When we buy our homes, we’re not buying them because we want to be rich. We’re buying them because we want to live in them: to sleep in them, eat in them, and raise our children in them. But while all of this is going on, your home will also be acting as an investment. It will fluctuate in value – hopefully increasing, but sometimes decreasing. And as you pay more and more into your mortgage and slowly secure outright ownership of your home, you’ll realize that your home is a huge part of your net worth – and that, therefore, your net worth relies in part on the real estate market.
Understanding the real estate market
Like any other type of possession, land has value. So does the building built on it. And, as with any other type of possession, the value of these things can change.
What’s tricky about the real estate market is that it relies on so many different factors. The value of just about any possession can be affected by the economy at large, because a poor economy means fewer buyers – so whether you’re trying to sell a stock or a luxury car, you’re going to find stingier customers in a bad economy. Real estate generally works this way, too.
But real estate can also be affected by a bunch of other factors. The local economy is disproportionately important, of course, because you can’t move your house (well, not usually, anyway). For the same reason, the neighborhood matters, too: crime rates, traffic, and much more. The whims of the people around you can affect your investment, and those whims don’t have to be justified: racism famously sparked “white flight” from urban areas and caused property values to drop there.
Real estate markets change fast. In developing areas, you’ll see construction booms like the one in Turkey. That means fast real estate growth, of course. But real estate can go down, too, and it can fluctuate back and forth: once-booming areas that plunged in value during “white flight” are now booming again with new waves of gentrification. Real estate can be unfair and unpredictable.
Real estate and your home purchase
Real estate is a tricky market, and your home purchase is not merely a real estate investment – you’ll be enjoying life in it, after all. But you should try to consider some real estate factors when you invest in your home.
This means looking at the area you’re going to move into and trying to spot trends. Are there new developments of homes, townhomes, and apartments? How are the schools there, and is the population younger or older (older residents tend to vote against school budgets, which can make areas less attractive to younger residents that might help the area grow). What is the history of the market here, and how diverse is the economy in your community and in nearby cities? Could a bust in one industry cause a big depression in your region, as the decline of the auto industry did in Detroit? Or is your area on its way back – as Detroit arguably is now?
For example, take a look at the website for Avivo Homes. The case for buying a townhome in this development is made through the market (only a few homes left!), the location (minutes from downtown!), and the quality of the spaces themselves – all good indicators of future value.
Protecting your investment
Once you’ve purchased your home, you’re more or less locked in – most people don’t jump from home to home the way investors trade stocks. But your individual home’s value can be still be affected by your everyday decisions. Choose to invest in routine maintenance. Regular painting will protect your structure, and keeping up with your plumbing and electrical systems can help protect your space against disaster.
You can’t predict every fluctuation in the real estate market. But if you make a smart initial decision and keep up with your property’s needs, you’ll have the best chance possible of seeing your space increase in value.