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
This happened to me three times in a row: I got a job and then bought a house and then lost my job in 2 years and sold my house for a $50,000 profit.
It is the greatest thing ever. But… I was lucky to be living in Portland where the real estate prices were booming. If the real estate market was busting, I might have lost money.
So… it’s a great idea but there a variables that might leave you in trouble.
I was always told that selling your home after less than 5 years was a bad idea but it depends. I bought my Seattle condo in 2012 for $105k. I sold it 7 years later in 2019 for $225k. Had I held onto it for 3 more years I could have gotten $275k. In my case, I was living paycheck to paycheck and had crushing amount of credit card debt. Selling that condo and moving on was the best financial decision of my life, no regrets, would do again. If you’re wondering, the total amount of fees and closing costs came out to roughly $18k. The closing costs are one big reason to avoid selling your home too early as it’s pretty expensive.
House prices mostly go up, but sometimes go down. If you buy and prices go down you could lose a large amount of money by selling. Over 20 years you are virtually guaranteed a steady increase. Over 1 or 2 years there is a risk of a big loss. (And fees, as mentioned in other comments)
It depends on what the market is like. For the US…
The rates and appreciation from 2010+ were such that if you bought during that time you probably made money.
Simply owning from 2016-2020 was enough to double your money in some markets, while your loan balance and interest rate are both fixed.
The question for the present is, are we in a flat spot or at the top of the chart before a crash.
Borrowing a million dollars for 30 years will have you repay about 2-3 million to the bank (interest).
The bulk of what you pay in the first half of the 30 year term is the interest.
Then in the second half of those 30
years you pay out the principal, eg the money you actually owe.
If you check with the bank how much you still owe five years after making mortgage repayments, the figure you’ll get will be almost the same as the amount you borrowed. Those five years of paying out your loan won’t have shrunk it.
People today: buying a home is a really bad idea, I’m better off investing in something else.
Also people today: it’s impossible to afford a home with these prices going up all the time.
As well as cost of the house, there are fees as well. You will be charged:
* Solicitor fees
* Mortgage fees (you get a better deal if you pay a £1k upfront cost)
* Mortgage arrangement fees
* Stamp duty (for houses over £250,000)
* Valuation fees
* Building surveyor fees
* Estate agent fees
* Electronic Funds Transfer fees
* Homebuyer’s insurance fees
* Insurance fees
* Council tax (you, rather than the landlord now needs to pay)
In short, there are LOT of expenses you have to suck up when buying a house. If you were buying a house worth £300,000 and it was going to be your only house, you’d have to pay an additional £2,500 in stamp duty to the government. If you move house a few times in your lifetime, you just have to suck up those costs, if you do it regularly, then you need to move into a wreck of a house, do it up and sell it for more than it’s worth for those costs to be worth it.
Apart from fees eating up the gains, which really just comes down to a cost comparison with renting.
As with any investment you don’t know what the short term price development will be. This is why you are discouraged from putting money stocks or bonds if you know you are going to need it soon. Because the market might take a dip.
Same with housing. In the long term its pretty safe to assume that you will see returns from owning a home. In the short term, nobody knows for sure.
(Nobody knows for the long term either, it’s just an expression)
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
nobody said its bad.
it really depends on your local laws, fees and market. and how you financed that house and what were the bank’s conditions, etc…
it all depends.
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