10 Reasons To Think Twice Before Investing In Real Estate
Most people find home investments safe, consistent, and reliable, but the reality is that buying a home is a high-debt purchase. The traditional, “conservative” recommendation of getting a 20% off home purchase means borrowing 80% of the value of your home. When your home price drops 20%, it doesn’t mean that you have lost 20% of your investment, it means that you have lost 100%!
Think of it this way: if you buy a $ 100,000 home and leave $ 20,000, you owe the remaining $ 80,000. If this home’s value drops 20% to $ 80,000, you can sell it and pay back your mortgage, but you have lost all of your initial $ 20,000 investment.
Some loans are even more lenient in terms of a down payment. The FNMA offers a 3% mortgage and the VA offers a 0% mortgage. In these cases you are even more leveraged. True, leverage works both ways, and you can get a similar amount if your home appreciates it. However, many people don’t understand how depositing a small amount of money increases their leverage.
Read: Craziest Things That Kill Your Home’s Value