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Since B and I are in the process of re-tiling the majority of our house, we started thinking about all the work we’ve put into the house versus how much the house is worth. It’s not just me who thinks that we’ve spent a lot, but when I compare it to some people who are selling their homes I just have to wonder how much money people have actually put into their homes. For example, I know one friend who used a company to help enhance their garden outside their home to “wow” people before they’ve even entered the house.
According to Zillow, the house is worth $150,000. B bought his house nearly 5 years ago for $80,000. Going off just those numbers, it would seem like B could make $70,000 in profit off selling his home – $14,000 in profit for every year he owned the home. Not bad, right? This is because, home buyers are beginning to read first time home buyer guide books to get a greater understanding of the markets and where they can get the best deals.
However (you knew this was coming), B has put a lot of money into fixing up the house. Conservatively, he has spent $20,000 in the last 5 years doing various upgrades and desperately needed fixes. In addition, we will have to put a new roof on the house before we sell – which we are estimating to cost somewhere between $6,000 to $8,000. All told, his profit will be less than $70,000, but the home still will end up being an incredible investment.
Time to Buy a First House?
Given all that I’ve seen – B upgrading the kitchen and bathrooms, which was cool, but also dealing with flooding, random roof leaks, and all the other not-so-cool things that come with owning a house, I started thinking: should I buy my first house?
As much as we both like the house B owns now, we have decided it’s time to move on. There are more upgrades we’d like to do to the house, but after a point, it doesn’t make financial sense to upgrade a house that won’t be worth the return. We could sink another $20,000 into the house, but there is no way, in our current neighborhood, that we would recoup that.
We were very lucky that B was able to buy his house right at the very bottom of the crash, and we’re not likely to get that lucky again. Not that I’m wishing for a housing crash, obviously, but that sort of ‘luck’ (in our case) is very unlikely. But we’re also ‘done’ in our current house, so it’s time to move on. If you’re looking for a new start in a new home just like us, you might want to check out something like ImSold Property for more information on how to get the home of your dreams.
Is a House an Investment?
This is actually a question I thought to myself when B was in the process of buying his first house – I was perfectly fine forever living in an apartment or condo, where a dedicated maintenance staff was on hand to handle any weird or unpleasant dwelling issues.
I also didn’t really see houses as an investment, either. Some people say you shouldn’t see houses as an investment, and I agree… to a degree. Houses are places that you live, so they’re a necessary expense, and you want to like the house you live in, so that might mean spending more money for a certain location or upgrades.
However, I now do look at houses as investments at this stage in my life. I don’t mind living in a house that needs a lot of work. I’m adaptable and, as long as there is a bathroom and space to make myself a PB&J every day for work, I don’t care what sort of work we have to do to add value to our home. If that means I buy a home for $120,000, invest $25,000 in it, and sell it for $200,000 within a few years, I’ll consider that a successful investment.
There Are Always Risks
That example above may be simplistic. Above anyone, it’s B who reminds me not to look at our house as an investment, because you never know how much it will cost to fix X, Y, Z, or if you’ll be able to recoup the money you put into it when you decide to sell.
As we all learned from the housing bubble – very little is guaranteed. In lots of investments, such as stocks, there are risks you could lose a lot. At the very least, if you own your own home, you are putting equity into a place you live. Presumably you bought the house because you liked the price, or location.
If another housing bubble bursts when I purchase my first home, there’s no argument that I will have to re-evaluate my long-term plans. Luckily, time is on my side. Worst case scenario, I stay in the house for longer than I planned and continue making upgrades as I see fit.
Your home’s equity can be a valuable asset to you, and not just when you sell the home. You can actually obtain a reverse mortgage in order to access some of that equity right away and use it for unexpected bills and expenses, or even to create a vacation fund or fund something else that you enjoy during your retirement. All you have to do is sit down with a reverse mortgage lender to decide if the process is right for you. Each lender has their own policies and interest rates, but no reverse loans of this sort come with monthly bills you have to pay. Instead, you will have repayment flexibility and be able to enjoy your retirement. Before you apply you should check out this simple mortgage calculator.
I’m excited for the next stage in adulthood – buying a house is an exciting thought and, while we’re not close to even selling our current house, I think it’s never too early to plan, save up, and continue scouting affordable and safe neighborhoods. Stay tuned for more home buying posts!
Do you see homes as investments, or as something else? Do you own a home or are you planning on buying one?
Amanda @ My Life, I Guess says
We originally moved into a townhouse (rental) with the intention of staying for a few years while we saved up for a house. But since this rental has been nothing but headaches, we have been talking a lot more seriously about buying a house sooner. I don’t think it’s going to happen as soon as we’d like, though. I’m still unemployed and he’s only been at his new job for less than a month – so I don’t think we’d qualify for a mortgage… Hopefully by this time next year?
I will cross my fingers for you guys! I really hope you qualify for something good – and if you are handy, you can maybe buy a cheaper house, make updates to it, and sell it for a profit 🙂
Lance @ Healthy Wealthy Income says
Our home is where we live and raise our family. It is a place of comfort and hopefully some peace and quiet. My townhouse wasn’t a final house. I bought it with the intention of moving on so I made sure to keep the colors bland and pick a great area. At the end of the day it is just drywall and wood…some people spend a lot more than others. It is what happens inside the home that matters at the end of the day.
That’s so true! Townhouses are great ‘investment’ homes – they are smaller and therefore easier to fix up. You’re so right, too – keeping colors neutral and in a great location can do wonders for your investment. I’m glad your house now is a cozy respite for your family! 🙂
Erin @ Journey to Saving says
Have you seen this post? http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/ Jim is a huge advocate of renting and not seeing your home as an investment, and I thought it was an interesting read. I think everyone has to do what’s best for them, really. I don’t particularly see a house as an investment, but it’s awesome when you can make such a profit!
I’ll also be living vicariously through you since we won’t be settling down for a while. I think we will have to own simply because my boyfriend has all these grand designs in his head of what our house will look like, but I wouldn’t mind renting a house. I’d like to be done with apartments after this!
I haven’t read the article, but I will check it out! Seeing homes as investments is definitely not for everyone, and it can be a lot of risk. Haha, it sounds like you will be buying a house one day if R wants to make it his own with all those designs! That’s the coolest though – when you can make your designs come to life in your own place, and no landlord can tell you ‘no, you can’t have that paint color.’
Myles Money says
I like the idea of buying property as an investment to rent out: if you buy in the right area at the right time, the property itself will increase in value as well as being cash-flow positive from the rental yield. But I’m not ready to buy a “home” just yet because I value my flexibility and if all my cash is tied up in a property which I need to sell (maybe at a loss) in order to move on to my next job and my next home, it could cost me money or prevent me from making the move.
That’s a really good point – you can definitely lose money if you have to move too soon and sell your home. It’s definitely a longer-term plan. But yeah, from what I understand, I think owning rental properties is just another way to diversify income. It has it pros and cons, but so do most investment opportunities.
Femme @ femmefrugality says
I view it as an investment in my future finances. Not necessarily an asset I’d sell, but a way to work towards living rent/mortgage free at some point in my life. Still saving for it, though!
Eventually I’d like to own a beach home. Friend did that and paid it off in a few years by charging people weekly to stay there. Now all the money people pay on their vacations goes right into his pocket. And like we talked about before, maybe it could be our snow bird retreat!
Wishing you the best on this next major life event!
I love that idea!! Owning a beach/vacation home, getting it paid for while you’re working/doing your own thing, and then retiring to your PAID OFF beach house?? Oh yeah! That’s the life! 🙂