Homes, on average during good times, increase in value by the cost of living, so let’s say you might see your home value increase by 4-5% per year. So your money grows while putting a roof over your head, and the gains you make are not taxable. Sounds like an awesome investment right? Wrong, here’s why.
You pay property tax. This varies, but it mostly averages 1% of your property value per year, so your return just dropped one point.
As a homeowner you also take care of repairs and maintenance, so things like leaky basements, renovations, broken appliances and landscape maintenance and if you want to add even more design to your home you can also use design tips from Archute.com, but all these maintenance cost money.
So now you are sitting on an “investment” that is generating you about 2-3% per year. You’re still ahead of the game right? Wrong, I’m not done yet.
You also have home and fire insurance to pay, and let’s not forget the lesson we learned from the US recently: homes do not always appreciate in value.
Now, here is the bomb I haven’t even touched on that totally erodes the “investment” myth about a home being a good investment. It’s called a mortgage. Have you ever looked at your mortgage amortization schedule? Even a relatively small $250,000 mortgage over 25 years will cost you just under $800,000 to pay off. At the end of the day, you will be lucky if you break even. That’s why a home isn’t an investment.
It’s true that buying a home is better than renting, but be smart about it and live well within your means. Even if you don’t need a mortgage, don’t go “all in” and buy too much house. That’s not what wealthy people do. Investing your money elsewhere can generate a considerably greater return. There are several investment options that will return you 10% on an annual basis with very little risk.
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I feel that you are wrong although the comments you make do make sense but it depends on the home te amount you
Mortaged, I have ones a home for 7 years and have refinanced twice and have a total of 170 thousand that I’ve invested elsewhere from what I’ve made on my home. I never refinance up to the true value alway
Leave enough that if I sold I can still make a profit, in the end it’s my home, also another way I’ve benefited , through renting out the basement. A home is a big investment. Location location location!!!