Is Buying a House a Good Investment?

House ownership. It’s one of the most significant financial steps you may take, and besides a car, it’s often your first large purchase. Maybe you’ve dreamed of buying an apartment in the city, or perhaps you want a sprawling property outside of town. But how do you know if buying a home is the right decision at this time in your life? 

Sure, there are many benefits of owning a home, but it’s not all sitting on your porch sipping lemonade and gazing proudly at your little slice of heaven. There are some drawbacks you should be aware of before you buy a house. Before you jump in with both feet—and a portion of your life savings—let’s unpack the pros and cons. Is buying a house a good investment? 

Advantages of Owning a Home 

There are some significant advantages to homeownership. You’re not throwing your money away in rent, and you can put those design DYI skills to good use by renovating your space however you want (though this may not fully apply if you’re part of a homeowners association).  

Here are some other great benefits of homeownership:  

1. It may save you money if you’re looking to settle down long-term. If you’re in a town you really love and have no plans to go anywhere, owning your home is usually a good option. Paying rent on your house or apartment is nice because you don’t have to worry about repairs. Still, one of the advantages to homeownership is that you’ll eventually get the loan paid off and won’t have that big bill looming over your head every month. You can allocate that money to put toward things like a college fund for your kids or your retirement account. It’s also reassuring to know that if you do decide to relocate, you can always sell your house and use the profits to fund your next venture. When you rent, your hard-earned money goes into the hands of a landlord—not back into your own [future] pocket.  

2. It builds equity. Building equity in a home can be such a valuable asset. Every mortgage payment you make—plus the down payment—brings you one step closer to paying off your house. Home equity is basically the value of what you have invested so far. Even better, if your house and land appreciate over time, that’s also taken into consideration and helps grow your equity. You can use it to open a home equity line of credit or obtain a home equity loan. Those can be lifesavers if you need money to purchase a new car or make major home renovations.  

3. If you appreciate your house, it appreciates you back. Most houses, if maintained properly, appreciate over time. If you stay up on repairs and add some new renovations—large or small—your home investment will typically grow in market value. That means you could be sitting on a potential gold mine if you decide to sell. The land your house sits on could also be a big factor in how much your house has appreciated over the years. Another benefit of homeownership? Appreciation can also give you a boost if you decide to refinance your mortgage.  

Home ownership seems like a no-brainer when you throw in added perks like tax deductions and great loan options. But we do have to cover some of the potential downsides. 

Disadvantages of Owning a Home 

Remember that image from earlier of you sipping lemonade on your porch swing? Unfortunately, that porch swing could break, and as the homeowner, you’d have to foot the bill. While there are many benefits of homeownership, there can be some cons as well.  

Here are some of the disadvantages of owning a home: 

1. There are a lot of upfront costs. There’s a reason why they call a house an investment. You need a pretty good chunk of change to purchase a home. To buy a home, most lenders you seek out for a mortgage approval prefer for you to have 20% of the total cost of the house for a down payment, along with enough money for prepaid costs—property taxes, home insurance, mortgage interest—and closing costs, which essentially pay the lender for servicing the loan. Then, you actually start paying your mortgage.  

2. Repair costs are your responsibility. If you’re renting, you probably can’t knock out that wall between the kitchen and the dining room, but if your A/C quits, your landlord pays the cost to fix it. In the case of house ownership, you’re responsible for all the repairs. You’ll need to make sure you have enough savings to foot the bill for unexpected repairs and still be able to pay your mortgage. This is also where the importance of home inspections comes into play, so you can spot problems before moving in. But even if everything was pristine when purchasing the house, things eventually break and wear out.  

An American Home Shield® home warranty can be your safety net, covering up to 23 essential systems and appliances you use every day. When those items inevitably break down, you don’t have to. So, no more sweating it when the A/C fails during the heat of summer. If we can’t fix the covered issue of the appliance or home system, we’ll replace it, subject to contract limitations and exclusions.  

3. Sometimes, your house may not appreciate. Most of the time, your property will increase in value over the years, especially if your home is in a booming real estate market. But sometimes, due to unforeseen events (like a market crash), your property can depreciate. Your investment can depreciate based on what’s happening around you, too. If a production plant or warehouse breaks ground down the street, or some of your neighbors foreclose on their houses, the value of your house could stay the same or decrease, even if you’ve kept it in pristine condition. Many homeowners don’t realize that whether or not a home investment pays off isn’t entirely in their control.  

So, is Owning a Home Worth it? 

All in all, you can’t invest in something without risks. Making big, financial moves in life can be scary and exhilarating, and the return on your home investment is sometimes out of your control. But the benefits of owning a home, like building equity and saving money long-term, may be more than worth it. 

To evaluate if you can take the next step toward house ownership, whether you’re building or buying a house, consider the stability of your finances, such as any planned, upcoming expenses and whether or not your budget can handle surprise expenses, like medical costs, or job loss. If you’re buying a house with student loans or other debt, this is a crucial step. If you do decide to take the plunge, make sure you find a real estate agent you feel comfortable with, who understands exactly what you’re looking for, and who has expert knowledge of your local market. Use our tips for home buyers checklist to help you prepare for the home buying process.  

It’s always good to review the advantages of homeownership as well as the disadvantages of owning a home before jumping into this pricey yet rewarding endeavor. While seeking homeownership advice, it’s important to remember that everyone’s financial situations and circumstances are different. What worked for a friend or a relative may not work for you. And that’s okay! Work with what you have. The perfect house to meet your needs is out there!