The myth
Many consider buying a house as one of the best investments they can make. Aside from having a place for the family, they expect that the property value will rise over time.
Renting out property is another way to earn from such an investment. However, houses come with a hefty price tag. You may need to shell out additional funds for repairs, maintenance, insurance, property tax and from time to time, remodeling and renovation.
Keeping all costs in mind, can you consider buying a house a good investment?
The reality
Location is the main factor that affects the value of a real estate property. There are also social, political, and economic conditions that drive demand for housing, like population growth and migration trends.
Although it’s true that people will always need homes, demand is not equal for all houses. You may be able to buy a house at a reasonable price, but if it’s in a bad location, it may be difficult to get to and from your place.
The lack of accessibility can make a house unattractive to potential tenants or buyers.
You should also think about the costs of home ownership. Unless you can pay cash up front, you’ll likely need to take out a loan to afford a house.
This means you’ll take on debt and would need to pay interest on top of the house’s selling price. You may also need to shoulder costs to build, renovate, or repair the property.
Other fees to consider are property taxes and dues collected by homeowners’ associations. Calculate what you can expect to earn from a property to see if the potential returns can justify the costs.
If you plan to live in the house for a long time, you won’t recover costs beyond what you’ll save from not having to pay rent.
Verdict: It depends (but mostly true).
To make money from owning a house, you’ll have to sell it at a higher price or collect enough rent or lease payments. It can take years for property values to rise substantially, if at all, and so buying a house is better for long-term investing.
If you need to make a profit sooner, a house may not be the best investment. There are other ways to invest in real estate that will not require you to shell out a huge amount of money for a physical property.
You can buy shares of Real Estate Investment Trusts (REITs) if they suit your risk appetite.
With REITs, you won’t need to remodel and renovate relatively old properties. You’ll also no longer have to deal with tenants or think about annual payments of your property tax.
You’ll have all the convenience while co-owning income-generating real estate assets like office buildings, hotels, malls, hospitals, factories, warehouses, and others.
Compared to buying an actual house, it’s more affordable and easier to acquire shares of REITs. You’ll also benefit from rising property values without having to manage, maintain, and administer the properties yourself.
