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Friday, February 23, 2024

College 101: What Makes Real Estate Valuable

Someday, I’d like to buy a house. That’s because I know that buying a house is more cost-effective than renting a house or apartment--plus, I just think it would be nice to own my own space and be able to renovate it and stuff like that. I know that part of the reason this is a good idea is that my home can increase in value over time. Except, I don’t understand why that is.

That scares me a little, because I don’t want to spend a ton of money on the wrong house and end up losing money. Experts, can you explain what makes real estate valuable and what to look for in a good real estate investment?

First of all, you’re correct that, according to the conventional wisdom, it’s supposed to be better to buy a house than to rent. Why? Well, because you’re paying money either way. You’ll either have a rent payment or a mortgage. However, with a mortgage, you’ll be getting something more than just a month’s worth of living space out of the deal. You’ll own the house (provided you keep paying the mortgage!), which means that you’ll have a huge asset that is yours to sell or otherwise use later on if you so choose. Plus, as you state, the real estate market could go up, meaning that your wealth increases without you having to do anything. If the real estate market goes up while you’re renting, all you’ll get will be rent hikes when the time comes to re-sign your lease!

It is worth noting, though, that the conventional wisdom doesn’t hold up in every situation. You may find that renting is actually the sounder financial decision in certain situations. This is especially true in large cities, where property ownership doesn’t come cheap and regulatory burdens loom large. It may make more sense for you to invest money in areas other than real estate in these situations--so be sure to look at your personal situation with care when deciding whether to buy a house.

If you do buy a house, though, you should of course understand what makes real estate valuable. So, let’s address the heart of your question: how does real estate increase in price?

It goes without saying that real estate is valuable in part because it’s something that we all need. We have to have a place to lay our heads, and we need places to work, places to raise our families, places to enjoy ourselves, and so on. Our planet is huge, but there’s just so much space. Space is much more at a premium when we begin to narrow down which areas we’re talking about. People don’t just need any old place to live, after all. They need to live near where they work, and they’d prefer to live near other things that they like.

Which brings us to the first part of the real estate value equation: location. Being near career hotspots can increase the value of a property. So can being near popular attractions, say the folks at The Mill Casino and RV Park, who provide a one-of-a-kind experience in experience in North Bend, OR. Look at resort towns, for instance, where real estate is always at a premium.

The condition of the property matters, too. A well-built home is vital, says a trusted home builder in Telford, PA. The size and style of the home can also matter. A dated home, or one that is the wrong size for its market, can be far less valuable than a modern and attractive home of the perfect size for relevant house-hunters.

Starting out with a great home isn’t enough to guarantee that the home will be in great shape when you sell it, though. These home restoration needs experts tell us that a home’s value can be destroyed if it is not in good repair. Proper maintenance and a proactive attitude toward repairs are essential if you want to preserve your home’s value.

You can also, of course, improve your home’s value. Renovations, additions, and remodeling jobs can add to the value of a home, offsetting some of the cost of the projects and--in some rare cases--paying for the projects themselves. Pools and spas can add to a home’s value in many areas, these residential hot tubs & spas experts suggest.

Of course, there’s just so much that you can do to control the value of a home. The underlying real estate market depends on more than just these factors. A downturn in the overall economy, for instance, could destroy demand for houses by encouraging more people to stay put and save money. Also, locations can change around a property, changing its value for better or worse fast, and in ways that are beyond the control of homeowners. The real estate market tends to go up over time, just as the stock market and other financial markets tend to, but there’s no guarantee that you’ll make money on your house in the long run if you buy it and then sell it later on in life. You may break even and lose money, instead.

That’s okay! It’s best to understand the upsides of home ownership and to aim to maximize your financial efficiency--not, in most cases, to view your home as a speculative investment. If you make money, great, but don’t focus on the potential resale value of your home as a key reason to buy it. Instead, look at the situation as a way to gain a home with the least possible financial waste. Focus on building wealth in other ways, like with tax-sheltered retirement accounts and investments in stocks, bonds, and mutual funds.

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If you make your decisions with care, you should be just fine--even if the real estate market decides to move in strange ways. Stay within your budget, consider renting as well as buying, and, above all, take the time to assess your situation. Consider all of your options with the help of experts before jumping in, and then stop worrying. Neither homeownership nor renting is a silver bullet, but by making the right decision for yourself, you can afford to rest easy. Good luck!

“A funny thing happens in real estate. When it comes back, it comes back up like Gangbusters.” - Barbara Corcoran

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