Reality: Buying a Home Is a Short-Term Loss
“It takes time for homeowners to recover their upfront costs in buying a home through a combination of appreciation, savings against rent and a lower principal balance,” said Brian Davis, co-founder of Spark Rental. “A good rule of thumb is that if you don’t plan to own the home for at least five years, consider renting instead.”
Owners often make too many improvements to a home, expecting a commensurate increase in value. But there is a limit to how high home prices will rise in any location, regardless of how many high-end fixtures you add.
“Homeownership just begs for emotional, poor financial decisions,” Davis said. “One nice thing about renting: You aren’t tempted to spend $50,000 to add a new patio. Homeowners get emotionally wrapped up in their homes and often get carried away in their ‘nesting.’ Sometimes, projects simply creep their way out of control.”
Homeowners have a habit of justifying their exorbitant home updates by telling themselves that they’ll recover the money upon resale, Davis said. “It’s a fallacy — it’s extremely rare for a home update to have a positive ROI (return on investment), with most updates falling in the 50 to 80 percent recovery range,” he said.
If you’re thinking of a major home renovation, make sure it isn’t going to hurt you home’s value.