For decades, Americans have grown up believing that a huge house is a huge asset too. This is why they spend thousands of dollars and commit the next 30 years of their life to paying mortgage. With all this investment, you cannot be sure if a housing crash will wipe away your home’s value within days. This is exactly what happened in 2008 as well. So many hardworking Americans were stripped of their home’s value, simply because the housing market was working on steroids since a few years.
The real question- asset vs liability?
Traditionally, most homeowners have believed that a house is an asset. This is the reason why houses make up most of your wealth. Having a big house meant that you are owning a huge asset. This is why people happily pay mortgages for 30 years. Owning a house gives them a sense of a large asset ownership.
However, there are a few things that make the house more of a liability. Let’s assume that you bought a house for $500,000 today. Do you think you will be able to sell it for $750,000, 10 years from now? Of course, you can. However, there are conditions that you must fulfill.
You need to keep upgrading your home’s looks, repair the plumbing and maybe even buy new appliances for the home. You could have to make major changes in the home by adding new rooms, converting old rooms for new utilities and more. All this requires money.
You could sell your house for $750,000 after 10 years. However, it is also likely that you spent $150,000 on home repairs during this time. The cost of your home will then be $500,000 +$150,000 which means $650,000. Your profit is only of $100,000.
If you decide not to spend this kind of money for your home’s improvement, you will suffer a larger loss. Experts suggest that homeowners could lose 30% to 50% of their home’s value if they don’t focus on improvement projects. You could lose $250,000 on your home’s value if you don’t pay enough attention to a $500,000 home.
A home is a liability
A home, therefore, turns out to be a liability. You will have to constantly put in work on your home to keep it functioning well. Some radical improvements may also be necessary in order to make the value appreciate further. Note that you don’t always lose money if you get a home.
If you are living in an area where the home values are appreciating, you could actually end up gaining a massive profit. In fact, by making some modern or expensive renovations to your home, you could demand a much higher price for your home.
If you buy a home thinking that you will never have to spend on repairs, think again. A house needs a lot of maintenance too. The best option is to research the housing market well and to buy only as big a home as you need. This will help you get lesser financial burden and reduce the cost of maintenance as well.