These days, buying a home is no easy feat. Prices are elevated, inventory is lacking, and mortgage loans are expensive to sign. So if you’ve been struggling to buy a home, you’re in good company.
But should you be pushing yourself to save for a home? Maybe not.
Nearly 1 in 4 Americans no longer believe homeownership is a sound long-term investment, according to recent data from IPX1031. And almost one-third of Americans don’t think homeownership should still be considered part of the American Dream.
The reality is that there are benefits to owning a home. But there are significant costs to consider. And if you’re looking to buy a home largely because you think it’s a good investment or the “smart” thing to do, you may be doing your finances a disservice.
There are better ways to invest
When you own a home, its value has the potential to rise over time. So does a stock portfolio. Only with a stock portfolio, you buy your shares upfront and that’s basically it. You generally don’t have to pay fees month after month to keep your stocks in your portfolio.
On the other hand, when you own a home, it’s not just that you’re writing your mortgage lender a check every month. You’re also covering the cost of property taxes, insurance, maintenance, and repairs. So all told, even if you sell your home for a nice profit, when you tally up all you’re spending to keep that home, you may find that you’re not gaining much financially after all.
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To put it another way, let’s say you buy $200,000 worth of stocks and your portfolio value eventually rises to $600,000. You’re basically gaining $400,000.
Meanwhile, you might buy a home for $200,000 whose value rises to $600,000. But in between, you might spend another $300,000 on property taxes, maintenance, and so forth. So all told, you’re not gaining as much as you potentially would with a stock portfolio.
Renting isn’t an unwise financial move
You may feel pressured to buy a home to avoid paying all that money on rent. But you should know that renting can be a savvy move.
The money you’re not spending on bills like property taxes, upkeep, and home repairs is money you can save or invest for other purposes. For example, if you’re not spending an extra $500 a month on property taxes and maintenance, you can put that money into an IRA for retirement.
Also, owning a home takes work and time. And if you don’t want to put in the work and time, there’s nothing wrong with that. You can free up those hours to spend time with family, pursue hobbies, and do other things that better your financial situation, like boost your job skills or take on a side hustle for extra money.
It’s possible, especially in the long run, to make money by owning a home. But don’t look at your home as an investment. And don’t buy a home solely because you don’t want to “throw money away” on rent.
Rather, buy a home because you want the stability and the opportunity to have a place of your own, and are willing to put in the work. And if that’s not the case, it’s perfectly okay to rent for your entire life if that’s what works best for you.