Risks of buying a home

Buying a home is always better than renting right?  I do not think that myth is valid anymore. There are many risks in buying a home.

What are the risks in buying a home

This is a list, and it is not complete of connected to buying a home that you would not have when you rent an apartment.

Investment risks when buying a house

I have an investment background so let me start off by saying you have to consider the present value of the costs.  Do not listen to your grandmother telling you ‘to buy a house deary’, look at the numbers.

• The opportunity cost of investing in an alternative investment is very high because all your cash and future income stream is tied up into one asset your home, which may or may not appreciate.
• Your home is an undiversified investment, so if the market tanks as it has, game over.
• You do not own your home the bank does.  Do not think you own your home until it is paid off 100% and you have money in the bank for taxes and repairs.
• A lot of cost connected to home ownership, such as repairs and insurance and fees and potential hazards you have not considered.
• If you lose your job, game over, this puts a lot of stress on you.
• If land values fall, game over.  Your home is such a leveraged investment that a 10% drop in your home price could be 50,000 drop in price.  This is huge.
• No flexibility in lifestyle change you must stay in that home or go through the hassles of moving with all the cost connected to it.
• Banks make money, you have to consider why, because you are paying a rate of interest, this means on a long term mortgage after all fees and cost are considered diversified you will pay twice the value of your home.  You are better off saving the money and investing it in a  portfolio and paying in cash.

Real estate agent considerations when evaluation the risks of buying a home

• In my personal experience real estate agents lie. I know you are saying, no Mark this is not true but yes it is. They see you as nothing more than a meal ticket.  They are not your friend, ever.
• Prices for some real estate markets have gone down 15 years in a row.  Yes this is true.  It is a myth that real estate appreciates, despite what Realtors tell you.
• You could get ripped off and I know people personally who have.

Rent or own a home comparison

I would highly recommend using this rent vs. buy calculator. However, adjust the assumptions, do not use the default assumptions. This risks of buying a home calculator will tell you in dollars and cents but does not consider other factors such as job instability.

It will compare the present value of costs and you will see the real risk of buying a home.

What do I do?  I am renting a flat in the city and will wait until I have the cash on hand to buy a house.  This will make my life low stress, fun and reduce the risk of buying a home or really eliminate it.

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