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Real Estate as Home Ownership

Everyone needs a place to live. Anyone who lives anywhere is either a renter or owner. It has always been part of the "American dream" to own one's home. However, it has not always been easy or wise to do that. By learning some of the basics of home ownership, you will be able to make wiser decisions about owning a home.

For most homeowners, their residence is the largest single investment they will ever make.

For most homeowners, their residence is the largest single investment they will ever make. Before buying a home, determine whether it even makes sense to do it. In addition to the purchase price, property owners are responsible for annual property taxes, maintenance and repairs, as well as huge interest expenses on the unpaid part of their home loans. You may also be liable for financial damages to persons who are injured on your property. If your property is damaged or destroyed by wind, water, fire, or malice, you are still liable for payment of your home loan. Before deciding to buy a home, evaluate the costs of ownership versus the cost of renting.

Of course, a big plus on the side of home ownership is that you build equity over time. Home ownership is an investment. This means that as you pay down your home loan—called a mortgage—you vest more and more of your value; so if you sell your home, you will get to keep more of the cash you put into the house through your mortgage payments. The value of your home is also subject to market conditions, and it could rise or fall like any other investment. But even if the value declines, you do have the use value of your home, for which you did not have to pay someone else rent.

There is also the question of space. How much space do you need—now, in five years, or more? A home is usually a long-term investment, so you need to determine how much space you need and what you are going to do when you outgrow your house—or when it is too big for your needs. Some houses are "expandable," meaning you can build additional rooms as you need them. However, taking them off is another story. Do you need land and the responsibilities that go with it, such as mowing the lawn, tending the garden, and attracting the neighbors' kids and pets?

"Location, location, location"—the only three things you need to know about real estate (this is a myth). Is the location suitable for your needs? For some families with children, location in the "right school district" is very important. For others, location near work is important, while others value safety (low crime) away from toxic substances and in a place with weather they can tolerate. These factors contribute to the market price of a house when you buy, and again when you sell it.

Many families address these concerns by moving from one house to another when their needs change. They transfer the equity from one house to another one. However, one must exercise forethought, as real estate transfer costs and taxes can take a huge chunk from your accumulated equity.

There are different types of home ownership, as well, to suit the different needs of homeowners. For some, ownership of a single-family home is best; others like a shared ownership arrangement such as a duplex, condominium, or co-op apartment.

Single-family home ownership has outright responsibility for the house and land.
A duplex involves part ownership of a two-family house and land, where the two families share expenses of the outside maintenance by mutual consent.
A condominium grants shared ownership between the buyer, who owns the inside appurtenances, and a homeowners' association that owns the outside structure and land. This works out well for those who do not want to mow the lawn or repair or replace the roof. But there are huge restrictions on what owners can and cannot do. There are also ongoing association fees to cover the common area expenses.
Akin to condominium ownership is participation in a cooperative, or co-op. This usually applies to an apartment building in which the residents own shares of the whole building rather than their own apartment. Owners bear expenses in proportion to their share of ownership.