The dream of owning a home is a goal for many people in the world. This is why housing investments are more prevalent among people in middle-class. The middle class is not averse to investing in the stock market. However, the majority of middle-class salaried individual in America and across the world owns real property.

Additionally, the majority of homeowners who own real estate don’t buy it from scratch. Instead, they purchase it using borrowed funds. The effect of this investment choice on their daily lives can be immense. It is known as ” house poor” in America. The term refers to those who make some money. But, because they owe the bulk of their earnings to banks through mortgages, they must to live in a low-income way of life.

Gradually, generation Y are recognizing that the dream of buying a house isn’t worth the effort. This is why the millennials are spending more money on education and travel rather than buying houses. The traditional view of a home has been considered to be an investment. In this post, we’ll give seven main reasons to consider why purchasing the house is not actually considered to be an investment.

Illiquid

1. Investments are advantageous since they can be swiftly and quickly sold when needed. Think about the situation with bonds and stocks. They are able to be traded on a market that allows them to be traded into cash in just a few minutes. This is also the case for investments like silver and gold.
2. Real estate is likely to be the only investment with a low liquidity which is owned by middle-class individuals within their portfolios.
3. Selling real estate can be difficult in every market. In times of downturn, it is much more difficult, and sellers typically have to wait between six months and one year before they are able to receive cash in exchange for their home. It is, therefore, not advised for middle-class people to invest a significant portion of their portfolio within an asset class that they are unable to withdraw quickly.

Opaque

1. The market for real estate is not just inaccessible, but it is also obscure. For bonds, stocks, and other securities, the listed prices are the same as the transaction costs. In the case of real property, the listed prices are quite different from the prices where transactions actually occur.
2. It’s extremely difficult for buyers to know the right purchase price. The market is renowned for sellers and buyers being scammed by unscrupulous middlemen if they’re not cautious.

Transaction Costs

1. Real estate also has incredibly expensive transaction cost. In the first place, whenever an auction occurs, it is required that the government be paid a substantial amount of money. Additionally, there are expenses like the legal fee, brokerage fees and appraisal expenses that are part of each real estate transaction.
2. Thus, each time a transaction occurs, around 10 percent of the transaction value is lost due to transaction cost. This is also a contributing factor to the issue of illiquidity, which was mentioned earlier. The bottom line is that, since the costs of the transaction are high, buyers end up living with the property they bought, even if the property turns out to be an error.

Low Returns and High Expenses

1. Investments in real estate are renowned as having lower returns. In the past, returns on real property investments have been lower than inflation.
2. It was only over the past couple of years that we have seen an abrupt increase in the capital appreciation on real property. The rental income earned is not that significant. Additionally, to make rent, lots of money, time and effort has to be put into. In many cases, it’s just hard to rent houses. This means that there is a certain danger as well.
3. In the end, the gains made by real estate can be compared to those of risk-free investments, despite the fact that a large amount of risk has to be taken. This is why real estate is an unwise investment for middle-class people.

Employability

1. The purchase of real estate requires one to settle within a specific geographic region. Because of the transaction cost, as mentioned above, the property cannot be sold or bought too frequently.
2. The issue with staying in one region is that opportunities are very restricted. This is that millennials have opted not to purchase a home. In the current era of job losses and layoffs, the house you own will be more of a burden as opposed to it being an asset.

Leveraged

1. As mentioned previously, the purchase of real estate is generally leveraged. This means that the buyers pay large portions of their earnings in interest. These payments are made assuming that prices for real estate will increase. If prices do not rise, investors could lose lots of money.
2. It is important to understand that the price doesn’t have to decrease to allow investor to make losses. Even in the event that the price doesn’t fall, the investors already have lost a large amount of their savings, which they have paid back through interest.

No Diversification

1. Finally, because real estate accounts for the majority of the income an average person earns and consumes the majority of their assets.
2. As opposed to having a well-balanced portfolio that protects people who invest in it, should there be a recession the vast majority all the money saved by the middle-class are located in real estate. This is why, when the housing market sank in 2008, the whole economy fell into disarray.

The truth of the matter is “buying a house as soon as you can” is an old-fashioned advice. Generation Y is well aware of the many dangers to financial gain having a house.