IS IT WORTH TO BUY A HOME?
There are lots of reasons you might want to buy a home, things like stability, privacy, and not having to deal with a landlord. But is buying a home a good investment? Let’s look at how home ownership stacks up against other investments and what that means for how you think about buying a home. Let’s compare returns. Obviously, many homes do appreciate in value. In fact, on average, homes in India have appreciated more than 114% from 2000 to 2019 even after the 2007 housing bubble burst, when many homes declined drastically in value.
WHY BUYING A HOUSE IS NOT A GOOD INVESTMENTS?
Lest think why buying a house is not really good for investment. As impressive as that sounds, that return works out to about 3.9% per year before accounting for other housing costs. For example, if you borrowed most of the money to buy a home at a 3.5% mortgage rate, your return falls to less than 1%. Compare that to the roughly 6% average annual return on the S&P 500 Total Return Index over the same time period.
While this doesn’t account for potential mortgage tax benefits that increases your return, it also does not account for other ongoing expenses such as home owners insurance and maintenance, which further reduces potential return. this is what buying a home for investment is not a good idea.
WHAT ARE THE RISK OF BUYING A HOUSE?
There are many risks in buying a house. If you’re looking for a way to grow your money, your primary residence may not be the place to do it. In addition to potentially providing only modest returns, buying a home can be financially risky.
One reason is leverage. If you want to buy a house for investment, Leverage is the ability to control a large asset with a small amount of money. Leveraged investments are normally reserved for experienced investors because of their risky nature. But getting a mortgage to buy a house involves significant leverage.
RISKS IN SELLING YOUR HOUSE
Buying a house is not a problem, the real problem is to sell your house for a profitable price. A quick rise in value could result in a big return. For example, let’s say you paid 1,00,000 rs on a 20,00,000 rs home. A 5% rise results in a 1,00,000 gain, not accounting for commissions. That’s a 100% return. If the house dropped 5% in value, the 1,00,000 loss would offset the amount you paid. The example assumes that homes are easy to sell, but they take time. The ability to easily sell an investment is known as liquidity.
High liquidity occurs when there’s a lot of buyers and sellers for the same product. Generally speaking, homes are not very liquid because an investor has to find a buyer and that could take months. Then add an agent’s commission on top of it. Finally, owning a home means having a lot of money tied up in one asset.
Investors typically try to manage risk by diversifying, which means spreading money across various types of investments. This can reduce risk because when one investment is performing poorly, another investment is often performing well. But with a house, you’ve got a lot of eggs in one basket. In short, concentrating lots of money in a single, illiquid, highly leveraged asset is a recipe for financial risk.
BUY A HOUSE
So, does this mean you shouldn’t buy a home? Not necessarily. It just means it may not be a good investment, and that’s ok lots of big purchases aren’t. While it’s important to carefully consider the financial implications of buying a house, it’s better to think of it as a lifestyle choice than a purely financial one.
No matter what your family looks like,If you want to buy a house for living please do it now, but if you are buying a house for investment, you will loss. a home is a place where your family and friends grow together. It’s where memories are made. It’s a home base that provides security from rent increases and difficult landlords. Studies suggest that home ownership is correlated with children having fewer behavioral problems, attaining higher education levels, and finding employment.
Homes appear to offer stabilizing and nurturing environments. And even if a home doesn’t have all the characteristics of a great investment, it can still have some financial benefits, like the opportunity to build equity. Over time, as the loan is paid down, the equity will grow if the home’s value remains the same or increases. This equity adds to the homeowner’s net worth. So, while there can be value to home ownership beyond the family you raise and the memories