Welcome to the second edition of Money Myths! The last edition covered money and happiness, as well as having control over how money you make. This article’s topic is going to be a bit more precise as I want to discuss a very, very, very common myth…home ownership, and real estate in general, is a good investment. I know, you are probably surprised to be reading this, this could be the most common of all money myths.
First, let’s tackle the myth of the perceived benefits regarding home ownership. The most glaring illustration of this myth dates back to the financial collapse of 2009. I understand this doesn’t happen every year, nor every decade, but it wiped out homeowner equity for decades to come. Even with an improving economy, lower interest rates, and a great number of homes being sold, it will be many years before underwater homeowners will see relief from the fallout. Nobody could have predicted what happened but that is exactly what makes it even scarier. Now consider all the expenses that go into maintaining a home. I’ve learned this first hand over the past three years. Appliance repair and/or replacement can be quite costly, furnaces and hot water heaters have a limited lifespan and they are very expensive to repair. Roofs spring leaks, pipes can randomly burst, and window seals break. Even if you have the expertise to make most repairs yourself the materials are no laughing matter. Home ownership isn’t always a lose, lose, situation. However, I’m here to tell you that the risk isn’t always worth it. If you want to buy a home do it because of the freedom it can bring you, not as an investment to make you rich.
Real estate as an overall investment is much riskier than simply owning a home. Consider the people with rentals homes prior to the collapse, they may not have lost one, but several different homes after the values significantly decreased. What’s more, many renters destroyed the interior of homes after being forced to leave because their landlords could no longer afford to pay the mortgage. While rental rates have seen an increase over the past three years I don’t personally think it’s enough to enter into the risk involved with investing in real estate. In my state, the real estate tax on my house would almost double if I rented it out. Owner occupied homes tend to have much cheaper tax rates than rentals. The mortgage interest deduction phases out when you are talking about a second or third home.
I hope you enjoyed the second edition of Money Myths! Stayed tuned for a thought provoking third edition soon.