| The 3 worst reasons to buy a house |
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| 已发布 on 2003-04-27 18:17:31 EST |
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慉 house is a better investment than the stock market�
It抯 become popular, with the current anemic stock market, to tout homeownership as the new best way to build great wealth.
When, oh when, will we learn that past performance is no guarantee of future results?
It抯 true that owning a home can be a good financial foundation, because it forces you to save (in mortgage payments that build your equity) and offers you the potential for great leverage. Leverage, simply put, is the ability to invest just a portion of the purchase price, borrow the rest and reap outsize rewards from any appreciation.
Say you put down $20,000 on a $100,000 home, borrowing the balance. If your home appreciates 10%, your equity in the home has grown by 50%. ($110,000 minus the mortgage of about $80,000 equals $30,000, or 50% more than you invested.)
Home prices, however, don抰 always go up.
Ask homeowners in Boston, Dallas, Houston, Anchorage and Southern California -- all of which suffered major real estate recessions in the past 20 years.
After dropping more than 20% in the 1990s, Los Angeles home prices took almost 10 years to regain their peak, says real estate expert John Karevoll, an analyst with DataQuick Information Systems. Anyone who lived here during that time knows people who were 搖pside down� -- owing a bigger mortgage than the home could be sold for. Thousands of people simply walked away from houses they couldn抰 sell, trashing their credit ratings in the process.
慖抦 tired of throwing away money on rent�
You抮e not really throwing money away when you send a check to your landlord. You抮e exchanging it for a place to live. You抮e also getting flexibility and freedom -- things you sacrifice when you buy a home.
When you抮e a renter, it抯 the landlord, not you, who is generally responsible for maintenance, repairs and fixing the toilet that blows up in the middle of the night. If the neighborhood should start to slide, or you get or lose a job, you can up and move with a few weeks� notice (less, if you don抰 mind losing your deposit).
It抯 true that you may have to deal with rising rents and recalcitrant landlords. Homeowners, however, are often stuck with rising taxes and maintenance costs, as well as recalcitrant neighbors.
Moving is never fun, but moving when you own a home is an expensive, time-consuming process. Finding a buyer can take months in all but the hottest markets, and you should figure selling costs will eat up about 10% of your home抯 value, once you add agent commissions and moving expenses.
In other words, homeownership is more like marriage; renting is more like living together. Make sure you抮e ready to be wedded to a house before you propose to leave behind life as a renter.
慖 need the tax deduction�
Would you give someone a buck just to get 27 cents in return? That抯 essentially what you抮e doing when you take on a mortgage just to get a tax deduction.
If you抮e in the 27% federal tax bracket, every dollar you pay in mortgage interest only saves you 27 cents in taxes.
Don抰 misunderstand -- the tax break is nice, and you need somewhere to live. But you should make sure you can really afford to own a home before you take the plunge.
Remember that many of the real costs of owning a home aren抰 deductible. Uncle Sam won抰 give you a break for insurance, repairs or maintenance, for example -- and those costs can really add up.
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