One of the biggest contributors to the housing crash was the common perception that the purchase of any home for just about any reason was inherently a good investment. People justified purchases of homes far outside of their budgets and their needs by simply assuring themselves that they would wait a few years for the property to appreciate and then sell for a huge profit or, in a “worst-case” scenario, they would rent the home out and live elsewhere.
Now, years after the fact, we know that the people who successfully rented out their overpriced “investments” and didn’t succumb to foreclosure are nowhere near the worst-case scenario.
After all, just look at Detroit.
If you are starting to feel the house-hunting itch after reading about the market recovery, make sure that you are not falling victim to a homebuying myth that could cost you your home and so much more.
Myth #1: Remodeling is the key to appreciation
Articles on remodeling options that yield top dollar when you sell are fun to read, but have you ever noticed that most of those options do not necessarily return all the money that you put into the remodel in the first place?
Yep, that’s a problem.
Sure, you could do a $20,000 remodel on your kitchen and probably almost immediately see some added value to your home, but it is not likely to be that full $20,000 … at least not right away.
If you are buying a home as an investment based on the assumption that you can always remodel and sell for a profit but you have not actually gotten serious quotes for the work and done some research on the after-repairs value on the property then you could be setting yourself up for a major failure unless you don’t mind living in the home (and enjoying the kitchen) until you break even.
Myth #2: I’m throwing money away by renting
It’s easy to fall for this myth in today’s market when most housing markets are still at record-setting affordability levels. While you may not be building equity by renting, however, you are preserving your ability to move quickly, saving money on maintenance, insurance and repairs, freeing up your money to do other things.
Remember, your dream house is not guaranteed to be a good investment property, so if you are really concerned about investing in real estate you may not necessarily want to buy a house for yourself but rather a property in a market conducive to wealth generation.
Myth #3: Real estate is guaranteed to appreciate eventually
If you are justifying buying a home by telling yourself this whopper, take a deep breath and a big step back. Sure, real estate is limited in quantity, but that does not mean that every single piece of land is going to go up in value over time.
At least not over your lifetime.
If you are buying simply because you figure you can sell at any time and turn a profit, then you are buying for the wrong reasons.