July 6, 2010, 6:00 am

The Positive Side of Real Estate/Home Ownership

by: MD    Category: Properties
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I hope you guys don’t think that I’m against real estate. In my last post here, I wrote about some of the common real estate misconceptions. It’s not that I’m against real estate. I simply wanted to stress all of the factors that go into making this ultra important decision. Too often do 20-somethings take this decision extremely lightly. I’ll never tell you what to do, but I do want you guys to make educated decisions.

The irony of this topic is that I just moved into a new condo this summer. I personally feel that it was a great decision, considering all of the factors involved (to be discussed soon). Today I wanted to write about some of the positives when it comes to real estate.

Forced savings.

Many of us young people simply can’t save money. We just can’t do it. Having a mortgage to pay forces us to technically save money every month. For many people a home is their main investment/savings vehicle. The money that is paid towards a mortgage could be frivolously spent on random purchases. Instead this money is put towards the real estate property. I’m not say that this is good or bad, but it is what it is.

Of course the obvious caveat exists. Along with being forced to save money, you’ll also lose lots to money to the expenses that go along with real estate (interest, of course!). Please do keep this in mind.

Appreciation potential.

Your primary residence may not be the worlds greatest investment. However, there’s always the potential for an appreciation in value. The appreciation in value isn’t always the greatest and it won’t always offset the fees involved with selling a home. However, depending on the area it’s not rare for home owners to experience great appreciation gains.

It’s also imperative to note that, your property can appreciate due to two reasons:

  • Internal factors. This involves all of the upgrades/work you do on your property. Whether you choose to finish the basement, upgrade your kitchen, or install a sprinkler system, these modifications have the potential to create a profit that will offset the expenses greatly.
  • External factors. This appreciation is unrelated to the work that you do on your property. This involves the value of the whole area increasing. Depending on your risk tolerance and patience, you can purchase a piece of property in an up and coming area, in hopes of great appreciation in the future.

Instills responsibility.

This may seem superfluous at first, but it’s actually completely relevant. In my experiences, home ownership is a harsh reality slap across the face that some young professionals need. Our generation is generally fairly spoiled. We’ve all heard that 27 is the new 21. Often times we need to get out of our comfort zones. Whether it be through moving out or working abroad for a year, every situation varies on a case by case basis. Moving out can be the first slap of reality that we need to become truly responsible adults.

What are some of the positives of real estate/home ownership that I may have missed?

Just please remember to always conduct your own research when it comes to real estate. There’s thousands of dollars at risk here. This is also the most important decision that you’ll make in your life (aside from marriage & education), so please don’t take it lightly.

image source: robbruce1964

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Comments

I think that the most important point is to have something that belongs to you. A place where you can modify what you want, when you want. I like the “comfort” of being a home owner.

On the other side, I don’t think you can make much money but I will get back with a full post on this topic 😉

Great post MD. Indeed I think having a residence can have lots of favourable aspects but I really think that costs are often overlooked.

And as for savings, very true. Unfortunately, even though automatic savings programs are easy to initiate, few people actually set them up.

My question would be… I think many buyers do so by assuming price appreciation, which has been a fair assumption in the past century or so. But I’m not certain how markets will react over the long term if that assumption is no longer true… Buying now because you know prices will increase in the near future has its limits right?

I definitely agree with the sense of pride that goes along with having a place of your own. With that being said I can’t wait to read the post that you plan on writing.

When I bought my house, we paid it about 240 000$. We invested about 30 000$ in renos (internal factor ;-)). A real estate agent told us that if we want, he could sell it this summer for about 325 000$. We do not plan to sell it now (and certainly not with a real estate agent!!!), but even if we deduct the 30 000$ and our current balance on our mortgage, we may end up with a 50 000$ profit. This can go on another downpayment or cover our asses by paying our student loans and personnal debts 😉 (I vote for having our asses covered lol).

Honestly, in my mind I am pretty sure I can sell it for about 340 000$ because our house has a higher income than other properties near my house (duplex+bachelor)… and because I am a very good sales representative 😉 But I strongly think that until it is fully paid (and even after…), owing a house is an expense, not an «investment»… exception of income properties. Just my opinion 😉

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by: Melanie Reformed Spender | July 9th, 2010 (6:36 am)

When people look at the appreciation potential of a house they often forget to consider the interest paid on the mortgage. Even if the dollar value is a lot higher than the original purchase price, the actual amount paid is likely way higher.

Over the course of a 25 year mortgage, you can end up paying almost twice the purchase price of the house. (This cost can be estimated using a mortgage calculator)

That’s not to say that no one should buy a house. The responsibility you mention is valid, as is having a place of your own that you can modify to suit your needs. I just think it’s important not to rationalize buying a house for the wrong reasons, like the mirage of future profit. A house is a large purchase and an ongoing expense, which is largely (though not entirely) offset by the fact that it retains some value.

My house has been a good purchase. I enjoy it and if I needed the money, I could sell it. But, like my car or my guitar, it’s not an investment.

by: The Financial Blogger | July 9th, 2010 (11:02 am)

@ Mama Zen,

I don’t think that you can make a lot of money on your house once you calculated all your fees involved (notary fees, municipal taxes, interest on your mortgage, maintenance, etc.).

I’ll do a post on that shortly 😉

@ Melanie,

I’m with you on that. the post I’ll write will be based on my true personal story about the sale of my latest house.

by: Melanie Reformed Spender | July 9th, 2010 (1:48 pm)

As for the positives… no landlord is way up there on the list. We have a dog, which was a no-no in every place I’ve rented, and I was sick to death of white walls.

@TFB I agree that there won’t be a lot of profit, but at least enough money to pay off almost all our debts and still have money for a downpayment on another house. We’ll se what we’ll do.

I am very curious about your upcoming post 🙂 Maybe I’ll change my mind after… wait and see.

[…] first article on The Financial Blogger went live on July 6th, 2010 and it was about the positives of buying real estate. I haven’t stopped since. Sure, I may have missed a few deadlines, but I believe that […]