I have this impression that it’s seen as a riskier decision to buy a home, knowing you won’t live in it long enough to pay off the mortgage and then sell it when you’re ready to move away, when compared to renting a home. Am I off base on that, and if so, why is this the case?
In: Economics
Real estate is generally seen as a risky investment, even more so than shares. This is because:
1. The real estate market is not really fluid, making it hard to liquidate. This, in addition to its extremely high value, means that you have a large chunk of your wealth locked up in an asset that is difficult to turn into cash.
2. Houses have ongoing maintenance fees, land rates etc. which you will need to keep paying. This enforces a minimum growth rate on the value of the house, otherwise you will be losing money – and again, if you are losing money it is difficult to stop losing money because again houses are hard to liquidate.
3. If you take out a mortgage loan you generally end up paying at least the whole mortgage again… as interest. This means that, again, the house will need to *double in value* for you to sell at a profit. And if you find out this is not the case after buying the investment property, again, houses are hard to liquidate. Good luck
But if you’re living in a property that you don’t intend to fully pay the mortgage off on you get stuck with a few more problems:
4. The terms of the mortgage may not allow you to pay it off early, which could leave you in a LOT of debt (see point 3 above)
5. If the house falls in value, again you get strapped with a shitload of debt as the sell price won’t cover the mortgage
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