For a long time, conventional wisdom seemed to be that you grow up and buy a home because that’s just what you do. But lately, people are realizing that it isn’t always the smartest financial move. Obviously, the housing crisis has a lot to do with that—it’s made people question the standard assumption that homeownership equals financial stability.
Homeownership isn’t a good or bad idea on its own. It has everything to do with your own situation. Sometimes, buying a home is the smart thing to do; other times, it really isn’t. Whether or not it’s smart for you will depend on a few different factors. Here’s what you should keep in mind.
The biggest argument for owning a home is that it’s an “investment.” But a lot of people tend to overestimate the return on this investment.
People tend to believe that homes are appreciating assets, but this isn’t always true. Overall, the housing market doesn’t have a great long-term return. It barely outpaces inflation, in fact.
| 3s Property Management Co, 1409 1st Ave E, Bradenton Fl 34208 |
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| American Dream Paradise Homes, 8923 Manor Loop Apt 206, Bradenton Fl 34202 |
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| Azure Tide Realty, 2503 26th St W, Bradenton Fl 34205 |
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| Barrett Realty, 1823 Lakewood Ranch Blvd, Bradenton Fl 34211 |
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| Bayshore Realty, 1509 60th Ave W, Bradenton Fl 34207 |
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| Bee Green Realty, 6835 69th St E, Bradenton Fl 34203 |
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| Bennett Realty Services, 5230 E State Road 64, Bradenton Fl 34208 |
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| Boyd Group, 717 Manatee Ave W Ste 300, Bradenton Fl 34205 |
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| Catalyst & Co, 8315 Idlewood Ct, Bradenton Fl 34202 |
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| Clw Referral Company, 8302 12th Avenue Dr Nw, Bradenton Fl 34209 |
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| Cmi & Associates Of Manatee County, 1200 1st Ave W Ste 200, Bradenton Fl 34205 |
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| Fenton Realty, 4700 Manatee Ave W, Bradenton Fl 34209 |
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| Fortune Real Estate, 4301 32nd St W Ste Ev8, Bradenton Fl 34205 |
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| Gardner Realty Group, 6511 213th St E, Bradenton Fl 34211 |
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| Gm Realty Group, 9040 Town Center Pkwy, Bradenton Fl 34202 |
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| Golf Lakes Realty, 5050 5th St E, Bradenton Fl 34203 |
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| Greater Manatee Realty Consultants, 16218 18th Ave E, Bradenton Fl 34212 |
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| Gremley Commercial Real Estate, 7809 San Juan Ave, Bradenton Fl 34209 |
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| Gulf Coast Realty And Management, 11051 Gatewood Dr, Bradenton Fl 34211 |
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| Hardee Equities, 2216 64th Street Ct E, Bradenton Fl 34208 |
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| Harry Falck Realty, 6840 14th St W, Bradenton Fl 34207 |
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| Heagerty Real Estate Services, Po Box 9138, Bradenton Fl 34206 |
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| Help U Sell Buyer & Sellers, 3639 Cortez Rd W Ste 222, Bradenton Fl 34210 |
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| Home Realty & Management, 5255 Office Park Blvd Ste 109, Bradenton Fl 34203 |
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| Home Rentals Of Manatee, 4520 E State Road 64, Bradenton Fl 34208 |
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| Home Store America, 10510 Portal Xing Ste 107, Bradenton Fl 34211 |
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| Horizon Realty International, 7347 52nd Pl E, Bradenton Fl 34203 |
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| Horizon Realty Referral Network, 7347 52nd Pl E, Bradenton Fl 34203 |
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| Howze Real Estate Services, 5406 26th St W, Bradenton Fl 34207 |
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| Img Realty Fl, 7615 Alhambra Dr, Bradenton Fl 34209 |
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| Innetco Realty, Po Box 14762, Bradenton Fl 34280 |
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| Integra Realty Group, 5620 Tara Blvd Ste 203, Bradenton Fl 34203 |
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| Interstate Commercial Brokers, Po Box 110345, Bradenton Fl 34211 |
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| Invest Prop, 5190 26th St W, Bradenton Fl 34207 |
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| Investus Realty, 11225 2nd Ave E, Bradenton Fl 34212 |
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Over the past 100 years, home prices have only grown at a compound annual rate of 0.3%, adjusted for inflation. The S&P 500, on the other hand, has had an annual return of 6.5%. That’s a big difference.
While that single real estate asset might help protect you against inflation, a well-balanced stock and bond portfolio seems to be a better investment. But a lot of people’s portfolios are mostly made up of their home value. You wouldn’t put 80 percent of your portfolio in a bond simply to protect against inflation (unless maybe you were nearing retirement) so why would your home make up that same amount? That’s the argument against buying a home as investment.
When making the decision it is important to understand that buying a home might not be a great financial investment and to not forgo all of your investable assets in order to purchase a home because you are really purchasing a right to housing and not a long-term investment designed to generate income.
Most experts agree that while housing is an investment, it’s not a great investment. So if this is your only basis for buying a home, it’s probably not the best one.
Decide How Much You Can Afford: In deciding whether you can afford to buy, you’ll have to figure out how much home you’re planning on buying in the first place. One rule of thumb for figuring out this number: your home should cost no more than 2.5 times your salary. Of course, this just gives you a ballpark figure. It doesn’t consider your net worth.
Weigh the Opportunity Cost of Renting Versus Buying: While your home might not be the best investment, in the end, it’s still yours. Even if it barely outpaces inflation, at the end of the day, you own it, and that’s worth something. When you rent, you own nothing—the money is given to someone else. So lots of people argue that you should own a home because one day, you’ll pay that home off and it’ll be yours, rather than continuing to pay rent for the rest of your life.
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