Owning your home is probably the most
important step in your life. The moment you set foot on your first house is
something memorable. When you own a piece of real estate, you treasure it and
care for it in a special way. Although owning your home might seem like an investment
in fact it is far from it. Investments are supposed to generate income and cash
flows. When you buy your house, it is simply a way to gain equity on a piece of
real estate that you are using. Don’t get me wrong, overall it is not a bad
decision. At the end of the day it is better to pay a monthly for something you
will eventually own. Otherwise the only person benefitting is your landlord.
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The
Solution
I am not saying buying a house is a bad
financial decision. But ultimately it should not be considered as an
investment. Although the price will eventually appreciate as time goes by.
There is no income or cash flows generated. Unless of course you find a
property with two units. That should be your goal.
Probably one of the best solutions would be
buying a two unit property. This allows you to live in one unit, and rent out
the other. If done correctly, the income you generate on one unit will be able
to cover the expenses of the other. In essence you get to live in a house
without incurring in any monthly costs. Here are the main four things you
should consider before purchasing a property.
Even If
You Sell
To actually generate any profit from a house
you live in, you have to sell it. It is the only way it can ever generate any
return. This is why having a two unit property can be very rewarding. If things
turn sour, you can always sell one of the units.
Maintenance
Costs
Another thing that should be on the mind of
every aspiring homeowner are the costs associated with maintaining your
property. Eventually things start tearing apart with usage and as the years go
by. You should prepare for those expenses ahead.
House
Prices
We assume that house prices go up, and they
surely do over a long period of time. In the meantime the housing market can
turn downwards like we have seen in the great financial crisis. Buying a
property doesn’t ensure capital appreciation, unless of course you hold it for
a decade. Some homeowners dismiss this fact. Which can lead to what is commonly
referred as “underwater mortgages”. Simply put it happens when the price paid
for a certain property is higher than its value. Leaving the buyer with a
mortgage that far exceeds the value they can get for their property.
High
Down Payment Relative To Your Savings
This is a great risk that can easily be avoided. When
looking for properties, don’t focus solely on the down payment you can afford.
Try to look for properties in which the down payment won’t cover all of your
savings. This ensures that in case something turns against you, you will always
have a buffer to deal with the situation. Sometimes people end up spending most
of their savings on the down payment, and put themselves in a risky position in
case they lose a source of income.
