getting approved for a home is a drawn out process which many banks do not inform buyers of the the cost of the mortgage payment and sometimes offer too much home that you can't even afford. But they don't tell you that and then it's too late to back out because you purchased the home already.
There is a lot that goes into buying a home and many new home buyers have very little knowledge till it's too late. Many banks and real estate agents do not inform a first time home buyer of all the things to consider. I do hope though that this has changed over time and they start informing buyers of all the costs that goes into it.
In considering to rent or buy, you should ask yourself questions like am I looking to travel a lot or become a permanent resident and build my family?
Am I ready financially to cover maintenance expenses and repairs when my property calls for it?
How about property taxes and when prices go up because of the property value increasing?
Am I ready to stay permanently at my new property for a long period of time?
Weighing the pros and cons is key and what your priority is at that time in your life. When the right choice is to own a property and you are ready for what comes along with it, then it's a worth while investment!
Need help in making those choices, to rent or buy?
Need help in purchasing a home and how much home you can afford?
I am here to help and provide the tools for you to make an informed decision that will help you in your financial future and make the right choice!
Contact me to learn more on how to help you out with a home purchase or renting and being ready for both situations with money management tips and tools!
