As prospective homebuyers, you're certainly not alone in voicing this concern. To help you clear it up, it's important first to distinguish between the two basic aspects of homeownership:
- Your home as a place to live, and
- Your home as a financial investment.
Simply put, you have to live somewhere (your residence) ... and in all likelihood, you must pay to live there (your financial investment). So, the investment aspect of homeownership is a by-product of your need for a place to live. The question that remains is “Who will benefit from your financial investment?”
When your residence is owned by someone else (a real estate investor known as a landlord), your financial investment (monthly rent) enriches the landlord by building up HIS equity in the property. When you choose to BUY a residence, your financial investment (monthly mortgage payment) enriches YOU by building up YOUR equity in the property.
Next, it’s important to accept the reality that the real estate market fluctuates. It always has ... it always will. But when you buy a home as your residence, its value fluctuations are a profit or loss to you on paper only. They have no effect on your life whatsoever, except in the following three instances:
- You want to sell;
- You want to get a home equity loan, or
- You want to refinance your home.
So, if any of the above will apply to you in the next year or two, you might want to wait.
However, should you choose to buy now and the market were to decline, causing your home's value to decrease, the loss to you would merely be on paper. (This is also true for an increase in value.) You'd first have to sell the home for either loss or profit to become real.
But when you rent, your loss is always certain and always real.
Unlike a "paper loss," paying rent is a “real money” loss straight out of your bank account every month. And worst of all, YOUR financial investment in a place to live goes to pay your landlord's mortgage, enriching only him.
Real estate investors who own residential rental property would prefer that REALTORS® not point out this truth to prospective buyers who may be thinking of renting. Naturally, they prefer that renters be unaware of paying down the landlord’s mortgage. You can understand why.
So, if you plan to be in your home for more than two or three years and you feel secure in your ability to make your mortgage payment, why worry if your home’s value goes down before it goes back up? You will have bought it at a discounted price and low interest rate. And because a landlord seeks both a cash flow (profit) AND a cushion to cover vacancies and repairs, your mortgage payment may be far less than a monthly rental payment. These are what’s important about your home purchase … not the exact timing of it.
To discuss your buying options further, call me direct on my cell at 858-342-9292. And if it’s right for you …
Let's get your home purchase moving.