Welcome to this guide – produced in partnership with Hometap – that explores exactly how you can own your own home and maintain financial flexibility. We’ll look at why homeownership may make sense, how to go about it, and – once you’ve taken the plunge – how to enjoy the flexibility of a renter.
In many cultures, buying a home is seen as a necessary part of growing up. People have been captivated by the idea of owning their own four walls for generations – so you’ll often hear them decry the very idea of renting and say you’re throwing money away if you don’t buy.
It’s true that there are many benefits to owning your own home. It’ll likely increase in value, for one: many people who bought homes in the ‘80s and ‘90s have seen massive returns from the property market boom in major cities, and are millionaires as a result. And that’s not to mention the potential income from rental properties, which pay you a regular income along the way.
Another upside is simply avoiding the downsides of renting – whether that’s a landlord who tries to squeeze you for every last dollar or kicks you out on a whim. You’re at the mercy of the property owner, and that could mean you’re bumped from place to place every few months, racking up moving costs.
Perhaps the biggest reason to buy a home isn’t financial but emotional: it’s having a place that’s truly yours – one where you can set your own pet policy and decorate to your heart’s content.
Most purchases in life are simple: you hand over cash, get the thing you want, and that’s that. But real estate is different – mostly because it costs a lot more. The average house price in New York, for example, is $728,000, so financing a property purchase is a bit more complicated.
Most prospective buyers seek out mortgages: large loans secured against the value of a house. Your lender will have a financial claim to a big chunk of your property, and you’ll slowly buy that claim off them. The deposit you put down when you take out a mortgage – usually at least 5% of the property’s value – is the percentage of the house that you own outright. You’ll pay the loan back in small chunks, normally over many, many years, owning more and more of the house until you own the whole thing.
That comes at a cost, of course: banks only lend hundreds of thousands of dollars to earn interest. At the start of the loan, most of your money will go toward paying off the interest. But as you slowly pay off the principal, your interest payments will get smaller.
If you don’t keep up with repayments, things can go south very quickly. Because mortgages are secured against your house, the lender can take control of your home if you “default” on the loan. They’ll kick you out, sell the house, and use the money to pay themselves back.
The cost of buying a house is bigger than just your mortgage payments and your deposit, mind you. There’s a lot of paperwork involved, which means legal fees are hard to avoid. You’ll need to pay property taxes too, and you’ll be on the hook for any repairs.
Once you’ve bought your home, there’s also the specter of property prices hanging over your head: if your house price falls, you lose out. And if it falls significantly, you could end up with “negative equity”: where you owe the bank more than your house is worth.
Typically, though, house prices tend to rise over time. But even as you benefit from that, you still face an “opportunity cost”: real estate is an illiquid asset, which means you can’t sell it very easily. That leaves homeowners with a lot of money tied up – money that could be used elsewhere to give you a greater return in the long run.
With all that in mind, then, you might wonder whether it’s worth being locked into owning property at all. In the past, that was certainly a consideration. But thanks to new services out there, you can have the financial flexibility of a renter and own a home at the same time.
One of the biggest criticisms of homeownership is the loss of financial flexibility that accompanies it. The deposit for a home is usually a huge chunk of any cash savings you have, a mortgage locks you into regular payments – often for multiple decades – and property taxes in many countries eat into your cash flows each year.
What’s more, if or when the value of your house grows over time, there are precious few ways to tap into that profit unless you sell the place. But thanks in part to technological advances, there are now platforms out there that allow homeowners to regain their financial flexibility.
These days, you can actually sell a stake in your home – while keeping enough of it under your control to continue to live there, no questions asked. That’ll let you take advantage of rising real estate prices now, and give you the cash you need to undo the “opportunity cost” of homeownership.
And we’re not talking about a remortgage here. You wouldn’t be borrowing money: rather, you’d be accepting an investment in your property. That means your payments wouldn’t increase, leaving your cash flow intact. And the capital you’ll receive in turn is yours to use as you wish, which opens up a world of possibilities:
Then, down the line, you can use the cash you’ve saved or earned to buy back the fraction of your house you’ve sold – or settle up should you decide to sell your property.
There you have it: your guide to owning your own home and enjoying the financial flexibility of a non-homeowner. Who says you can’t have it all?
This guide was produced in partnership with Hometap.
Hometap gives you access to your home equity in exchange for a percentage of your home’s future value, with no interest or monthly payments. Homeowners can unlock cash in as little as three weeks and use it for whatever they’d like.
Check out Hometap’s mini-website at finimize.com.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.