Is Buying Houses a Good Idea or Not?
The answer to this question varies because a critical determining factor is where the home is. For instance, here in Austin, TX, the 2020 home values have increased as much as 12%, whereas the national average over the last 100 years is less than 1%, similar to basic inflation. Areas that are seeing strong growth are the strong places to invest.
But even if a home for sale is in the 1% or the 12% category, there are ways to improve returns while still fulfilling the primary goals of investing in the first place: the chance to live in a comfortable home and obtain financial stability.
First, Let’s Define What an Investment Is
According to Oxford Languages, an investment is “the action or process of investing money for profit or material result.” Either option is possible with homes. The material result is pretty straightforward, but there are some reasons homes can be investments, and there are ways to ensure the best results.
Homes Provide Multiple Opportunities for Investment Growth
Like with stocks, bonds, and mutual funds, real estate can pay off by utilizing the benefit of time. After buying a property, you can navigate the ups and downs of the housing market and wait for the ideal opportunity to sell. And multiple opportunities come along. Higher job growth and location growth, times of low-interest rates, and times of real estate speculation are some of the biggest. If you wait, chances are one or more of these benefits will come along to boost the home’s value.
These trends can also work against you, but by owning a home, you will gain the material result of a comfortable place to live in the process. If you never sell, you can live comfortably at a lower price than renting when considering inflation.
Homes for Sale Create Forced Savings
Being locked in a mortgage forces investment, which leads to owning a home in full. Yes, there will be interest required toward a mortgage, but there isn’t as strong an investment push with stocks, bonds, and mutual funds. As odd as this may sound, foreclosure is a terrific motivator.
Defeating the Buy and Sell Conundrum
There is a tricky reality to buying and selling a home. If you buy it for profit, real estate rates have more than likely increased since you bought it. If you want a similar caliber of home, that home could reduce or diminish your profit.
To ensure a profit, one method is to sell high and buy low, which means tapering down your next home size or your luxury lifestyle. This may not sound appealing, but knowing this early will help you determine your initial buying decisions to end up in the right home when you are ready to sell.
You Can Account for Home Living Expenses
Owning a home requires mortgage costs plus property taxes and homeowner’s insurance. Then there are the costs for utilities and upkeep such as a new roof and water pipes. These issues bring up questions of whether owning a home is too big of a financial risk, but it also brings up another question: what is the alternative?
If you rent, many of the repairs, improvements, taxes, insurance, and some utilities are covered, but you are susceptible to inflation and your are essentially tossing money away. Paying off a mortgage leads to owning the home in full, and if you budget accordingly and buy at the right pricing threshold, you can cover the costs of potential issues down the road.
The Option of Renting Out Your Home
If you rent out your home or even just parts of it, the income can reduce the pain of mortgage cost, property taxes, and home insurance costs, and this option is available at any point. You may be able to make the home comfortable for you and renters with minimal home improvements.
You will still need to pay off the home, but since the home is a forced investment, renting helps you realize full ownership over time at a lower out-of-pocket cost. If you rent the entire home, you will need another place to live, but renting a lower-priced rental can reduce the financial hit. You’ll need to look at the number carefully.
If you take this approach and consider renting, we offer plenty of listings to make it easy.
Take Advantage of Home Write-Offs
You can deduct mortgage interest, state and local property taxes, and closing costs, which, all accounted for, could make homeownership cheaper than renting. This may not always be the case since tax laws change, but it’s worth taking advantage of when it’s there. For a more in-depth look at write-offs, check out this article from TurboTax.
Adopt Tricks to Boost Your Investment Results
Special home improvements can significantly improve the value of a home for sale. Homeowners love new kitchens, plenty of beds and baths, balconies, attractive yards, and rooms with plenty of light. It’s a good rule of thumb to improve the home based on what most buyers need. Whatever you do, you should strive for improvement to equate to a profit at 1.5 the home value. For a better look at ways to prepare your home for the market and ensure it sells well, Check out our recent article.
Benefits of Paying Off the Home
These days most people consider 30-year mortgages, but if you have financial flexibility, you can opt for a 15-year fixed-rate mortgage, saving significantly and speeding up the time for homeownership. Whether it be a 30 or 15-year mortgage, you can also contribute more money at any point to reduce your overall mortgage costs. You can also refinance to a lower interest rate if one is available.
Having your home paid off will equate to significant savings in your later years. And if you choose a shorter 15-year mortgage or buy a home outright, you even gain more time for other investments. Owning the home also allows you to leverage business opportunities using your home as collateral.
Home Investing is Better than Other Savings Options
When you are looking to invest, homeownership works better than putting it in a money market or savings account. Whether or not they end up better than stocks and bonds is primarily based on the resale value of where you expect to live, but if you diversify, homeownership is consistently better than holding your money in savings.
Special Home Mortgage and Buying Rates for Certain Professions
If you are in the military or are a law enforcement officer, firefighter, and teacher, you will enjoy some serious savings. For example, police officers can save up to 50% discount off the list price of foreclosed homes for sale. Military members can also pay zero-interest mortgages and utilize their tax-free basic allowance to pay a mortgage.
Opportunities to Pull Equity from Your House
Like a bank account, you have the option of pulling equity from your home to get the cash you need. Though this reduces your home’s value, it can work as a method of obtaining cash when you need it, especially when you are older and don’t plan on selling the home. If you rent, you miss out on this option.
Are there Better Investments than Real Estate?
Even the most stable investments like bonds and certificates of deposit collect interest, and stocks have their place, but does that mean they are bulletproof? Though they do have less volatility and higher potential for growth, the questions bring us back to what the point of an investment is in the first place. We all want a comfortable home and financial stability and the ability to retire.
Investing in a home makes any investing process literally more comfortable, while also aiding in financial returns. You can always add the other investments into the mix and budget the home purchase to your advantage at the outset for additional investment capability.
The Most Important Factor
The bottom-line answer of how effective buying a home is as an investment is the property value in an area year over year. It can be a gamble for some locations, but time is on your side in most cases. Buying a home works as a financial investment when planned accordingly. If you are in it for the profit, then maximize profits by doing the tricks listed above and reduce the risk by further diversifying your investments.
A Realtor Helps Maximize Returns
Enlisting the knowledge and expertise of a local realtor is a powerful way to understand a home’s value and its resale potential. A realtor can aid in buying and selling a home, ensuring you pay a fair price and realize strong returns when you sell. We even wrote an article entirely on the subject.
If you are in the market for a home, we are here to help with your Austin home search. And if you are new to Austin, we help make the process easier by offering a free guide to buying a home in Austin. Let our extensive list of realtors can show you what’s possible.
