There’s advice everywhere when it comes to real estate. These real estate “rules” are repeated so often that they often sound wise. You’ll hear “rules” from friends, from TV experts, that are supposedly foolproof. However, some of these long standing pieces of wisdom can actually be bad for your wallet.
You should know that one size does not fit all when it comes to advice for your financial situation. Challenge these rules, stay up to date, and make choices that work for you and your goals and budget. It will be better for your finances! Below, we’ll break down 11 real estate ‘rules’ that might be wrecking your finances — and smarter alternatives.
Buy as Much House as You Can Afford
It might seem like a good idea to buy the biggest house you can qualify for. But when you stretch your budget to the limit, you’ll have very little room for the unexpected repairs, maintenance, or life changes. You want to have breathing room for other financial goals and life’s unexpected expenses, instead.
Renting Is Throwing Money Away
You’ve probably heard this one a thousand times. Renting does make financial sense, depending on your lifestyle, location, or career plans. You have flexibility, and you don’t have to pay property taxes, maintenance costs, or a hefty down payment. Renting frees up money for many to invest in things that provide better returns.
You Should Always Make a 20% Down Payment
Putting 20% down helps you avoid private mortgage insurance (PMI), but it’s not always the best strategy. Saving a full 20% could take years, especially in rising markets, to wait to save that much. It’s sometimes better to buy sooner with a smaller down payment and let home appreciation work for you.
No Matter the Cost — Choose a Top Location
Location is important, but you don’t need to buy in the trendiest neighborhood at any price. Perhaps it would be better to think about up and coming areas or neighbourhoods where the costs are lower, but the growth potential is good. The balance between location and affordability will thank your wallet.
You Must Own a Home by 30
Buying a home by a certain age is a lot of pressure. Of course, jumping into homeownership before you are financially ready or your career and life goals are stable can backfire. It’s better to buy a home when it makes sense for you, not when it fits an arbitrary deadline.
Real Estate Is Always a Safe Investment
Real estate usually appreciates over time, but it’s not a sure thing. Many homeowners learned from the 2008 housing crash that property values can fall. If you’re buying a home purely as an investment without thinking about the risks involved, you could end up in a financial mess.
Pay off Your Mortgage as Fast as You Can
It sounds nice to be debt free, but throwing all your extra money into your mortgage might not be the best idea. If your mortgage rate is low, putting your spare cash into high yield investment opportunities like the stock market instead will allow your wealth to grow faster.
Your House Is Your Biggest Asset
Your home may be your primary investment, but it can be a risky one. Your home’s value is unpredictable, and it’s not a liquid asset, unlike stocks or retirement accounts. Investing in different things will help you not be left vulnerable if the housing market takes a dip.
Save Money by Buying a Fixer-Upper
DIY shows have made it seem like the ticket to affordable homeownership is a fixer upper. Renovations, however, often cost more and take longer than planned. A fixer upper could drain your finances rather than boost them if you don’t have the experience or a big cushion for unexpected repairs.
Always Buy, Never Sell
It may seem like holding onto properties forever is the way to build wealth, but sometimes selling is the smart thing to do. Letting go of a property may help your financial health if it’s draining your finances or market conditions are right for a profitable sale.
Keep Up With Friends or Family by Buying Property
Friends and family buying homes can make you feel like you should be doing the same. The thing is that buying a property just to keep up with others can deter them from making wise financial decisions. Don’t let external pressures make you lose track of your own financial readiness and goals.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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