Buying a house isn't a bad idea; but, treating it as an investment is. Simply defined, investing is the process of putting away money in the order to earn income or make profits. Based on the definition alone, it should be clear why buying a house is a bad investment.
Let me walk you through the 8 major reasons why buying a house isn’t really an investment.
You may never sell
Owning a house is a dream to many and since you are one of those who have been successful to accomplish this dream, think about whether or not you have any plans of selling your house in the future? if you plan to stay at your home forever, it should certainly not be considered an investment. After all, the point of an investment is to promptly sell it in times of need. And even if you do choose to sell, you likely won’t have stayed in your home long enough to realize a profit.
The harsh reality is that as a homeowner, your property will not provide any sort of cash flow. Unless you buy an investment property and rent it out, you won't be able to generate any money. Renting out a portion or all of your house may help you cover expenditures such as your power bill, maintenance, and more, which isn't a bad deal.
Appreciation isn’t guaranteed
If appreciation is the only reason you bought a house, let me remind you that appreciation is overrated as it comes with a considerable risk: depreciation. In the event of an economic downturn, house values are likely to collapse. Your investment may lose all of its value in a matter of months, and it would take years to recover.
If you own numerous properties and rent them out, it may be essential for you to live in the neighborhood because not all landlords are fortunate enough to have tenants who do not cause problems and/or pay their rentals on time. From nagging the tenants to pay the rents to drive out to the property and be there in-person upon your tenant’s call for maintenance or other needs, you need to be on standby.
Since you have decided on settling up in a specific geographical location with the purchase of your house, switching jobs for betterment might not be possible anymore. The problem with buying a house is that the opportunities gets limited due to which owning a house becomes more of a liability than an asset.
As the old saying goes, “Never put all your eggs in one basket”, this is what exactly you might end up doing as buying a house would take up most or all of your savings. A wise investment is using money across different industries and varying assets. Just in case if one of the investments suffers a loss, the other assets would shield the losses for you.
By diversifying, as an investor you can reduce risk. If your only asset is your own home, you are not protected from decreases in home values or other factors and, you will not have any other investments covering this loss.
If you get the chance of selling your property at good appreciation value, the transaction costs can be a major setback to you. Firstly, the government would take a large sum of money. Also, with legal fees, brokerage and appraisal cost roughly 10% of the value is lost each time a transaction takes place wherein a good amount of your profits would be gone.
Assume you bought a house for Rs.50,00,000, resided for a decade and are now selling it for Rs.65,00,000. Good investment? Do the math!!
Things such as mortgage payments, insurance, property taxes, and utilities would be the expenditures during your stay. Plus a minimum of Rs.50,000 per year on routine repairs and maintenance, replacing the roof and flooring and other unforeseen expenses, this way you might easily sink another Rs.5,00,000 during the decade. And yes, don’t forget to add the the above mentioned various transaction costs.
By now, it’s quite visible that the math surely doesn’t support the idea of the house as a winning investment. The chances are you might walk away with mere few lakhs or even with no profits which was definitely not the worth after a wait of 10 whole years.
While owning a home is a bad investment, but it does come with certain perks ultimately bringing you a sense of security. Thus, do buy a house or even better, continue to put money into true investments, make great profits and then use the same money to buy your dream house!!