Monday, March 9, 2015

People are Just Now Figuring Out that a Home’s not a Good Investment?

I’ve been writing about the downsides of homeownership since before the housing market collapse and before I even became a homeowner.

It’s not that homeownership is a bad idea for everyone, but sometimes it’s hard to know just what’s involved and how much it could cost before you get there.  And if you’re looking to make money off a home ownership experience, well, unless you either live in California or are a home flipper, or both, it might not be as easy as you think.

A recent USAToday.com article quotes Noble Prize winner Robert Schiller as saying, "From 1890 to 1990, real inflation-corrected home prices were virtually unchanged."

Here are some of the costs that can make home ownership a poor investment even over the long haul.

Mortgage costs
Mortgage costs can cripple your hopes of squeezing a profit out of your home.  But it’s not just the costs of obtaining a mortgage or carrying mortgage insurance – which can be sizeable expenses in themselves – that can be the real killers, but interest on the loan itself.

Even just a percentage point different in rate can equate to tens of thousands of dollars in additional interest over the course of a mortgage.  And a 15-year versus a 30-year mortgage could make an even greater impact in the overall mortgage interest paid.  This is why it can be so important to utilize a mortgage calculator to find out just how much in interest such a loan will cost over time and how to best proceed to minimize such costs since the interest alone could end up nearly doubling the purchase price of a home over the loan’s timeframe.

Property taxes and insurance
Costs related to property taxes and insurance are often combined with a mortgage payment so that they aren’t as noticeable as individual costs.  This can mask their true cost.  However, these expenses can add significantly to the carrying cost of a property. 

Depending upon the size of your downpayment, there might be mortgage insurance involved with your loan.  The location of your home and natural or geographic dangers posed to it could substantially raise the level of your home insurance, and property taxes can fluctuate from area to area and home to home, ranging from only a few hundred dollars to tens of thousands of dollars per year.

All those extras
Owning a home can come with a variety of additional costs.  From yard maintenance and lawn care to home repairs, updates, furnishings, and more, upkeep of a home can cost thousands or even tens of thousands of dollars a year depending upon the size, age, condition, and needs of the home and property.

Some put the average annual costs for repairs and maintenance at around 2 percent of the home’s value, but expenses can rise or fall dramatically from year to year depending upon the need for higher-cost repairs like a roof replacement, kitchen or bath remodel, or similar big-ticket expense.

And with all these costs involved in home ownership, unless you’re living in a location where property values rise consistently and at a decent rate, it can be difficult to make money with a home over the long run.



Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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