I am sure most of you have seen the Rent vs Buy Analysis on Zillow. It is basically the years it will take before the cost of buying a home equals the cost of renting – also known as the break even horizon. After that break even horizon then owning a home is considered a great investment. Or is it?
Owning a home comes with new expenses that surprise many buyers. Even experienced home owners can forget how much it costs to upgrade a home, improve outdated features, and fix hidden problems. It’s wise to take these costs into consideration before signing on the dotted line. Before purchasing, calculate realistically what you’ll need to spend to get the home up to your standard. In some cases, you may be better off paying more for a home that’s already been upgraded than paying for a cheaper home that needs more work.
On the other hand, if you are struggling to make a down payment on a more expensive home, then buying cheaper and putting money into it over time and using your own sweat (“sweat equity”) might offset the higher down payment you would have had to make on the more expensive home. A 20% down payment on a $300,000 is $60,000. If you can’t afford that, consider buying a nearby fixer-upper. That home might only cost $225,000, with a down payment of $45,000. The extra $15,000 might be enough for you to do many upgrades that would bring it close to the standard of the more expensive home, but you won’t need to come up with that extra $15,000 up front. This might be a good investment option—as long as you go into it with eyes wide open…along with a really good home inspection.
Most people only think about their monthly mortgage payments or PITI: Principal, Interest, Taxes and Insurance. However, you will need to have a budget for maintenance on your home’s systems, appliances, roof and other areas to keep your investment sound.
Owning a home can be an excellent investment and garner a great rate of return, but it depends on the ability of the potential buyer to assess risk.
Author:DJ Jenkins Phone: 703-625-1347 Dated: May 16th 2017 Views: 27 About DJ: If You're in the Market for buying or selling your home, You Need a Great Real Estate Agent. With th...
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