Not so long ago, it was common to hear that real estate was the one and only safe investment. Since a house or a condo can be sold in case of unforeseen problems, your money can never be lost, right? But with the crisis the last few years have seen, it became clear that real estate was no longer safe, and that home owners weren’t sheltered from bankruptcy.
The situation is slowly coming back to normal – whatever that means –, but a question remains: is real estate a good investment or is it not? Many people decide to stick to renting and avoid the financial risks of ownership. Are they right? Should you buy or rent your next home? Here are four tips that will help you make your decision.
Tip #1: Check How Real Estate Is Doing in Your Region
When you take a first look at the real estate market, it can appear confusing. Experts are contradicting each other, some saying real estate is doing bad, while others are assuring us that it is doing well and now is the time to buy something. Truth is, the real estate market is complex, its fluctuations are hard to predict and no overall statement can be made about its evolution without the chance to be proven false.
The real estate market situation varies from a country, state, province and city to another. So before you make a decision, try and take the pulse of your region. Some cities in Canada, for instance, are notoriously overpriced, like Vancouver (average price of a home as of January 2012: $752,000). Same thing in the United States. The average price of a home in New York is $6,400,000. Chances are, an investment in those markets right now would not be profitable in the long term, for there’s strong possibility that prices will go down.
Tip # 2: Calculate the Real Costs of Buying
A common saying is that, at least when you own your place, the money you put in it every month is not wasted: you will get back if not all of it, at least a part of it the day you sell.
This is not completely true. There are many expenses that come with ownership, money you’ll spend and never see again. We’re talking about taxes, interest on your loans, condo fees, maintenance fees, and homeowner insurance. Don’t just jump feet first into ownership thinking every dime you’re going to put into your home is going to come right back at you, because it won’t.
Calculate the expected expenses of your future property, and compare them with the amount you spend on your rent. You’ll see if the deal is truly worth it.
Tip #3: Make Sure You Buy a Unique Property, That Will Gain Value Over the Years
Shop intensively for your home and look for a place that’s unique. While this might sound easy to say, it is doable and very important. You’d be surprised by how some people don’t look long enough for their home and, most importantly, don’t think long term and buy only for the sake of buying, thinking that whatever happens, they’ll make a profit when they sell. Not only is it not true, but chances are you might even lose money when you sell a property that hasn’t been carefully chosen.
So look for rare things: a house with a yard in an urban area, one of the top floors unit of a condo tower, a cottage next to public transportation and public market… While those properties might be more expensive than the others, there’s always a chance to come across deals when you allow a sufficient amount of time for shopping.
Tip # 4: Think Long Term
Last but not least, this tip sums it all up. The key to a good real estate investment is to think long term. The longer you keep your property, the more chances you have to make a profit in the end. That’s one thing on which most experts agree. So if you have the intention to buy a house only to sell it back in a few years, don’t bother buying and stick to renting. The associated costs (bank fees, notary fees, real estate agent fees, taxes and so on) can be significant such that there’s only a slight chance you might make a profit at all.
If you already have a house and want to buy a new one, consider keeping the old house and renting it. If your credit margin and your financial situation allow such a move, it is definitely profitable.
For some people, buying real estate is not only about making a profit: living the owner life is appealing, no matter what the costs are. So, if your are one of those people who is eager to taste the joys of owning a home, and your financial situation allows you to do so, maybe you should just go for it, even if there’s no major profit ahead. But remember to buy clever to ensure you minimize any potential losses!
Guest Author Bio
Mireille Mayrand-Fiset is a theater, music and travel enthusiast. Apart from working as a freelance blogger for www.toutsurmoncondo.com, she also writes for stage and television.