When to invest in real estate
Investing in a house
Home ownership means you no longer pay monthly rent for the roof over your head. You can do what you want with your house (within reason). When you leave, you can sell it to recoup the purchase price and – with any luck – earn a profit too.
But don’t kid yourself. Home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.
So before going any further, consider whether your lifestyle and finances make home buying a smart move.
TIP: High costs mean you should be prepared to stay put. Except in a roaring real estate market, it usually doesn’t make sense to buy a home you’ll own for less than three or four years. Reason: the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money, you’ll pay capital gains taxes if you’re in the house less than two years.
When home prices are falling, it just makes the case against buying even stronger. So ask yourself if you can really stay put for that long. Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school?
TIP: It may make more sense to rent. On the financial side, one key question is whether it costs more, on average, to rent or own in your area. The rule of thumb is that if you pay 35% less in rent than you would for owning – including the monthly mortgage, property taxes, and any homeowner’s fees – then it’s smarter to continue renting.
Only if all those answers still point towards owning should you proceed to the next step – getting the money right.