Buying a house is one of the biggest financial purchases you are likely to make in your life. So should you look at it through the lens of finding the perfect place to call home or as an investment that can set you up for the future? Here is some food for thought as you decide which home to purchase.
Is the American Dream of Homeownership Your Dream?
As of September 2020, more than two-thirds (67.4%) of American households owned their own homes, according to the U.S. Census Bureau. Homeownership is a financial and life goal held in common by most people and there are plenty of government and non-profit programs out there aimed at helping more citizens become homeowners. Yet, being a homeowner can be very expensive when it comes to paying a mortgage, property taxes, homeowner insurance, and keeping an emergency fund for repairs and maintenance. You’ll have to decide if the cost and hassle of owning your own place is worth the benefits of equity and stability.
How Long Will You Stay in the Home?
Whether your house is a home or investment may also be determined by how long you plan to stay in it. If you are just starting your family, if your kids are moving out soon, or if you anticipate downsizing for retirement soon, you may view your house differently. If you plan to buy and sell within a short period of time, say 5 years, you may not be able to time the market perfectly enough to guarantee a huge equity gain. In this case, you may want to buy a home that fits your basic personal needs that is also in an area that tends to maintain its property values well.
If you plan to buy a home where you can spend the next few decades, it is more important to find a property that checks off most of the things on your wish list. Of course, many things can be added or renovated, but if you are hanging out there long-term, you should decide whether you love the neighborhood, whether the schools and other amenities are up to par for your preferences, and whether the home has the space and character you desire.
And it's also important to make sure you can comfortably afford the mortgage for any long-term property you consider, as there will always be unexpected homeownership costs that crop up along the way.
Do You Plan to Keep the Home Even if You Move Later?
If you are planning to move soon, can you afford to hold onto your current house as a rental property and still buy another house? In this case, looking at your current purchase mainly as an investment makes sense. Consider whether it is in a desirable rental area, if the home is a suitable size for renters, and how much rental management will cost you down the road. You may also want to buy a place that is on the less expensive side of your budget if you’re planning to get another mortgage in the near future.
How Fast Do You Need to Build Equity?
If you are planning to buy a home to finance your retirement, you will view your purchase differently than if you are just trying to find the perfect home for your personal and aesthetic needs. Homes are a great investment, if you have enough time. In most markets, you won’t gain the kind of equity you need in just a few years. You’ll need to stay invested for decades. It's also good to hedge your bets with other forms of investments, like stocks, bonds, REITs, and other financial vehicles.
Fortunately, in most cases you don’t have to view your house as either an investment OR a home. They can earn you great equity at the same time as being your favorite place to unwind.
If you or someone you know will be in the market for a new home this year, give us a call today. We'd love to help you get your home financing ready to go.