May 12, 2016 - 01:37
One of the most common questions I hear people ask in real estate is, “Should I buy a new house for myself or should I go out and find an investment property?” The answer to this usually depends on your end goals that you have set, but I will say that most of the time only one side has the greater potential for financial returns. I will go over a few of the expenses that come along with a home and some benefits as well. Keep in mind that I am not suggesting that owning a home for yourself is a bad idea, after all we have to have a roof above our head, but the likelihood of you purchasing a home for yourself and at the end make a nice profit is very slim.
Personal Is Not Profitable
There are many homeowners believing the misconception that when they go buy their property, it will appreciate each year by hundreds or even thousand of dollars. So once they plan to sell it then they would make a great profit, but most of the time that will not work. Part of the reason is that inflation occurs, but also there are expenses on the home every month as long as you continue to live in it. For example, the interest fees on the mortgage, these will continue up to the point you finish paying the loan off. Property taxes are due every year; the amount of the fee depends on the area you live in and the size of your property. Also insurance fees to cover the house will be due every month. You will also need some repairs and improvements in your home through the years, so spending for that will also add up in your home expenses.
Let go back to appreciation, like I said earlier most people think their home value will appreciate, but that is not the case. Sure, appreciation does occur but it will usually just keep track with inflation and in order for you to make a profit the appreciation rate has to overcome the inflation rate. Its not easy to predict a certain area will appreciate, you have to analyze the market in different angles to at least have a good estimate, so choosing a home without analyzing the market dramatically decreases your chances of choosing an area of appreciation.
Investment Is Profitable
Depending on the type of investment you are doing, whether it be flipping, renting or wholesaling, you will increase your chances of making a return on your money rather than buying a home. But even as an investor there is always a risk of loosing a profit if you are not fully experienced, so always analyze your strategy and numbers before pulling the trigger. Of course, investing comes with its fees also. For example if you are renting a home you will still have the main fees like principal, interest and other fees like property management fees. But if structured correctly, the renting fees that the tenants pay every month should cover all that and still make you a good profit every month.
So at the end of the day, if you have a good amount of money saved in the bank and are deciding whether to buy a personal property or an investment property, ask yourself this. “Do I want to make a return on my investment with this house or do I want to own the home for myself and not worry about making a return on my money?” This is a personal decision so when people ask me which should they choose, I cannot answer that question for them, I can only lay out the options. So list your goals, consider your options and choose wisely.