Owning a home means more than just a place to live and eat. For many, it's about achieving the American dream: a place to raise a family, retire, and build wealth to pass down to future generations.

If done correctly, buying a house can be a good investment. It means that the value of your property can rise over time, and you can accumulate equity (the value you own) as you pay off your mortgage. There are also tax advantages, and you can profit by renting it out.

However, it's a big financial commitment. You need to understand the pros and cons. Here at The Williams Team, we’re providing you with some key points to think about before choosing to get your next best investment before 2024:

Pros (advantages):

Your property's value generally increases over time.

• To understand why purchasing a home could be a good investment, consider the overall trends in the housing market. While the housing market has ups and downs with everything that’s happening this year, your home is likely to appreciate over time. Median home prices soared by more than 100% from $221,800 in 2010 to $457,800 in 2022.

You build equity as you pay off your mortgage.

• As you pay off your mortgage, the value of your home typically increases. Assuming your property value increases over time, you should be able to sell your home for enough to make a significant return on your investment.

In addition, owning a home increases financial stability. According to the previously mentioned 2019 survey by the Federal Reserve Board, Renters have a net worth of $6,300, while homeowners have a net worth of $255,000, which is more than 40 times that of renters. This is because homeowners build equity when they pay their mortgage. Additionally, those who buy homes may make better financial decisions overall to protect their investment.

You can get tax deductions on mortgage interest.

• There are some tax advantages to owning a home. Every year, if you itemize your deductions, you can deduct mortgage interest and property tax payments from your taxes. However, you should only itemize your tax deductions if it makes financial sense. Calculate your homeowner tax deductions and any other deductions you may be eligible for to see if itemizing is worthwhile. If this figure is higher than your standard deduction amount, it may be in your best interest to itemize.

Cons (disadvantages):

You need to qualify for the loan and purchase

• You may need to save for a down payment. You will definitely need to qualify for a mortgage, and plan for homeownership expenses such as taxes and insurance.
  
  

Closing costs can be quite high, up to 6% of the home's value.

• Most people do not consider all of the additional costs associated with purchasing a home. For example, new homeowners must pay closing costs, which typically range between 3% and 6% of the total loan amount.

So, if your home is worth $370,000, closing expenses may be an extra $11k to almost $22,500 (If you’d like to purchase mortgage discount points) in closing expenses! Luckily, our qualified agents can help you get some of that covered by the seller or rolled in to your loan, if applicable.

The value of the house can decrease, especially in the short term.

• If you’re deciding whether a home is an investment, it is critical to consider appreciation. If the appreciation rate is strong enough, the increased value from the residence will make the investment worthwhile in a short time.

Still be on the lookout for certain situations, such as the subprime mortgage crisis of 2007, in which house prices fell substantially in a short time. Furthermore, the physical structure of your home will gradually wear and tear over time. That is why it is critical to be proactive about home maintenance.

There are ongoing costs for maintenance and repairs.

• Maintaining a potential investment property is costly since you will have to deal with continuous upkeep bills. Every year, you can anticipate to pay 1 - 4 percent  of your home's entire worth for basic upkeep, which includes

Lawn mowing and treatment

removing debris from vents

Cleaning your gutters

Getting your appliances serviced

Investing in pest control measures

Keep in mind that these are merely for general upkeep. This does not cover the cost of major home repairs, such as roof replacement.

Aside from the pros and cons that we’ve mentioned above, here are several quick factors that may affect your home's value:

Location: Homes in desirable areas are more likely to increase in value.

Real Estate Market: Market conditions can influence your home's value.

Home Size: Larger homes or those with more usable space tend to have higher values.

Interest Rates: Lower interest rates make homes more affordable and can increase their value.

Overall Economy: A strong economy generally leads to higher home values.

When buying a house, you need to consider various costs:

Down Payment: The initial payment you make when buying a home, typically a percentage of the home's price.

Closing Costs: Expenses related to obtaining a mortgage.

Insurance: You'll need homeowners insurance to protect your property.

Monthly Mortgage Payment: Your ongoing payment to the lender.

Home Maintenance and Repairs: Costs for keeping your property in good condition.

HOA Fees: If your home is in an association, you'll have monthly fees.

Property Taxes: An annual tax the county assesses to support local services.

Home values can fluctuate, even though they normally rise over time, as illustrated by the considerable spike during the epidemic.

Buying a house may not be a sensible investment if you are unprepared or if it does not meet your needs. You’ve got to commit to it 100% financially, and it may not be the ideal solution if you move frequently or have financial troubles.

To summarize, purchasing a property can be a good investment in the appropriate conditions, but it's critical to thoroughly weigh the risks and advantages before making such a large financial commitment. To make the best decision, use tools such as a home affordability calculator and search around for the best mortgage conditions. You can also take advantage of our free consulting services, and to find your home’s value.