Young couple walking through the threshold of their new home.

Is Buying a House Worth It?

Updated September 30, 2021 . AmFam Team

Wondering if buying a home is a good investment? Learn about the investment return on homeownership and whether buying a house is worth it.

If buying a home is something you’re considering, you may be doing it for a number of reasons. Maybe you long for a place to call your own and that alone can be reason enough. If you’re thinking about settling down and starting a family, the idea can be appealing too. Some consider buying a house as an investment, with the end goal of cashing in on flipping the home. But is an investment house that you intend to live in a good investment?

By approaching the purchase of a home as a long-term investment — one that stretches over a decade or two — you may find greater financial stability as you approach retirement with a home that’s close to being paid off. But if you’re eyeing a quick turnover and aiming for a profitable payout within a 5- to 10-year window, you may want to consider buying an investment property instead.

Is Buying a Home a Good Idea?

More practical reasons for owning a home, like having a consistent monthly payment and greater stability for your family, may be a more sound financial decision to make when a home purchase. If you buy a house with the intention of making a quick buck, you may be surprised to find that homeownership can be quite costly. Here’s why:

Homeownership costs more money over time

In addition to the purchase price and the high cost of closing on a home, owning a home can get expensive. And when interest rates are high, that can make profiting even more difficult. Appliances and equipment will eventually need replacement. You’ll need to keep up the home over time, and some repairs may need to be made before you even move in.

Another financial reality is that maintenance and upkeep on gutters, plumbing and electrical systems will be required, and those costs can and will add up quickly. Although you may think any investment into the home will result in a higher resale value, expenses like these may do little to boost the price of the house.

Remember that you may be paying a private mortgage insurance (PMI) payment every month if you are unable to pay down at least 20 percent of the home’s purchase price. And that payment every month can add up to thousands of dollars over the life of the loan.

To better influence the return on the investment of your home, discuss your upgrade plans with a realtor before agreeing to any new projects. They’re more aligned with how homes can be improved to increase resale value.

Appreciation is not guaranteed

Although real estate markets can trend upwards — and have done well that way historically — certain financial events can trigger a downward shift in home prices. That’s one reason why it’s difficult to predict what neighborhoods will perform well in the future. Additionally, as home prices increase over the years, it’s key to keep in mind that so does inflation. Your home’s value may climb in 10 years but it may increase as much after adjusting for inflation.

Homes are not liquid assets

It’s easy to see how people consider their home as an investment like the purchase of stocks and bonds, but the reality is they’re quite different from one another. Homes aren’t quickly converted to cash, usually. It’s more difficult to quickly access the monetary value of a home and cash out as you would with a stock market purchase. You may need to pay for upgrades to the home to make it marketable or wait weeks for the sale of the home to go through.

When Is a Home Considered an Investment?

If you invest in real estate, where you’ll rent the dwelling for profit, you may be able to walk away with a fair amount of profit after a number of years. Once the mortgage is paid off — because you’ve had tenants consistently paying your note over the years — the equity you’re building in the property is essentially free, with an annual return, too. As a house investment strategy goes, it’s a pretty good one, though you won’t be able to call a single-family home your primary residence if your renting it out.

Another way landlords financially benefit from rental properties is by charging more for rent than they’re required to pay on the mortgage every month and placing those extra funds into a savings account. Cash that comes in consistently every month is a unique investment aspect of renting out property, potentially with an annual return. It’s one worth considering if you’re looking at real estate as an investment opportunity.

When Is it a Good Idea to Buy a House?

Even though purchasing a home can’t guarantee a return on your investment, homebuying may still be a great idea. Owning a home provides you housing security and a can help to cap the expenses you pay monthly toward living somewhere. And because of that, the cost of owning can be eventually be cheaper than renting, as rental prices increase over time.

So, is it smart to buy a house? In the end, there are many great reasons why owning a home is a good idea. It may be your time to buy a home, and you’re eager to make that purchase. Many young homeowners aim to have their mortgage paid off by the time they retire, which can really help to control costs on a fixed income. Be sure to carefully weigh out all the pros and cons of renting vs. homeownership and come to a conclusion based on your personal financial situation and long-term goals. Seek out a financial planner and review your potential returns against other investment options like mutual funds.

Think Homeownership Is the Right Choice for You?

Still wondering if buying a house is a good idea? You can learn all about the whole purchasing process from shopping mortgage offers to closing day with our first-time home-buyers guide. You’ll find expert insights and key details on every stage. While you’re making plans to make your move, be sure to reach out to your American Family Insurance agent (Opens in a new tab) and request a homeowners insurance quote. You’ll find more peace of mind with homeowners coverage that’s been customized specifically for your home and your budget.

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