Real Estate: Why You Should Be Afraid of Losing Money

This article may attract anger, but I find it interesting to start the debate. I specify that this is not my vision but a consolidation of various articles read on the subject and I find an interesting consolidation to do in order to present it to you. Buying real estate would be a bad plan, worse it would not be an investment as some people think. Now be careful, real estate or buying a house to put an example on it, it’s two things: the house, and the land on which it is built. Depending on the location, the land is likely to increase in value. so it is an investment. But the price of the house is more mixed. And that’s what would say that buying real estate and a particular house is a bad investment. Of course, there are good reasons to buy a home. Have a roof over your head, put the equivalent of the rent over the monthly installments to pay for the purchase and therefore no longer throw away this money as we can hear in a rent.

Buying a house is not a good investment

So we saw that buying land was an investment. But buying a house is not. At the very least, people who buy a house are mistaken to think that it is.

And the fault lies with the last ten years of steep increases in house prices. Indeed, people forget to put it into perspective and therefore justify buying real estate as an investment based on the steep rise in prices in recent years. It is therefore appropriate to look at the evolution of property prices in the UK since the 19th century. We notice one thing is that the average price increase is 3.5% per year. If we only take the last 50 years we go up to 5% annual increase.

A yield, must always be compared to inflation

What misleads people about real estate and makes them think it is an investment is that prices have skyrocketed in recent years while inflation has remained low. A cool double kiss effect that makes people have a short memory. If we take the evolution of prices on average over a whole century. We realize that prices are increasing by 3.5% per year. but that the average inflation is it also 3.5% per annum… let us not forget, that it is only for ten years that we live in a world of low inflation.

This was not always the case and in the eyes of history what we are currently experiencing over ten years is therefore an epiphenomenon. In short, therefore, we see that historically and in the long term, owning a house does not pay off. At best it protects against inflation and therefore protects purchasing power. In this, owning a house is certainly a protection, but not an investment. And to look only at the last ten years to say the opposite is a bold bet on the future.

Real estate is like a car

If real estate isn’t an investment. It is still a financial good. Like any financial good, it must be financed and there are costs. From your purchase therefore, you are in unrealized capital loss. But finance charges aren’t the only ones you’ll have to cover over time on a house. It will indeed be necessary to insure it, pay the charges and many other costs. And you’ve barely stepped home. Then year after year additional costs will be added: maintenance. Not to mention taxes … After a quick research, averaging over the purchase of a home, take 5% of its price and that’s the addition of the fixed costs that you will pay each year as a happy owner.

So real estate is like a car. It is not an investment, in the sense that it ultimately does not pay off, even quite the opposite. Buying a house is expensive. If we add all the costs, and we take into account an inflation that remains at 1% over the term of your credit is 20 years on average, it would still be necessary for real estate prices to continue to climb over these 20 years by 6% per year so that this so-called investment does not make you lose money. This is why buying a house is not an investment. It is a good, an asset that allows you to have a roof over your head and protect yourself against potential high inflation. But by no means is it an investment. Or, here’s a risky investment where you bet on a sustained rise in real estate like the past decade has been blinding for most individuals.

Buying a house is still a good idea

My goal here is not to dissuade owning a house, from owning a home. Quite the contrary. My goal is to prevent some individuals from thinking that buying a home is to be seen as an investment. It is this idea that it is important to break in the minds of individuals who are therefore taking too great a risk to commit to the next 20 or sometimes 30 years. The point here was just to show you that buying a home isn’t an investment for many people, or if it is, the chances of it being a bad one in and of itself are great. Especially after 10 years of sustained price increases and daisies inflation.
Historically, this has never lasted long. And to those who buy to resell in a few months or years, yes it is possible, yes you could make the transaction profitable, but again it is still not an investment, but therefore speculation. In this sense, becoming a homeowner comes at a cost. And you shouldn’t become one thinking you are making a good transaction or a good investment, but above all to have a roof over yourself and protect yourself against inflation. Too many people today buy for the wrong reasons and it is this misconception that real estate is an investment that must be undone.


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