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Your Home and the Million-Dollar Question

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Homeownership involves more than just finding the right house in the right location and painting it the right color. The authors of Houseonomics help you analyze all the questions that you should ask yourself before you buy a home.
This chapter is from the book

Your home is your castle, an immense source of pride where you can live securely and comfortably. But your home is also a very important investment, probably the most important investment you will ever make. Your home can make you rich in a way that renting never can. To do so, you need to think of your home as an investment.

Suppose that you decide to buy a home and find the perfect home on a lovely street with beautiful trees. This house isn’t the biggest on the street, nor the smallest. Every home in the neighborhood is in good condition: mowed lawns, pruned roses, no barking dogs behind chain–link fences, and no rusted–out cars on blocks. When your realtor showed you the house, several neighbors stopped to chat and they all seemed very friendly.

This house is close to parks, shopping, and your job. The schools have a good reputation and the city has long prided itself on doing what it takes to improve the community and enhance property values—sponsoring youth sports programs and popular activities for adults and senior citizens, having summer concerts in the park, purchasing open spaces, supporting local businesses, and blocking strip–mall blight.

The house is a cute bungalow, with three bedrooms and two baths—just what you have spent months looking for in a home. The modern kitchen is spacious, with a cork floor and granite countertops. The doors are solid hardwood, the windows are double paned, and the ceilings are 10–feet high. The walls and attic are well insulated, which will help lower the heating and air–conditioning bills. The big backyard has room for children to play and a sunny spot for a vegetable garden. And this home will look even better with your furniture inside and with a different color of paint on the outside. The asking price is in line with what similar homes are selling for in this area.

Is there anything else to think about? Yes! You need to think of your home as an investment.

First, can you really afford it? You have saved money for a down payment, but you’re still about $10,000 short. You can possibly borrow some money from relatives, but how will you pay them back and what strings will be attached? Or maybe you can borrow money with one of your credit cards. What about the monthly mortgage payments? It seems like a real stretch, but maybe you can cut back elsewhere: fewer restaurants and no new clothes or vacations for awhile. Or maybe you can use your credit cards to help with the monthly payments as well as the down payment. How do you know if you can really afford to buy a home?

A friendly mortgage broker, Linda, said that she could get you a low interest rate for the first year and the rate probably won’t go up much the second year. Plus, Linda said that this home’s value will surely go up, so that next year you can use a home equity loan to make your mortgage payments. Is that sensible or foolish?

Another consideration is whether this house will be a profitable investment. Linda said that home prices will surely go up. But by how much? What if she is wrong? Maybe she’s optimistic because she wants to lend you money. But why would Linda want to lend you money if you can’t pay it back? Is it because she gets a commission if you borrow money from her company?

What if Linda is right and the value of your home does go up every year? How much does it have to go up to make this a good investment? You invested the money you’re saving for your down payment in stocks and the stock market is doing fine. You saw a smart guy on TV who said that now is a great time to be in the stock market. You saw a smart gal on TV who said that home prices have historically not increased as fast as stock prices. Does that mean that stocks are a better investment than homes?

Yes, homeownership involves more than just finding the right house in the right location and painting it the right color. We are going to help you analyze all the questions that you should ask yourself before you buy a home.

Our Homes Are Our Castles

There are many good reasons to own your home. Your home is a special place, and it is even more special if your home is really yours.

Your home supports your lifestyle. Your yard gives your children a safe place to play. Your home provides a place to entertain your friends. The location of your home determines how far you have to travel to get to work, shopping, and entertainment. If your children go to a neighborhood school that you love, your home’s location makes this possible.

If you own your own home, you don’t have to be satisfied with the landlord’s boring paint colors. You don’t have to nag the landlord to fix a leaky faucet or sue the landlord to get the moldy carpet replaced. You don’t have to pay unconscionable heating bills because of leaky windows and an obsolete furnace. You can put in modern windows and an energy–efficient furnace and know that you will reap the benefits from many years of lower heating bills and a higher resale value for your home. You can add another bedroom, put in a patio, or plant a garden. If you own your own home, you will have more freedom and more privacy.

On the other hand, making a rational decision about something that is so important to you is difficult. Some people don’t buy a home because they fear commitment. To them, buying a home seems so permanent, like marrying or having children. Others who buy a home are then paralyzed by the idea that they might buy the wrong furniture or paint their home the wrong color. So, they live with what they have rather than with what they want. And some people get so excited about buying furniture that they fill their homes with so many tables, chairs, sofas, and cabinets that it is a challenge getting from one room to the next. Some are so excited about painting their walls that they create what look to be large–scale replicas of the preschool art normally displayed on refrigerator doors. Still others can’t upgrade because it seems wasteful to replace things. “Why do we need a more efficient water heater? The old one still works.”

There is nothing wrong with experiencing any of these feelings. One very good reason for buying a home is the emotional pleasure you will derive from being a homeowner. However, if you think of your home as an investment, you will think a little more rationally and a little less emotionally about your home.

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