Primary Residence - Shelter or Investment?
February 13th, 2008 . by mcareyThe Real Estate Journal published an article yesterday morning that is interesting from several perspectives. Their articles lean toward simplicity out of, what I believe is, the K.I.S.S. mentality of writing for the masses. Nevertheless, this article highlights a multitude of topics that could be expanded upon, but I’m going to hook items 1 and 2 as they relate to this blog content.
1. “You don’t know what’s worth until you sell it” - I should print this on my business cards. The power of perception is a wonderful thing - it allows us to dream and leads to research and innovation - unfortunately, if unchecked, it sometimes also leads to delusions of grandeur - when it comes to the real estate this next statement is a natural tendency - [dreaming] “leaves ample room for mental mischief. You can happily imagine that your house is a wonderfully stable investment, because — unlike your stocks — you aren’t receiving continuous price updates. You can also happily imagine that your home sports some grand valuation.”
which leads us to item 2: “The expense ratio is HUGE” - That mortgage payment and utility bill doesn’t seem as overwhelming when we are seeing the direct benefit of writing that check every month - BUT, when that house is empty and you’re still writing the check, numbers like this are significant “Each year, between maintenance costs, property taxes and homeowners insurance, you might be paying a sum equal to 3% or 3.5% of your home’s value.” To put this in concrete terms - you’re $400K house costs you between $12K and 14K a year - minimum! That doesn’t include your debt service folks.
So you ask, what’s my point? Well, first let’s start with my point isn’t that everyone should be selling at auction. There are times and places where auctions are the most effective and impactful means of resolving a real estate situation, but auction are not appropriate for all real estate transactions. My point is mostly - don’t quibble over a couple of thousand bucks here or there on the sale of your house - in the end it really won’t matter and usually your money today is worth more than your money tomorrow.
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