Your house is not a piggybank!
There are many reasons to buy a home: It provides stability for your family. It’s a safe harbor from the stresses of the day. (At least it should be.) It’s a place to build memories.
Those are all warm-and-fuzzy reasons. But to me, at least, they are the real reasons to take on what is, you have to admit, a huge financial burden. Owning a house isn’t cheap. It’s worthwhile, sure, but definitely not cheap.
Notice that when I listed the benefits of homeownership I didn’t mention that owning a home is a great way to build wealth. Most Web sites will list that as one of the top reasons to buy a home instead of renting. But I’m here to tell you, don’t count on your home as a way to get rich.
Sure, residential real estate usually appreciates. In a hot market, it can appreciate quickly. Even in a down market like the one we’re currently seeing, residential real estate – unless it had been extremely overvalued before the down market hit – will usually appreciate, just at a slower rate.
There’s a catch, though, and it’s a big one: You can’t really consider your home’s appreciation as newfound wealth unless you’re willing to sell that property. Tapping into your home’s equity doesn’t count. You’re not gaining money when you pull dollars out of your home’s equity, you’re actually gaining debt.
Secondly, even if you do sell your house, and it has appreciated steadily over the years, unless you’re downsizing or moving to a market with significantly lower housing prices you’re going to have to spend that money you gained — and probably more –when you purchase your next residence. Remember, if your house’s value appreciated, the odds are good that the same thing happened with the next house you are going to buy. In other words, your next home’s sales price will be higher, too, than it was five years ago. And don’t forget the costs involved with taking out a new mortgage loan, moving, hiring home inspectors and tackling all the other tasks involved with selling and buying real estate. Bye-bye, profits.
This doesn’t mean, of course, that you shouldn’t own a home. I can’t imagine going back to renting. (Unless, of course, something goes wrong with our home’s plumbing. Then I dream about the days when I only had to call my landlord to get the problem solved.) But appreciate your home for the warm-and-fuzzy benefits it provides: The sense of pride in a well-maintained lawn. The memories from years of Thanksgiving dinners. The joy of a perfectly decorated den. The comfort of plopping down on the couch at the end of a long day and knowing that you are finally at home.
Just don’t consider your home a piggy bank. There are far better ways to build wealth.
Tags: financial-benefits-of-owning-a-home, real-estate-appreciation, rent-vs.-buyRelated Stories
POSTED IN: Buying a Property, Educational Tools, Insights and Commentaries, Mortgage, Real Life Stories, Rent, Road to Profits, Selling a Property
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