The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

When Is Buying A Home A Bad Investment?

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We all hear the whole “real estate is a perfect investment” spiel. To a point, it’s true. Real estate generally increases in price, and the truth is that it canWhen Is Buying A Home A Bad Investment? help you build equity and avoid paying higher amounts in rent. When you pay it off, it’s an excellent way to ensure that you most likely will have a roof over your head for the rest of your life. So, in that sense, it is an excellent investment. Unfortunately, there are moments wherere people genuinely regret buying a house. When is Buying A Home A Bad Investment?

Whether it’s because the home is unlivable or because of extenuating circumstances, there are moments where you really should rethink purchasing a particular home. Are you wondering what kind of house would be considered to be a “no-go” by investors who want to sell it at a profit…or even rent it out?

Well, here’s the scoop on the three most significant issues that could make investors balk. When is home buying is a bad investment?

1. It Costs More To Fix Than You Would Get After Reselling

Want to avoid a bad “fix and flip?” Run the numbers before you buy a home. Many real estate investment firms use the 70 percent rule to determineWhen Is Buying A Home A Bad Investment? if a home will be profitable post-flip. Investors should not pay more than 70 percent of the home’s resell value for a house, minus the cost of repairs and other similar fees.

This may not be an issue if you want to live in it for a decade or so. Home prices will go up in that respect. However, if you are a short-term investor, then this could be the wrong choice.

In particular, we think buying a multi-family home in NYC is a bad investment. Rental yields are meager. Also, opportunity costs are high. Dealing with bad tenants is mind-numbing, evictions are impossible, local rent laws are stifling, and labor and maintenance costs are excessive.

2. Buying A Home is A Bad Investment if You’re In An Inflated Market

We’ve been saying that the real estate bubble will pop any time soon. But, there’s a difference between a bubble popping and a steady froth. It’s important to know which is which. If everyone is buying houses at a fever pitch, then you’re probably going to be dealing with a bubble.

Avoid, avoid, avoid a bubble if you ever get the feeling that the market is overhyped.

Rental yields are meager, often under 3% in terms of cap rate. This is the case in Manhattan and in outer boroughs such as Brooklyn, where investment properties have been bid excessively.

We think yields may start to rise and become more attractive again because of New York’s 2019 passage of the Housing Stability and Tenant Protection Act of 2019, which swings the balance of power heavily in favor of tenants. While there certainly are unscrupulous slumlords out there, theWhen Is Buying A Home A Bad Investment? media often ignores stories of nightmare tenants who take advantage of small-time property investors who often don’t know the city’s myriad of rental regulations as well as they do. It’s complicated to evict tenants in New York, and evictions must be done through the courts, which can take months or even years. An owner can face fines or even jail time if they attempt to evict a tenant, either directly or indirectly.

3. Buying A Home A Bad Investment when the Location Is Dying

Any city dealing with a significant problem is a place where you will have a hard time selling real estate at a profit. Bad towns tend to have a lot of different reasons for the mass flights that they have inside. The most common reasons for a significant plunge in values include:

  • They have increased Crime/Gang Activity. People do not want to fear for their lives when they are trying to sleep—just saying.
  • Lack Of Jobs In The Area. If the area is low on opportunities, people won’t want to live there.
  • Urban Blight. Too much decay can require large-scale investments to clean up.
  • Environmental Problems. No oni e will want to live on a toxic waste dump.

4. The Long Term Growth Might Not Skyrocket

Here’s what you need to realize about home usage: it costs a lot to maintain a home. If you want to buy and live in the house, then real estate purchases might not be a smart move. The truth is that most homes do not appreciate as much as you would think they do unless it’s an extreme case.

Housing prices are not always going up but property taxes do. The housing market can be tricky in that regard. It can be as crowded as the stock market and everyone can be looking to bid on the same rental property. With the right level of analysis, and due diligence, a home purchase can be a good investment and the best financial decision in your life.

Even when you find a place where the price is worth it, you have to keep in mind that most parts of the country show that homeownership is 40 percent more expensive than renting a place with similar amenities—and that’s year after year, too. Sure, you’re building equity, but there are other options you might want to consider. Stocks and bonds don’t require maintenance and can grow on their own.

The only time that it makes sense to buy a home as an investment is if you have reason to believe that the price of rent will be untenable in the future—or if you want to turn your home into a rental income. Both are popular and can help you make the most of a house that you can occasionally visit.

Don’t Discard The Idea Of Home Ownership.

Owning a house can be an excellent investment, as long as you think ahead and plan accordingly. The key to remember is that the home you live in may be more of a purchase you want to make than a purchase that acts as an investment. With that said, every single person has a different lifestyle that owning or renting can provide. If you aren’t sure whether you should buy a house, it may be time to ask a real estate agent.

Written By: Ossiana Tepfenhart

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