IS BUYING A HOUSE A GOOD INVESTMENT?

According to America's famous self-made millionaire Grant Cardone, young people today need to think more carefully about the purposes and choose the right time when buying a house.

Mr. Grant Cardone - A famous self-made millionaire in the US - is currently the CEO of Cardone Capital investment fund with a portfolio worth 5 billion USD.  Mr. Cardone is also the author of the famous book "The 10X Rule" and a consultant for many Fortune 500 companies.

According to Mr. Grant Cardone, to own a house, we need to put all their money into it.  As a result, he thinks that buying a house isn't always a wise investment, especially at present time that inflation is rising and house prices remain high.

Here are the specific explanations:

1- Cost eroding profits

Let's say you take out a mortgage loan to buy a $100,000 house with a $5,000 deposit.  Then 10 years later you sell that house for $200,000.

It sounds like you've turned $5,000 into $100,000 after paying off your mortgage, but don't forget to include the cost of owning that house.

Those costs include an interest rate of 6%/year for 10 years is USD 60,000;  Real estate tax 2%/year for 10 years is 20,000 USD and real estate fee 6% is 6,000 USD.  Total costs incurred before maintenance up to 86,000 USD.

Thus, the actual amount that you earn is only 14,000 USD which equivalent to 14% of 100,000 USD investment amount.

That means in 10 years, you invest $100,000 with a return of 1.4%/year, excluding repair and other maintenance costs.  Typically, you'll spend about 1% of your house value each year on maintenance, but in times of high inflation, this can double.

If you spend not carefully, you will still have a loss.

Therefore, Mr. Cardone advises not to borrow money to buy a house with the expectation of generating a genuine profit.

Instead, you should only buy when you have enough money - whether from a passive or active source of income - to cover all associated costs without a loss.

2- Residential Real Estate is hard to make money

In fact, investing in real estate only gives you a source of income after deducting all interest, property taxes and maintenance costs which mean that with the exception of business on real estate, an ordinary house will hardly bring any other source of income.

In difficult times like today, landlords will often increase rental fees, so owning real estate for rent will be more profitable than residential real estate.  The only source of income from residential real estate is when you sell it, and to do so, you still need to pay the associated costs before it can be sold.

Therefore, you should only buy when you find out trophy properties (the term for rare and high-demand properties) that are being sold cheaply and can afford to pay in cash and will almost certainly make a profit.

3- Real Estate for rent is a good choice

Explaining why it is advisable to buy rental properties for investment, Mr. Cardone gave a specific situation.

In the United States, rental income is considered a return, not income, so the landlord is not required to pay taxes.  Maintenance costs and property taxes are also deductible if this is a rental property.

Therefore, if you own a residential property and want to sell it, you will need to pay both property tax and tax on home sales.  Normally, the government only exempts the first $250,000 from tax, the excess being taxed on income.

But if you change from a house to a rental property, you won't need to pay taxes.  Moreover, in commercial investment, there is no specific limit to the listing price of a house when it is sold, so selling a rental property will also be more profitable than a residential property.  

The other thing to consider is the right time to buy a house.

According to Mr. Cardone, you should only buy a house when you don't need a loan.  The best thing about buying a house to live in is its stability and security.  But if you want to get rich and don't have enough money to buy a house, other areas such as stock investment or business real estate will be a wiser choice.

IS BUYING A HOUSE A GOOD INVESTMENT?

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• real estate
• property
• investing