Here’s a mistake you won’t want to make – rolling your hard-earned cash into a money pit. So, what are the investments to avoid? Is it penny stocks? Junk bonds? Collectible beer cans?
It’s hard to know what the biggest loser might be, but one common investment myth that keeps coming up is the idea that home ownership is the road to riches. Think about it: What are the typical attributes of a good investment? How about some cash flow, low transaction fees, liquidity and a proven track record?
The average single family house falls far short on every metric.
Cash flow is king. But the average house is a cash flow pauper. Yes, I know, you have to have a place to live anyway, but here’s the litmus test of just how good of an investment your house is: If you can move out and rent your house to somebody else and produce some cash flow, then at least you’re in the hunt to crow about your investment savvy. But the chances of you being able to do this are slim.
Speaking of Slim, you’re going to be missing him when you get introduced to the big fat transactions costs associated with buying a selling a house. On the buy side there’s the cost of appraisal, home inspections, mortgage points and title insurance on the mortgage policy. When you sell, you get to pay a broker’s commission, another round of title insurance and probably some money spent to fix up your house before you sell it.
You’d think with everything it costs to sell a house that it should therefore be quick and painless to buy and sell, but of course, it’s not. That’s called liquidity risk. The harder it is to quickly buy or sell, the more vulnerable you are to the unexpected surprises in life that can sometimes turn people into motivated sellers.
How about a proven track record? Home prices always go up, don’t they? Anyone still believing that has a short memory for the Great Recession of just a few years ago.
Here’s the real secret to home ownership: Yes it’s a lousy investment, but it’s the best consumer purchase that you’ll ever make. Most consumer purchases you make become virtually worthless or decline in value very rapidly. But a house does indeed hold its value and paying down a mortgage is a nice savings plan. And you have to live somewhere.
So if home ownership is still part of your American dream, go ahead. Just don’t be deluded into believing that your house is a great investment.
In the meantime, we’ve got the welcome mat rolled out for you at the beautiful Wilson Heights Apartments, our newest construction in Hartford. In fact, you’d be welcome at any Decker Properties address, so please call us today at (262) 785-0840!