Maybe you were advised by your grandparents and parents to get married, have kids and buy a house. Their generation went through a lot and have the first-hand experience, so you shouldn’t take their advice lightly. It might not be only them; realtors may also tell you that owning a house is still a smart financial investment.
Living in the house and making it home won’t bring you any sort of cash. On the contrary, you’ll continue to spend on it. So, can you turn a house into an investment? The only real accurate answer is: it depends. Let’s have a look at what it depends on:
When we think of real estate, we often think of large mansions, penthouses in major cities, exclusive locations, etc. But in fact, the real estate market can give you a lot of bargains, or great buys. These listings come in the form of distressed houses sales.
A distressed house is one that is about to or already undergone foreclosure because the owner can no longer pay the lender. The owner may have defaulted on the mortgage or the tax bills of the property. At this point, the lender sells the property below the market price.
You can find distressed homes by searching around neglected properties or through tax records and delinquent mortgages since both records are made public.
Costs of rising rent
Nationwide, rents are on the rise and have been for some time now. If your rent is continuously rising, this could be the time to make a move and purchase a house. That’s because mortgage rates are on the opposite side of the spectrum; going down as rents go up.
To put things in perspective for you, homeownership is around 38% cheaper on average than renting. Of course, there is a lot of dynamics going on: such as, how long you plan to live in a house, location, the terms of mortgages, the cost of renting a similar house, and more.
The 38% average is based on the conventional 30-year-fixed mortgage rate, the 20% down payment, and a comparison of total homeownership costs (e.g: maintenance, taxes and insurance) to the total cost of renting for the same amount of time.
At the onset, it’s more expensive. However, in the long run, it’s an investment and we’ll tell you why in the next point.
Appreciation of value
While this may not happen in every case, but your house’s value can increase each year. An average home can increase by around 3.5% each year. Houses in better and posher neighborhoods tend to increase in value much more.
Before making final purchase on any property shop around, compare, look into, and evaluate and analyze the bigger picture. Also, check the neighborhood, local employment rates, crime rates, etc. It’s vital to take note of these indicators and more if the property you purchase is to end up appreciating in value later on.
With the right repairs and fixes, a house can be flipped for a good sum of money. Flipping houses means selling them at a higher price than what you bought them for. It can also mean buying a house, making no repairs in it, holding on to it for a while, then selling it.
It sounds easy enough but if you don’t know the market, it can also go dreadfully wrong. Before you make a final purchase know your price ranges for the purchase, repairs, renovations, and the final price you’ll be able to sell at.
Turning a house into a rental property is a comfortable way of making passive money. But you don’t want to fall, in the mistake a lot of homeowners make in over- or underestimating the cost of the property, which can end up in no rents or rents below market prices.
Usually, you should start small with a single unit. You should also understand the minds of your niche. For example, you’re contemplating buying a property in a college town. You’ll want something near the college, and in an area that college students would be interested to live in. Besides that, you need to keep in mind the types and amounts of repairs that renting out will cost you.
A house by itself is only an asset, but what you do with it can make it an investment. There are several things to take into consideration before you get excited about making money through owning a house. Sit down with a pen and paper, and break down the expected expenses compared to the potential profits to see if particular properties are worth investing in.