For many people, buying a home is a wonderful decision that can lead to peace of mind and a sense of security. But that doesn’t mean everyone who buys a home is making a wise investment. Let’s look at a few reasons buying a home at this time may not be the best idea for everyone. Some people don’t factor in all of the expenses that come with a home purchase. For instance, unless an alternative arrangement is made with the seller, new homeowners have to cover closing costs, which are usually 3% – 6% of the loan amount. So, if your home is worth $250,000, closing costs would be an additional $7,500 if they fall on the lowest end of this scale. If they’re on the highest end (which could happen if you buy mortgage discount points), you would pay $15,000 in closing costs. Maintaining a home can be expensive because of regular maintenance costs you’ll have to deal with. On average, you can expect to pay 1% – 4% of your home’s total value on routine maintenance every year.High Closing Costs
Maintenance Costs
So, if you own a $250,000 home, you can expect to spend $2,500 – $10,000 a year on costs related to various forms of maintenance, including:
- Mowing and treating your lawn
- Cleaning out vents
- Clearing your rain gutters
- Having appliances serviced
- Paying for pest control measures
- Pool maintenance
Keep in mind that these costs are for general maintenance only and don’t include the costs for any major home repairs, such as replacing your roof.
Possible Depreciation
Appreciation is important to consider when you’re trying to determine whether a home is an investment. If the appreciation rate is high enough, the added value you’ll earn from the home will make the investment worth it within a certain period of time.
However, be aware that it’s possible at some point to encounter a situation like the subprime mortgage crisis of 2007, which caused housing prices to dramatically decrease in a short period of time. Additionally, the physical structure of your home will naturally experience wear and tear over time. That’s why it’s important to be proactive about maintaining your home.
Difficulties Timing The Market
Many people believe homes are a good investment because housing prices will continue to go up and homes will increase in value. In a good economy with a strong market demand, that’s true.
But timing the market and selling your home in a way that maximizes your profit can be tricky. For this to happen, you’ll have to purchase your home in a buyer’s market, which means the market has more sellers than buyers.
Challenges In A Buyer’s Market
In a buyer’s market, you’re more likely to get a better deal on a home purchase. Conversely, you’re better off selling your home in a seller’s market, where the number of buyers exceeds the number of sellers.
Challenges In A Seller’s Market
In a seller’s market, you can command higher prices for the home you own, and you may even be able to get a bidding war going to drive up the price. However, it’s incredibly difficult to get both scenarios just right. Many people will either sell too soon or wait too long to sell, failing to maximize their profit.
