There is a bit of a debate amongst financial experts as to whether buying a home should be considered an investment or a lifestyle decision. How can purchasing a home affect you in the long run?
Read on to discover if buying a home should be counted as part of your retirement strategy or if it’s just a simple lifestyle change that doesn’t have a drastic effect on retirement and finances long-term.
Why Some Don’t Consider Buying a Home an “Investment”
Buying a home can give you a sense of security and fulfillment. However, that doesn’t necessarily mean that it’s a smart investment decision. Here are a few reasons why.
There Are Lots of Additional Costs
Many people don’t consider it, but there are a lot of additional expenses that come with buying a home. There are closing costs (usually around 3% to 6%), maintenance costs for things like mowing your lawn, cleaning vents and gutters, changing filters, electric and plumbing emergencies, taxes, and more. Keep in mind these are only general maintenance costs that don’t include any home renovations you may want to complete.
It’s Difficult to Time the Market
Sometimes people believe homes are a good investment because they assume that they will increase in value as time goes on. However, in the short term, this is only the case if the demand for homes stays strong and the market remains stable.
In order for your home to earn you money, you’d likely have to buy in a buyer’s market and sell in a seller’s market. This would put you at an advantage to negotiate prices no matter which side you’re on. The problem is, it’s difficult to time the market and sell your home when it’s worth the most or to anticipate when a recession will strike.
Is Buying a Home Worth It?
Buying a home isn’t exactly the same kind of investment as purchasing real estate to turn into a rental property, but having your own home does still come with its own short and long-term benefits. Let’s take a look at some of the financial benefits of owning a home.
You Aren’t Putting Money Toward Rent
One of the best things about owning a home is that your monthly payment goes towards ownership instead of going towards nothing. Many people consider rent to be “throwing money away” since you will never see the benefit of spending it beyond having a place to live for another month. Putting your money towards a mortgage helps you build your overall net worth and progressively increases your financial security as you get closer to retirement age.
You Can Enjoy Some Price Stability
For those with fixed interested rates on their mortgage, the principal and interest amounts you pay every month will stay the same (though taxes and insurance may fluctuate over the life of the loan). What this means is that unlike apartments and other rental spaces that generally raise rent every year, a mortgage will stay the same. This can give you the chance to make more strategic decisions regarding your future finances.
Investing in the Future Beyond Finances
Houses increase in value over long periods of time despite any temporary fluctuations that might occur due to recessions, etc. Homeownership allows you to pass down a valuable asset to your family’s following generations. Owning real estate to pass on is a huge factor in creating generational wealth.
Final Thoughts
Buying a home is an investment. To some financial experts, it may not be considered an investment on the same level as real estate properties or stock market investing, but it has numerous benefits. Buying the right home at the right time is often a sound financial decision that can positively impact your future, help you retire comfortably, and keep a valuable asset in your family.