How to win at home ownership

Homeowners intuitively understand that their home is both a place to live and an illiquid, long-term investment. Yet some housing markets are so volatile that buying and selling a home starts to seem less like a sober financial decision and more like a roll of the dice.

If housing were a game, how could you win? Here are some conservative strategies to consider:

Go Long. Some people have the knack and the know-how to buy low and sell high consistently over time. But for most people, trying to time home purchases and sales to coincide with peaks and valleys in the housing market isn’t a successful strategy. Transaction costs cut into profits, and even one bad read on the housing cycle can be quite costly. A more conservative strategy is to buy a home, build equity and trade up or downsize at lifecycle-appropriate times for you.

Stay in Play. Don’t sit on the sidelines of the housing market. If you don’t own a home, you’ll avoid the risks, but you won’t capture the benefits or the possible rewards. Trying to time the market is difficult, but staying out of the market altogether eliminates any opportunity to build wealth over time.

Get Fixed. Complicated mortgages with interest-only or minimum payment options can be appropriate for people who have variable income or who want to shoulder the risk of higher payments in the future for the advantage of lower payments in the present. But interest rates fluctuate and deferred interest eventually has to be paid. A more conservative strategy is to get a 30-year fixed-rate mortgage and then sit tight with the security of 360 identical payments.

Guard Wealth. Home equity loans and lines of credit can be a good way to finance major life expenditures such as a child’s college tuition or a remodeling project that will add value to your home. But don’t use your house as a source of money for day-to-day costs of living. Equity is like having a house in the bank.

Plan Ahead. Every home needs major repairs like a new roof or new kitchen cabinets sooner or later. Smart homeowners set aside money for these jobs every year even when no major repairs are necessary. Don’t shirk on maintenance and small repairs that can turn into costly headaches if they’re ignored. Maintenance should be a higher priority than cosmetic enhancements.

Manage Risk. Homeowners insurance may look like an easy target to save money in your household budget since premiums buy only peace of mind if you don’t make a claim. But inadequate insurance can make a true disaster much worse. Shop around for a good deal, but also consider whether additional coverage might be a smart purchase. Buy earthquake, flood or other specialty insurance as well if your property is at risk of those perils.

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