December 21st, 2009
A recnet article on CNN Money shows that the return on investment on home renovations has been decreasing over the past few years.
A chart within this article shows that in 2003 the average remodeling job costs $38,285 and would increase the home value by $31,591 vs average 2009 costs of $50,908 and increase of home value by $32,497.
Does anyone see anything wrong with this picture? An investment in renovating your home in a good year (2003) would net you a -21% return on your investment. In a bad year (2009), you would net a -35% return.
For most people, your home is not going to be a good financial investment, rather it is a lifestyle choice.
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tim
Categories: Housing
April 5th, 2009
Despite historically low mortgage rates and an $8000 first time home buyers credit, buying your own home may not be a good investment. You should consider a number of factors before buying a home.
Time Frame
In order to break even, you’ll need to live in your home long enough so that the equity you’ve gained from your home will offset the closing costs. In a normal housing market this will take around 5 years.
Location
Real estate prices tend to be localized; if you decide to buy a home where the local economy is depressed, it is unlikely that your home price increase will keep up with inflation over the long run.
Your Financial Situation
Before buying a home, you should have at least enough for a 20% downpayment (to avoid paying for private mortgage insurance) and closing costs which run around 2%-4% of the purchase price.
You’ll also need to ensure that your monthly income is sufficient to cover your mortgage, HOA fees, maintenance costs, property taxes, property insurance, and utilities along with all your other living expenses. Having a stable job is key, if you don’t, be sure that you have a large enough Emergency Savings Fund to cover any months when income will not be sufficient.
Lifestyle Choice
Many first time home buyers typically make the transition from renting an apartment to owning a single family home. Because of this there will be additional maintenance costs and higher utility bills due to the larger living area. It is also common for people to spend more money on furnishing and fixing up the place that they own. Generally the upkeep costs will be higher in the place you own than a place that you rent.
Buying your own place is a big decision, so be sure to do your due dillegence. Check out the NYT Buy vs. Rent Calculator to see if it makes financial sense to buy a home.
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tim
Categories: Housing