Redditor Gets Called Out By Partner For Making A "Bad Investment" After Buying A Property Without Them Agreeing On It (2024)

FAQs

Is buying a house ever a bad investment? ›

“If you invest in a home, you can make money in a hot real estate market. But once you figure in taxes, insurance and the upkeep on a home, it's the least desirable. Of course, it's better than spending your money on depreciating assets like automobiles and recreational equipment.”

Lack of Diversification. Buying your home and “putting down roots” means your money is tied to one specific location. The average homeowner has most of their net worth tied up in their primary residence. This means that most of their investment eggs are in one basket.

For many people, owning a home is a good investment that leads to greater financial stability. In fact, according to 2022 data from the National Association of REALTORS^Ⓡ Research Group, homeowners have an average net worth of $300,000, which is 37 ½ times the net worth of renters at $8,000.

As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.

Homes are actually traps," Cardone tells Axios. "Buying a single-family home traps an individual for 30 years under the pretense that it's a savings account and that you're going to make money."

High Vacancy Rates

Unfortunately, there's always the risk of a high vacancy rate in real estate investing. High vacancies are especially risky if you count on rental income to pay for the property's mortgage, insurance, property taxes, and maintenance.

Residential properties generate an average annual return of 10.6%, while commercial properties average 9.5% and REITs 11.8%.

Homeownership promotes wealth building by acting as a forced savings mechanism and through home value appreciation. Wealth building hinges on the homeowners' ability to build home equity.

Most first-time homebuyers make a purchase when they are 35. Buying a house at a young age can mean building equity young and getting a home paid off sooner. Purchasing a house in your 20s or earlier can also mean you feel trapped, unable to move at a moment's notice.

The combination of high mortgage rates, steep home prices and low inventory levels are lining up to make the 2024 housing market a challenging one for both buyers and sellers. But rates have cooled a bit — if that continues throughout the year, as some experts predict, then market activity should heat up in response.

What is the 5% rule when comparing renting vs buying? ›

The 5% rule, when comparing renting and buying a home, suggests that it may be more financially advantageous to buy a home if the annual cost of owning the property, including mortgage payments, property taxes, and maintenance, is less than 5% of the property's purchase price.

An alternative to traditional real estate: REITs

The most reliable REITs have a strong track record for paying large and growing dividends. Many online brokers offer publicly traded REITs and REIT mutual funds and ETFs — meaning you can buy them in the same place where you can buy stocks.

As you can see, there's a lot that goes into real estate investment returns. But if you want to know the average annualized returns of long-term real estate investments, it's 10.3%. That's about the same as what the stock market returns over the long run.

It's harder to get rich off stocks than it is to get rich off real estate. The main reason why is due to the absolute amount of money you need to risk to get rich in stocks. Even if your $5,000 stock investment goes up 50%, that's only $2,500.

A recent study reveals that 93% of homebuyers have regrets over their purchase. That's one stunning conclusion of a survey by Clever Real Estate of recent homebuyers about the state of the housing market.

Many people assume that owning a home is the best way to achieve financial stability. It's more than possible to become financially secure as a renter. It can be argued that renting is a better move than owning financially, because you're not dealing with ongoing costly surprises.

Many prospective homebuyers chose to wait things out in 2023, in the hopes that 2024 would bring a more advantageous market. But so far, with mortgage interest rates still relatively high and housing inventory stubbornly low, it looks like 2024 will remain a challenging time to buy a house.

Potential risk: Lack of diversification and liquidity

Buying even just one investment property can often take a significant commitment of cash. Because properties are so high value in many high demand areas, it can be challenging even for wealthy investors to build a diversified portfolio of properties.