Home Ownership: The Ultimate Investment?

Posted July 19th, 2010
by HomeownersInsurance.org Staff (no comments)

Most of us have grown up being told, and dutifully believing, that home ownership is the first key to building wealth. Even Oprah Winfrey has chimed in to the discussion, claiming repeatedly that owning your own home is the first step to accumulating wealth (of course, hosting the nation’s most watched talk show doesn’t hurt either). Buying a home is, of course, the best investment we will ever make. Or is it? The truth of the matter isn’t as simple as it sounds. Don’t get us wrong, home ownership can be a great thing. But when you factor in related costs such as homeowners insurance, property taxes, and maintenance, the cost of owning your own home ends up being a lot more than the bottom line of your mortgage. So what is it that made it seem like such a good deal for our parents and grandparents?

In many ways, the reasons why buying a home looked like the best investment our parents and grandparents ever made was because, in hind sight, it actually turned out to be their best investment. And depending on how you go about it, it can be yours, too. If you’re going to buy a house as an investment, however, take these lessons from the past:

  • Buy a home that’s within your price range. In past generations, people bought houses whose total purchase price was about three times their annual income or less. That generally meant making do with a modest home. Unless your income is miles north of modest, your choice of house should be modest, too. Especially if you’re buying it with the idea that it’ll be a good investment. Bear in mind that most of the other expenses go down with the price of your home, including utilities, homeowners insurance, property taxes, and more.
  • Don’t buy a house until you have 20% down. We know, you can buy a house with nothing down. Run the numbers, though, and that 20% down payment you bring to the table makes a huge difference in the amount of interest you pay over the years
  • Get a fixed rate. You’re better off that way. If recent events haven’t convinced you that ARM rates aren’t such a good idea, there’s probably not a pearl of wisdom in all the world that would. Suffice it to say there’s something to be said for predictability. Previous generations knew what their house payments were going to be and were able to plan other things around them.
  • Stay in the house. Our generation seems to get hot feet and feel the need to move every five to seven years out of principle. Stop it. A house is not a good investment (assuming a 30 year mortgage) unless you live in it for 20 years or more.

Photo via sanjoyg

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