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

FAQs

Why is home ownership a bad investment? ›

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.

In addition to the down payment, there are a number of ongoing costs specific to homeownership, too, including mortgage payments and interest, property taxes, utilities, homeowners association fees and ongoing repairs. All of these expenses may make homeownership out of the question.

From a financial standpoint, buying a home can be considered both an investment and a purchase. On the one hand, a home purchase can be seen as an investment because it has the potential to appreciate in value over time, providing the owner with a financial return on their investment.

A home is a long-term investment. If you buy a home as a primary residence, it can increase in value over time and provide a financial windfall when you sell. You gain equity in the home over time, which can provide a source of emergency funding if your financial situation takes a turn for the worse.

Housing Market Historical Returns. In terms of averages, stocks have tended to have higher total returns over time. The S&P 500 stock index has had an average annualized return around 10% over very long periods (higher if you include dividends), while average annual real estate returns are often more in the 4-8% range.

Investing in Stocks

Between stock and real estate investing, stocks may provide the easiest path to get started. You don't need much money to start, and you can buy and sell stocks, bonds, mutual funds and exchange-traded funds (ETFs) fairly easily through a brokerage account.

Real estate agents (and most homeowners) are not going to like me after this section, but in truth, real estate is the most overrated investment in America. Americans' largest "investments" are typically their house, but even in a booming market, it is also the place where Americans lose the most money.

Real estate investments tend to have high transactional costs, especially in legal and brokerage fees. The process of acquiring a new property is also very long and tedious with lots of legal formalities.

'You're Trapped for 30 Years'

One of the reasons Cardone sees homeownership as a trap is that you are physically trapped in the same place, usually for 30 years. “You have to live in the same place every day for 30 years and pay for it,” Cardone said.

Many people believe homes are a good investment because housing prices will continue to go up and homes will increase in value. In a good economy with a strong market demand, that's true. But timing the market and selling your home in a way that maximizes your profit can be tricky.

What happens if saving is greater than investment? ›

The correct answer is remain constant​. National income is the final value of goods and services produced and expressed in terms of money at current prices. Savings are not part of GDP or Income. Hence, If saving exceeds investment, the National Income will remain constant.

NAR forecasts that sales will rise by 13 percent in 2024. “Housing sales are expected to increase a bit from this year,” agrees Chen Zhao, who leads the economics team at Redfin. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”

Before selling your home, there is a set amount of time you should stay in it to make a profit or break even on purchase costs. This amount of time varies by person and circ*mstance, but wisdom from the real estate world says an average minimum target is about five years.

It means saving up an adequate down payment, identifying the right mortgage lender, checking your credit rating, minimizing your debts, setting aside cash for closing costs, and getting pre-approval for a mortgage in advance. All before you go to your first open house.

The disadvantages of owning a home mostly fall into the category of permanence, with a dash of financial uncertainty. Buying a new house costs money, and a lot of that money comes out of your pocket at the time of the purchase. Later, there are no guarantees that home prices will rise.

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.

It combines high emotions, an often-finicky housing market, and a process that can seem difficult to understand. It's also a significant financial transaction for most people — perhaps the biggest of their lives. It can be particularly stressful for first-time homebuyers used to the relative simplicity of renting.