Don’t Fall For This Alarming Real Estate Myth

Yesou often hear that the longer you rent a house, the more money you waste. On the other hand, if you buy a house to live in rather than renting one, you will have the opportunity to accumulate equity in an asset that is likely to increase in value over time.

Now, to be clear, the houses do tend to increase in value. But that doesn’t mean owning a home is the right decision for you. And if you buy into the myth that a house is a great investment, you might end up regretting it later.

Separate your expenses and investments

Some people invest in real estate by buying income properties that they rent out. It counts as an investment. But your primary residence – the one you live in – shouldn’t.

The reason? When investing in a revenue property, you may make the decision to purchase a particular home based on factors such as rental market saturation and area demographics. When you buy a house to live in, the decision becomes a personal decision, not a business decision. And that’s OK. But it’s hard to make a good investment based on things like your layout and design preferences, among others.

Image source: Getty Images.

Additionally, when you buy an income property, you may be able to collect enough rent to cover your mortgage and related costs, so you are spending very little of your own capital to maintain that property. Then, when it comes time to sell it, you could end up with a nice profit.

When you buy a house to live in, you don’t have rental income to offset your costs. And so, what can end up happening is that you don’t make money on your house, even though its market value increases over time.

Imagine spending $300,000 to buy a revenue property and an extra $30,000 a year on maintenance and taxes to keep it in good shape. If you also manage to collect $30,000 a year in rental income, then sell your house for $600,000 after 20 years, you will have a profit of $300,000.

Now imagine buying a house to live in for $300,000 and spending $30,000 a year on maintenance and taxes, but with no rental income to offset your costs. If you sell that house for $600,000 after 20 years, you’re actually not looking at any profit when you factor in all the money you’ve put into it over those two decades.

A better way to invest in real estate

There are many options you can explore when investing in real estate, such as owning income properties or loading your portfolio with REITs or real estate investment trusts. But don’t make the mistake of viewing your primary residence as a real estate investment.

Also, don’t assume that buying a home is the right decision for you. You may be able to spend a lot less money on housing by renting out and investing your saved money in other assets, such as stocks. Also, you may not want the responsibility of having to maintain a home, and that’s OK.

There are many paths you can take on the road to growing wealth. Buying a home should not automatically be part of this.

10 stocks we like better than Walmart
When our award-winning team of analysts have investment advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They have just revealed what they believe to be the ten best stocks for investors to buy now…and Walmart wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

Equity Advisor Returns 2/14/21

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Lillian Coomer

Check Also

Prime Kapital to develop a 330 million euro mixed-use real estate project in Romania

BUCHAREST (Romania), November 3 (SeeNews) – Prime Kapital, a real estate developer, investor and operator …