This is a post from the newest member of the Lukas Coaching/Past Due Radio team, Jaime Thompson. Jaime is a Financial Coach with great insight on answering the question, “What next?” so that our money isn’t wasted.
I recently had a conversation with a friend who mentioned what a great investment his house had been after he sold it. Then I asked him how much money he paid in interest, real estate taxes, insurance, repairs, and maintenance over the past ten years. And more recently what his realtor fees, closing costs, and moving costs were.
As those numbers mounted up, he realized he didn’t make nearly as much profit as he thought. In fact he didn’t make a cash profit at all. He rolled the money he received from the sale into a new mortgage. Yes, his net worth has increased, but as long as that money is in the house he lives in, I wouldn’t consider it a great investment. After all, he hasn’t put a dime in his pocket.
Don’t get me wrong I’m not against home ownership. I am a homeowner myself. But do we have a realistic view of what home ownership is and has to offer? What’s the difference between buying a mutual fund versus buying a house? If you need immediate cash, could you sell your home quickly? Where would you live? How diversified is the neighborhood, town, and local economy you live in? Do you have $10,000 or more to pay your real estate transaction costs (i.e. realtor fees and closing costs)?
That’s not to say real estate can’t be profitable, but if you’re looking at it as your retirement nest egg, a way to finance college, or to pay for some other expensive life goal, you might need to take a step back and reevaluate. The current economy has taught us just how volatile the real estate market is. Remember your home is where you seek shelter, create memories, and enjoy life. Make your house your home and if you end up ahead when you sell, lucky you.