Spending and Saving

Why Buying a Home is a Smart Investment

Whether you decide to live in your home years or rent it out as a form of passive income, the right home can become a reliable long-term investment.

If you are looking for a smart investment, consider buying a home. Whether you decide to live in your home years or rent it out as a form of passive income, the right home can become a reliable long-term investment. When considering why buying a home is a wise investment, you must consider how you can use it in the future and what it costs you in the present. 

Right Time and Right Place

Unfortunately, not every home becomes an investment. If you buy it when prices are high, you could lose money on your home. Therefore, the timing of your purchase matters. Buying when inventory levels are high can make your home more affordable and turn it into an investment. 

Homes tend to become investments when you buy one in a desirable location. If you can find one when the market favors buyers, then you can expect to sell it for a profit in the future. However, choosing the location can be a gamble, so look at how other homes have increased in price over the past few years. 

Before you invest in a home, check the area. Look at school districts, comparable home prices, and historical growth. Research the history of the home to see if it has liens or tax issues. Then, conduct a thorough inspection to see if the foundation and bones of the home are solid and won’t need expensive repairs. 

Passive Rental Property

If you buy a home and the selling price doesn’t change after a few years, you can always use your home as a rental property. Renters have difficulty finding affordable apartments, so they often turn to landlords with homes for rent. You should be able to find someone who will rent your property and pay their rent each month. 

When you rent your home, the monthly rate should include enough to cover your mortgage, taxes, and insurance. Then, your tenants can pay for utilities so you can make money on the property. But, good landlords take care of the property by fixing problems, mowing the lawn, and plowing the driveway. Happy tenants pay their rent, so take good care of them. 

Your first foray into a rental property should be small. Some people begin with a duplex, so they can live on one side while renting the other. Renters like to be in a property near the owner, so the owner has a reason to maintain it. If you find you enjoy renting your duplex, then you could step up to something larger, like a four-plex or a large home turned into apartments. 

No matter what type of rental units you have, the key to success is keeping a budget. You don’t want to spend more than you take in each month. 

Cash vs. Mortgage

Buying your home with cash is the best way to make it an investment. When you pay for your home with a 30-year mortgage, the bank that holds your mortgage makes money each month. The only time you might make money off of your home is when (and if) you sell it for a profit. But, that profit needs to exceed what you paid in principle and interest over the 30 years. 

Typically, people have bought homes to live in for 30 years or more. Parents raised their families in their homes, then sold them when they retired. Generally, they sold their homes for more than they paid for them 30 years ago. The profits helped fund their retirement. Now, homes cost so much more than they did decades ago, so turning them into an investment takes more work. 

With some research, financial planning, and good timing, you can turn your home into a smart investment that pays off in the future. 


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