(Newswire.net — September 1, 2021) — Buying a home can be a good investment, and most financial advisors would recommend investing in real estate. Your mortgage might cost less than what you’re paying in rent, and over time, you’ll build equity – eventually helping you grow wealth.
On top of that, you may be able to rent your property to someone else, generating cash flow from your initial investment.
However, there are some hidden costs of home ownership that jeopardize the quality of your investment; making money and building wealth aren’t guarantees just because you bought a home. Being aware of these extra costs, and planning for them, can help you stay financially ahead.
What Are the Alternatives?
If buying or owning a home isn’t worth it, what are the alternatives?
First, you could rent instead of owning. In some areas of the country, it’s actually cheaper to rent than it is to buy property. On top of that, you’ll skip all the extra costs of home ownership and you’ll have fewer headaches (since your landlord will be responsible for taking care of most issues).
If you currently own a property, and it’s more expensive than it’s worth, you could also consider selling it as is. In a matter of days, you can get rid of the property and benefit from a cash sale, leaving all those extra costs behind.
Hidden Costs of Home Ownership
So what exactly are the “hidden” costs of home ownership?
1. Property taxes. One of the biggest extra expenses you’ll face is your property taxes. Regardless of whether you’re occupying the property, you’ll have to pay taxes to the city based on your property’s estimated value. Depending on the nature of your home and the specific tax rate of your municipality, this could cost you thousands of dollars per year. If you’re in escrow with your lender, this may be rolled into your monthly costs – but one way or another, you’ll need to account for it.
2. Insurance. You’ll also need to think about your home insurance policy. If you took out a loan to buy the property, your lender will likely mandate that you have an insurance policy in place. Even if you paid for the property in cash or inherited it, you’ll want to have insurance to protect you from potentially catastrophic losses. Depending on the nature of your policy and the value of your property, this can be hundreds to thousands of dollars per year.
3. HOA fees. If your property is part of a homeowner’s association (HOA), you might owe monthly or annual dues. Some HOAs are quite reasonable, charging just a few hundred dollars per year, but if your neighborhood has access to lots of amenities, you’ll be forced to pay a lot more – regardless of whether you actually use those amenities.
4. Utilities. If you plan on living at this property, or if you’re required to pay utility costs for a renter, you might be surprised to learn just how expensive these bills actually are. Electricity, water, natural gas, and other costs can add up quickly and ruin your otherwise sound budget.
5. Lawn care. If your property doesn’t have a lawn, you can skip this cost. But for anyone with grass, shrubs, and other yard features, it’s something you have to consider. Depending on your neighborhood, you may be required to tend to your yard in specific ways – which means buying a lawnmower, fuel, trimmers, pesticides, extra water, and dozens of other items to keep the lawn in good shape.
6. General maintenance. Don’t let the “general” name fool you. There are dozens of different areas of your home that require routine maintenance, such as your HVAC system, your gutters, your roof, your plumbing, and even your electrical wiring. Whether you’re maintaining these things yourself or hiring someone to do them, you’ll end up needing to pay.
7. Cleaning. Cleaning doesn’t seem like a costly activity on the surface, but it can quickly get out of hand. Mops, brooms, wipes, solvents, and other cleaning products can add up to hurt your budget – especially if you have big spills to clean.
8. Emergency repairs. Every homeowner will face an emergency situation eventually. Ripped roof shingles, leaking sinks, broken appliances, and other maladies can all jeopardize your health and security. It’s essential to fix them – but doing so can cost you thousands of dollars out of pocket.
If you’re in the market to buy a property, or if you have a property with questionable value, think critically about these extra expenses. While buying and owning property can be a valuable investment strategy, it can also be a massive financial burden; don’t let yourself stay in a money pit.