If you’ve ever talked to a real estate agent, you’re likely to come away thinking that buying a home is the best investment you’ll ever make. Buying a home can be a good forced savings plan (at the end of your mortgage, you have a big asset that you can tap into later, usually be selling for a large chunk of capital), but the home you live is rarely a true financial investment.
It’s even worse in certain circumstances. I bought my home thinking of it more as an emotional investment, and something that could allow us to break even over rent. In the end, while it did provide some emotional satisfaction and stability, it ended up costing more than I would have liked — and costing more than we would have spent in rent for the years we were in the house — with no return.
Before you buy, says Rocky Lalvani, a Financial Coach and MBA, carefully think about the situation. There are 4 red flags that indicate that buying a home is probably not the right move for you:
1. You Plan to Move Soon
This is one of the biggest reasons to avoid buying a home. Lalvani says you should plan to live in an area for five to seven years if you plan to buy. “By the time you pay selling costs and everything you spent on making the house yours, it’s hard to get ahead,” he points out.
2. You are in a Low Rent Area
Lalvani says that if you live in an area where rents are considerably less than your monthly mortgage would be, you should think twice. This is especially true if the taxes, upkeep, and insurance far outstrip rents. You might be better off renting and then taking the difference and investing it. You are more likely to see real gains over time, including gains that beat inflation.
3. The Home You are Considering is Expensive for the Neighborhood
You don’t want to buy the most expensive home in a neighborhood, says Lalvani. “The cheapest home tends to do best on a resale.” If the cheapest home in a neighborhood isn’t quite what you want, look for something that is midrange. Stay away from the high end, because you’ll want to sell it, and buyers may not go for the expensive upgrades.
4. The Area is in Decline
One of the best things you can do before you buy a home is research the location. Real estate is very local, and you want to take a look at the neighborhood. What’s nearby? Have home prices been stagnant? Are they in decline? Are a lot of people moving out to be in better school districts? You don’t want to jump on board a sinking ship; you might not be able to get rid of the home later if the area continues to decline.
In the end, the decision to buy is very personal. Carefully consider your options, and don’t be afraid to decide to rent if that will work out better for your situation.
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Now I am older, whenever I am looking at property for purchase, the first thing to consider is where do I want and need to live. Once established where I need to be, the second thing is, where do I want to live that is near to where I need to be.
Deciding where I want to live refers to the area and then the street (if there is a choice as far as finding an available home which suits) then the house.
When deciding on the area, I always keep in mind, that I may need to sell this house quickly, so is this where others would want to live too and what is here that will encourage others to come and live too. The adage of ‘supply and demand’ is right beside, ‘do I like this area’. For me, and others, living near or in a town which has all the day-to-day service, facilities and infrastructure. Obviously this means: banks, schools, a hospital or a decent medical facility (hospital within 15 mins via ambulance), shops of all varieties including supermarket/s, clothing, shoes, repair shops, restaurants, cafes, petrol/gas stations, traveler’s accommodation, at least one decent public park, sports ground/s and water way of some sort (this could be a damn, lake, waterfall, sea, rivulet) and so on. The other important consideration, is thinking about large employers in the town eg public hospital, large working port, a major tourist attraction, etc. If a large employer is not in the township, large employers must be within easy commuting distance from my chosen town – this means, good roads on the way to other towns or cities. A good town has a good local government system that cares about the shire and it’s people. Such infrastructure ensures people will want to live in the town, travelers and business people come to the town keeping the township vibrant and financial viable. All this serves me and my family while we live in the town, additionally, it means that the home we choose is likely to increase in capital value during the time we live there. A house does not need to be worth millions of dollars on a prestigious piece of harbor real estate close to a large city to increase in value nor does it happen to be where many people want or need to be. In addition, choosing a medium sized home within the median price bracket for the county will appreciate very nicely in value and likely to have more buyers for your home if you need to sell, than an expensive piece of real estate on the sea front. A pleasant view from you home is always lovely, but a lovely outdoor garden where you can sit an appreciate it in peace, could be worth more for your peace of mind and contentment. Often having a lovely view means having a house in an elevated position. Hills to walk up and down are not always practical.
The next consideration is choosing a home that suits me – choice becomes personalised. The front presentation is important – does it need some minor modification – a paint and bit of garden, fence repaired. Street appeal is as much for the owner as it is for lookers. For me, I like some space outside to sit in sun, have a BQQ and some pleasant garden or outlook. Privacy in the back yard is essential. The house importantly needs to suit me, but I also view the my potential new home with the idea of ‘will this home appeal to a wide range of potential buyers if I need to sell quickly). The house needs to be a practical design, with plenty of light and adequate storage for linen, food, suitcases, personal items, etc. Neither the front or back yards or the house need to be large, similarly for the house size,. The house needs to be just large enough for the essentials of living in a home and some room to move without bumping into anyone or the furniture. Nobody needs more furniture or possessions than they use, this helps to maximise living space, cuts running and maintenance costs, reduces housework and maintenance labor and time.
I am looking for just such a town and house now. I want to downsize. However, the need is not there yet, so the motivation to make a decision on town and home is low. I keep thinking about the costs involved in moving, buying and selling! 🙂