Lots of people are asking this question lately. I thought it would be a good time to clarify what I said a few weeks ago about not looking at your primary residence as an investment. Some people thought I meant they should just continue to rent their living space instead of buying it. That couldn’t be further from the truth, so let me explain in more detail.
When you buy a house, you are admittedly taking on a huge responsibility, but one which can pay off handsomely down the road. My parents bought a house in 1964 and took out a 30-year fixed mortgage. The monthly cost of that mortgage was pretty tough for them to swallow in 1964, but in 1984, when they were still paying $296.00 per month, it was a pretty sweet deal!
The logical conclusion from that is to buy as much house as possible, but don’t overbuy. Doing that is part of what got us into the huge mess we’re seeing right now, with record foreclosures. Don’t be afraid of that happening, but also don’t forget that “huge responsibility” part. Buy what you can afford – you can always trade up later when the time is right.
Now, what was I saying about that not being an investment? Just remember, even though it is likely to go up in value over time, that money is tied up unless and until you sell the house, but if you do that, you have to buy something else or rent, because you still need a place to live. The other important consideration is that if you live there for five, ten or more years, you will probably have to replace carpet, paint, perhaps some appliances, maybe even the roof! That’s not money being paid TO you, which is what an investment is supposed to do.
Contrast that with a rental house, where, for example, you might pay $1000 per month for the mortgage, taxes and insurance, and rent it out for $1200. That’s $200 per month INTO your pocket, which is what a good investment is all about.
So, bottom line, buy a house if you can, because the alternative is to pay rent, which is exactly the same thing as paying someone else’s mortgage for them. Just don’t buy more than you can afford and put the rest into real investments, both in the stock and bond markets as well as in real estate.
Contact me if you’d like a professional to help you with doing that!
John@financialideasblog.com
1.888.379.4352 Extension 1000
Technorati Tags: Buying a home, Debt consolidation, Home buyer, Invest in a home, Invest young, real estate investing, what to invest in now
November 9th, 2009 |
, let’s point out that anyone can contribute to it. That is, you can be our future student’s mom and dad, or grandma and grandpa, or godparents, or just family friends wanting to give a shower gift.
