We all desire to have that cozy corner in this world which we can call as our house. Owning a home is the prime necessity for any person. Having shelter that too in the form of own house is the primary need along with food and clothing.
If you desire to relax, you sit down in the corner of your house with some drinks and music to hear. However, in spite of all the above notions and the prime fact that buying a home is a good investment it is instead a bad decision.
Investing In House Is Good or Bad?
People can understand that purchasing such real estates as investments for which they are willing to pay a whopping amount of money to get the prime locations; they will realize that the whole situation is just a myth.
Matter of discussion is that not all real estate purchase counts as real estate investment. It is the hype that has been created by the real estate agents that buying a house is an investment when actually there is no investment.
Even the government gives out so many incentives to lure the public to buy houses so that they get attracted and consider purchasing a home as a good investment when actually the amount spent on purchase is enormous.
House As Investment
House in a good area that has been well-decorated means the amount spent for a specific lifestyle rather than being an investment. If you want to categorize buying house as an investment you need to buy a house and rent it out.
On a rental property, you do not install new gadgets or get it refurnished. Buying a house for self-use is not an investment, buying a home and then if you rent it out will be an investment.
Why is Buying House a Bad Investment Decision?
With the help of little calculations, you will be convinced that buying a house is a bad investment decision. So, Let’s Do It.
Suppose you buy a house for $35500, the down payment being 20 per cent of the amount that is $71000. Loan amount being $284000. The rate of interest for 30 years fixed mortgage being 3.5%.
Thus, the total amount and interest to be paid by the end of the mortgage will be $612000 or $257000 more than the original amount. Then there will be Property tax, i.e., 1.15% equal to 122500 for 30 years.
Additionally, there will be maintenance, repairs that need to be done on the property that would be 1% approximately, which means $3550 or $106500 for 30 years.
Thus, the total cost incurred on the property in 30 years will be $841000. The calculation does not end here; there is additional involvement of opportunity cost. The real value of owning a home is the opportunity cost. The additional amount of $257000, if saved from paying interest, might have been used elsewhere and from that investment income could be generated. Also, the amount spent on property tax and yearly maintenance as well as repairs could also be elsewhere invested to make a profit.
Another aspect that could come into the picture is that you will require a house to live in so you may rent any of the premises. That means every month you may pay $1275 and for 30 years you may pay $459000. In this case, you will be saving $382000, just by renting instead of buying a house.
Another calculation is that the amount saved will be invested elsewhere which would earn income for you. Also, the amount as derived from those investments can again be invested. Therefore, if you consider that property appreciates and you can avail tax benefits, you might have to consider these factors along with the fact that what you could do with all that money?
So in case, if you really want to calculate in more concrete terms you can use the below formula developed by James Altucher’s to get the whole amount:
OWN+ down payment +size of mortgage + all the interest payments + all the taxes + all maintenance + opportunity cost of time
RENT+ All your rental payments added together subtracted the benefits that you could make by investing in bonds with the money that you could have used on a down payment.
The advanced hybrid approach
If you want to buy a home as an investment, you need to own someone else’s house so that you can rent your property. Therefore the hybrid option comes into the picture that you both live and rent the same property.
If you cautiously invest in a property, always considering the business aspect, you might earn from the property without actually spending much. This implies that you buy a property and you need to design it in a way that without investing much you can live in it and also rent it out.
How to find Actual Real Estate Investments?
To buy a house for investment purposes consider purchasing a home in the foreign land. For this, you need to understand the taxing laws and policies of the country you live in and also the state that does not tax the non-residents.
Hybrid house investment is also a type of asset protection. If you are sure that value of the house will appreciate in the area of your investment, then your home is just like a bank account. It is an investment that has the capability for upside investment.
Understanding the benefits that you could get by investing in foreign land is the first and prime requisite of investing in foreign territory. If your country taxes on your worldwide income it will be of no use for you to invest in property elsewhere to generate income since you will be taxed on it. Also, the country where you are earning rent should be tax-free for foreign residents, then only, you will be able to maximize your gains.
The emotional attachment that comes from owning a house does not exist in case of rented premises. The critical aspect is not to spend too much on the house if you intend to rent it out as this will be an expense and will reduce your earnings.
Always consider all the aspects before making any decision and keep yourself informed.