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First, when you buy a home, you’re tying up your money - and your down payment.
Here’s what I challenge you to think of: The Opportunity Cost Of Your Money. How much is your down payment worth to you, if you just invested it, instead? Having money tied up in a home means less money you can invest ELSEWHERE, at a potentially higher return…
Second, you shouldn’t buy a home if you’ve only budgeted for your mortgage payment.
First of all, you have property taxes…this varies throughout the United States, but it can range anywhere as low as 0.18% annually in Louisiana… all the way to nearly 2% annually in New Jersey.
Secondly, you’ll have insurance charges …You’ll usually need, at minimum, home owners insurance that covers your property against certain risks. And then, depending on where the property is located, OTHER insurances could be required - like flood insurance, fire insurance, or earthquake insurance…
Third…your extra payments don’t just stop there, because as a home owner, you’re going to be responsible for all the repairs and maintenance that were previously taken care of by the landlord.
This could be as minor as paying for utilities that your landlord would previously pay for, like maybe your water bill, or paying for the gardener to come every other week….all the way to replacing a roof, a water heater, a cracked waterpipe, repairing a broken air conditioner, the list goes on.
Fourth, buying and selling real estate comes with a VERY large transaction cost.
First, when you’re buying - you’ll have to pay for home inspections, escrow charges, title fees, and loan origination charges - not to mention a whole bunch of other miscellaneous things that come up during the process. Between all of this, you could easily expect to pay 1-2.5% of the homes value upfront when you buy a property. In addition to that, the transaction costs are MUCH higher when you sell - this is because there’s often real estate agent commissions involved, transfer taxes, escrow charges, more title fees, and more random crap that continually adds up. When everything is said and done, selling a home can easily cost you another 4-6% of the homes value by the time you’re done.
And fifth, when buying a home - unless you’re doing it specifically as a long term investment, chances are, you won’t be gaining a lot of equity within the first few years.
Don’t get me wrong, if you buy the right place at the right time and sell after a few years, there’s the possibility of making a decent amount of money while also getting a place to live for free. But assuming the market DOESN’T go up, or stays relatively flat - and if you decide to sell after a few years - chances are, that’s going to cost you more than you would’ve just spent renting instead.
And all of that really comes down to determining the true cost of ownership for everything you don’t initially think about, and then running the numbers to determine which is better for your own situation.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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