Will Homeownership Make or Break You?

Typically, when you ask a real estate agent if it’s an excellent time to purchase a home, most will undoubtedly respond, “YES!!!!” Then, they’ll ramble on and spew what seems to be a never-ending list of benefits that come along with homeownership. There are many benefits, but I cringe when I hear agents tell prospective buyers that their home is a huge asset and leave it at that. Don’t get me wrong; a house can be a huge asset, however, for most homeowners, their home will also be their largest liability – initially (I’ll go in depth as to how the home can become a huge asset and tool to create a family legacy in a bit). I DO take issue with agents only focusing on the potential for equity growth without even broaching the topic of the monthly and annual costs associated with owning said “asset.”

At times this “liability” can become a huge problem for individuals who stretch themselves too far beyond their means leaving no financial margin for unforeseen issues…

Asset Vs. Liability?

For most homeowners, their housing costs are the most significant line items on their monthly expense reports: mortgage, insurance, taxes, maintenance, utilities, etc. Additionally, unlike investing in rental properties that produce positive cash flow income every month, a primary residence is taking money from a homeowner – again, this is a liability. At times this “liability” can become a huge problem for individuals who stretch themselves too far beyond their means leaving no financial margin for unforeseen issues. For example, job los, cut back on over-time, the death of an income-earning spouse, severe illness, incapacitation, etc. I don’t write this to frighten you, but rather to shift the industrywide paradigm when it comes to consulting clients about purchasing.

Can Homeownership Facilitate Future Plans?

When you purchase a property, and you have a long-term plan, you can plan for many things, including paying off your house. When you create some financial margin that includes saving for future opportunities and paying down/off your home’s mortgage, it could be a genuinely winning proposition. Homeownership not only stabilizes communities but for the most part, it supports families. The house can be the conduit to wealth creation and personal development.  For instance,  many families may tap into the equity growth in their primary residence to be utilized to finance university education; hence improving the opportunities for children to educate themselves and advance in desired careers. The potential for growth and financial gain are intangible. Other times that equity has also been used to invest in opportunities such as opening a business or investing in favorable cash flow rental properties.

The least visible and difficult to measure is the sense of joy and pride that a family attains through homeownership.

Homeownership Is More Than Just a Financial Asset.

There are so many positive examples of the big wins through homeownership, but the least visible and difficult to measure is the sense of joy and pride that a family attains through homeownership. For many immigrant and minority families, homeownership is the first step to entering the middle class, because it creates stability over the long-term and as mentioned above, there is an excellent upside in the potential for equity growth. The key here is to understand that there is a clear and distinct difference between an asset and a liability. Since your house is the most considerable cost, you should consider it a commitment until it starts performing for you either by netting you money every month (as a rental), or putting the equity to work in other investments and opportunities. Take this with a grain of salt, as sometimes homeowners bite off more than they can chew – we only need to look back at 2008 and the havoc that was created by toxic mortgages!