Buying a house is a great investment...Well, that's what they WANT you to believe anyway. Who are 'they'? Brokers, bankers, investors and anybody else who got rich quick because they've convinced you that buying a house is a great idea. Here's what they're not telling you:
1. Houses do NOT increase in value over the long term.
Houses are supposedly a great investment because there is a significant and guaranteed increase in value over time. Housing prices do increase because of inflation of course, but prices of all other products increase at the same rate so that isn't actually making you any richer. To make money of of your house, housing prices would need to increase faster than inflation.
So now let's follow this logic: If housing prices rise faster than inflation, they're rising faster than wages, which in turn means that over time houses would become so expensive compared to the average American household income that nobody would be able to buy a house anymore. Clearly, this is nonsensical. If nobody is able or willing to buy houses at such high prices, prices should drop back to where an typical American household can afford them. And that is exactly what is happening; the value of real-estate simply rises WITH inflation, making it actually one of the worst kinds of investment, other than stuffing cash under your bed.
2. Buying a house is NOT better than renting
Buying a house requires you to spend much more on miscellaneous expenses from appraisal fees and title insurance to lender’s upfront points. In the first 5 to 7 years, a renter investing an equivalent of down payment in stocks can make better profits overall when compared to a house buyer. To top it all, most homeowners move again within this time period so the advantage of earning tax benefits (which does make a positive differnce if you live in the same house for 15-30 years), is not applicable.
While many may think that paying a deductible mortgage interest would be better than paying rent, a long-term mortgage interest IS itself just another form of rent. What is the point of going into such deep debt and then having to pay the equivalent of monthly rent in mortgage interest? Sure, you end up owning the house after a few decades, but remember you paid for that on top of the mortgage interest.
3. Buying a house is too big a risk
Most people will tell you that buying a house is a safe investment. But perhaps these people need to get their facts straight. For example, housing prices in California and the Northeast fell just 15 years ago? And like most people, you're considering investing ALL your capital in a house? Sounds like might be putting all your eggs in one basket..
If your retirement plans revolve around buying a house, you can still change them. If you’ve already bought one, you can always check on expenses and invest in a wider variety of investment options henceforth. Also, try speeding up the principal payment so that your mortgage interest isn’t wasted like rent money.
If you haven’t purchased a house yet, don’t do it unless you are absolutely confident about not moving for at least 20 years. This is the only to reduce the risk involved in buying a house. You can never be sure whether the house will be worth more, it will all depend on when and where you buy it. Even cash buyers have a better assurance of making profits.
Side-note: 75% of people who said they were certain they would not move in the next 30 years, ended up moving after less than 20 years. So don't jump to hasty conclusion on how long you are going to stay where you are.
4. Real estate agents are taking your money!
But isn't real-estate a hot market? Oh yes it is..for real-estate agents. Many buyers do not realize that their own agents trap them in a bait-and-switch tactic where the agent places ads for prices lower than the actual price to fool potential buyers into believing that it is a hot deal, after which the buyers bid against each other blindly. In the end the house gets sold for plenty more than the actual value and the agent makes a nice profit. If the house doesn’t get sold, agents don't earn their commission so they try all tactics to get buyers to invest in the house whether or not it is a good deal for buyers.
There are plenty of other tricks such as removing and re-adding properties on the MLS (Multiple Listing Service) to make them appear new or urging you to buy quickly to make sure you don't lose against a 'secret bid' that they know off. As a general rule, just remember if the sale doesn't go through, the real-estate agent doesn't get paid. As such, he's not on your side, he's on his own side.