Should you Buy a House as a Financial Investment?
By Shad H
If you’re considering buying a house as an investment, then you should be exposed to the advantages and potential risks you might face.
Most people consider homeownership as a great form of investment primarily because real estate and landed properties tend to appreciate exponentially as time passes by. The price of a house can increase by more than 100% in less than a decade. It also comes with other benefits such as home equity, deductible expenses, and tax deductions.
On the flip side of the coin, investing in a house can come with risks such as illiquidity, high upfront costs, and depreciation.
A good investment should be something that would cost more when you’re selling than when you bought it. You might get a great sell-out cheque on the house, but you must have spent money on maintenance, renovations, taxes, and insurances.
Let’s play with some numbers, shall we? Hypothetically, you purchased a house at $200,000 and sold it at $300,000 10 years later. You must have felt good for a whopping 100% increase in cost price. But, looking beyond this,if you had spent $1,000 every month on principal, interest, taxes and insurance, and at least $350 per month on utilities, you would have spent $16,200 annually and $162,000 throughout the decade.
If we throw in a$3,000 annual cost for repairs and maintenance, that’s another $30,000 right there. Plus, a renovation or remodeling cost of $50,000 over the years. That’s a total sum of $242,000, only to sell at a profit of $100,000.
Before buying a house as an investment, you should consider all of these properly. A real investment should be a venture that you can trade its ownership at any point you feel like. A house isn’t something you can do that with. Consider other investments such as mutual funds, stocks and bonds.