This Redditor Debates Renovating Their 1,400-Square-Foot Home—Is It Smart Investing or a Financial Trap?
When you own a home, you get more freedom and flexibility than if you rented a property. You don't have to worry about rent hikes and end up with full control over your property. You can make renovations as needed, but those costs can add up.
A high-earner recently shared on Reddit that they bought a 1,400-square-foot home that was built in 1909. Since that purchase, which was two years ago, the Redditor has "sunk a lot of money in the house" for essential and non-essential renovations.
The Redditor put $220,000 into the home, and other Redditors proceeded to debate whether it was savvy or not.
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A House Is Not An Investment
Most people won't make money with their primary residence. You're locked into monthly mortgage payments and won't collect rent unless you bought a multifamily property or you rent one of your rooms on Airbnb (NASDAQ:ABNB). You will also encounter various costs like maintenance and repairs that will bite deeper into your profits. Closing costs, home insurance, and property taxes will reduce your profit even more.
It's important to keep these expenses and the real return in mind because it's easier to separate a primary residence from an investment. This separation makes it easier for someone to make renovations without feeling guilty.
"Ultimately, if you can afford it and don't leave yourself at risk of losing your job, etc., go nuts," one commenter suggested.
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However, home renovations do not make as much sense if you feel as if you must stretch your budget to make it work. Taking out a bunch of loans to fund various renovations isn't the right approach, as you will have very little room for error, such as getting laid off or encountering a surprise expense.
Lost Opportunities In The Stock Market
Although home renovations can improve your quality of life, it's important to consider the lost opportunities in the stock market and similar investment vehicles. Investing $220,000 in the S&P 500 over multiple decades could have multiplied the money.
It's best not to cry over spilled milk. That was one of the messages that came up in the comments. However, you also don't want to live in a dilapidated house and avoid making essential repairs just so your portfolio can generate a little extra alpha.
If you have sufficient room in your budget and want to make home improvements, it's your money. People invest in the stock market so they have more options in the future. Part of those choices may include home renovations in the present instead of penny-pinching for your entire life.Renovations Are A Part Of Homeownership
Renovations are a part of owning a home. Your kitchen, bathroom, and other rooms will endure wear and tear that make home improvements necessary. Some homes can last longer than others before needing renovations, but when you're buying a home that's more than 100 years old, you'll likely have to make some renovations right out of the gate.
The Redditor mentioned that the 1909 home had a 40-year-old kitchen, sewer pipes, air conditioning, and other things that needed improvements. We don't have pictures to determine the condition of those rooms, but rooms that haven't been modified in over 40 years likely need some renovations.
It's not like the Redditor renovated a kitchen that was two years old just to make it look slightly different or use modern aesthetics. The renovations the Redditor described sound like practical investments that had to be made. Fixer-upper homes have lower asking prices than new homes, and that price difference gives the Redditor flexibility to make the necessary renovations.
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This article This Redditor Debates Renovating Their 1,400-Square-Foot Home—Is It Smart Investing or a Financial Trap? originally appeared on Benzinga.com
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