I once bought a home (a considerable upgrade at the time) and a housing crash occurred shortly thereafter. While it was distressing to see the builder pack up and vacate the community, I wasn’t really concerned because the purchase of our primary residence was made with numerous considerations in mind (i.e., it met pretty much all of our needs and wants). The fact that our home had suddenly decreased in value was of little concern as it was our primary residence in a community we wanted to live in and we were planning to live there a long time.
Part of your ROI on a home relates to its utility value. That is to say it is basically your home, not an investment per se. If you run a discounted cash flow analysis on home ownership you’ll find that there are so many carrying costs that its not really a great investment. There are other far more attractive places to put your money to work than in a home IMO.
If you’re looking at the home more as an investment then as your personal “castle” than remember that recessions can be stressful game changers if losing value in your home bothers you.
I have another property that was bought primarily as an investment a couple of years ago when interest rates had a 2 handle. I would not buy the same place today as it would not be an attractive investment for me. The point here is the dichotomy between a residence and an investment. That’s just how I look at it.
I appreciate your response. There was a lot of value in it for me, thank you.
The home we are looking to build has really two purposes.
Our current home we will own outright in about 2 weeks when I pay it off.
We have bought waterfront land on the coast of NC back in 2018. (we own that outright as well)
The two purposes we want to build this 2nd home are:
1) A vacation home for us and our kids.
2) An airbnb when we are not using it.
As for the Airbnb...I know that is not a guarantee for success, and as such, our finances will allow us to comfortably afford the new home if it literally never rents...ever. If it does rent, we see it as a bonus, not an imperative.
These are the things that are keeping me up at night.
1) If we go forward with building now, if the housing market DOES do a 20%-30% correction, we will have spent wll over 100k more then we had to to buy the proerty. That will hurt, just knowing that that money could have been invested elsewhere.
or
2) WE Wait.....and then the house market continues to climb without out end(or maybe even spikes when interest rates go down), and just becomes progressively more and more expensive, and we end up spending 125k(or more) anyway because we waited , attempting to “Time the market”
The is risk in both...and by my estimation...as I said, I THINK the market is going to go with option#2 (continue to go up)....
I guess in the end, I share your sentiment when you say “The fact that our home had suddenly decreased in value was of little concern as it was our primary residence in a community we wanted to live in and we were planning to live there a long time.”
I think ultimately we will have the same approach...hence going forward with construction this summer.