Home ownership is ideal in many ways. The quintessential American life seems to always revolve around the home; from Tom Sawyer’s white picket fence to Norman Rockwell’s Thanksgiving dinner. When we think of “home,” we think of established neighborhoods, family get-togethers, child birthdays, summer BBQs, and of course the holidays—these are all things we associate with “being home.”
Are you thinking of buying a home? Home ownership can be emotionally rewarding, and it can have financial benefits as well. However, home ownership does carry with it some risks. Make sure you are aware of them. Here are the 5 most expensive potential risks of owning a home:
1. Initial Cost
Buying a home typically requires a significant upfront cash investment. Conventional mortgages require at least a 5% down payment, and if you want to avoid the costly expense of monthly mortgage insurance, you need to bring at least 20%. Add closing costs to that—typically 2-3% of your mortgage amount—and you can see that your initial investment when buying a home is usually significant and can pose a serious financial risk.
If you are not planning on staying in the home for more than a few years, you may be throwing a lot of that money away. You can never regain the amount you pay in closing costs, and when you try to sell your home, you can count on realty commissions and other fees to add up to 6-8% of your home’s sale price. A short stay requiring a quick sale, for any reason from lost jobs to work transfers to family emergencies, can result in the loss of large amounts of your initial investment.
2. Housing Markets
We all saw what the last housing crisis did to the equity we had in our homes. Buying a home certainly carries the risk of losing money. As home values crashed, millions of Americans became upside-down on their mortgages, leading many into foreclosure and others to simply walk away from their mortgages and their homes.
An old financial adage says that there are two investments that will always pay off if you give them enough time: the stock market and real estate. Be patient. Home owners who weathered the last storm are now starting to see their equity return to pre-recession levels. Could another housing crisis occur and drive your home’s value into the cellar? Sure, but if you are planning on staying where you are for a long period of time, it is unlikely that you will lose money over the long run. You can temper possible frustration and anxiety by remembering that any depreciation in your home’s value is only on paper, and that as long as you are living there, it doesn’t actually change your home or its amenities.
3. Property Liabilities
Unfortunately, we live in a litigious age. Any injury that occurs on your property can lead to a lawsuit. As a property owner, you have the responsibility to make sure your home is a safe place. You of course don’t want any guests or visitors to get hurt, but failing to provide reasonable safety can result in major financial damages.
The most obvious way to provide safety is to provide boundaries. A fence around your property keeps stray visitors such as imaginative and distracted neighborhood children from coming onto your lawn unsupervised. If you have a pool, you need to keep it safe. An unprotected pool is an invitation to serious risk and potential lawsuits. The CDC reports that for children ages 1 to 4, home swimming pools account for the majority of drownings. The simple solution is to provide a fence around the pool, with a locked gate. Avoid needless emotional and financial liability risks by properly protecting your property and, if you have one, your pool.
4. Maintenance and Repairs
A big upside to owning your own home is that you get to pick everything out yourself; from your appliances to your wall colors. The downside of home ownership is that when anything goes wrong, you—and not your landlord—foot the repair bill. If your air conditioner stops working, or a pipe breaks in the wall, or the roof wears out, you will be paying for these repairs yourself. When your roof wears out and it’s time to replace it, you can expect a big cost.
If you are buying an existing home, be sure to hire a professional inspector to identify as many risks and problems as possible. Sometimes the seller may be willing to fix known problems before you buy the home, saving you money and stress later. At the very least, you will be aware of pending additional costs before you buy the home.
5. Tax Benefits Can be Misleading
Many people buy a home instead of renting simply because of the perceived tax benefits that are available to interest-paying homeowners. The interest deduction on your home may save you a little on your tax bill, but it can cost you overall if you are spending more than you should just to save a little. As investment consultant Troy Adkins wrote, “It does not make much sense for you to spend a dollar in order to save a quarter.” It’s like buying in bulk from a warehouse store when you only wanted one candy bar. Sure, you saved in the form of cost per bar, but you spent way more overall just to “save” that little amount. When you buy a home, make sure you are doing it for the right reasons, and that you are committed to your investment. Buying a home simply for tax benefits can result in waste.
Nicole is a writer for the home ownership and home improvement industries. She has found that homes without fences have some of the highest liabilities. If you are looking for temporary fencing solutions, TTFS offers the best options that she could find.