SkillSET Blog
Advice For Pros · January 21, 2020 · AUTHOR: Udi Dorner

Real Estate Costing: What is the total worth?

Home Ownership as described by the layman is a single expense I.e., the purchasing price of the property. However, in terms of cost, home ownership consists of several types of expenses. Many of these expenses can be overlooked while calculating your home shopping budget, leading some to get in over their heads. Here are some of those easy-to-overlook expenses: Purchasing Price: As the name suggests, it is the cost that is associated with real estate investing. To begin with, there are transaction costs that are associated with the purchase which includes brokerage paid, processing fees paid to the bank to process the mortgage loans well as the legal charges collected by the government to register the property in the name of the buyer. Interest Paid: Nowadays, the properties are purchased using borrowed money. Mortgage is the new norm! Having Mortgage means there are mortgage payments which further includes an interest component. The amortization schedule for any mortgage is such that the banks collect all the interest first and then later collect the principal outstanding. National Interest: Other than the interest paid, which is a direct expense for the buyers, there is also national interest involved I n real-estate investing. In most real estate investments, require the buyer to put a down payment on the property which is close to 10% to 15% of the property value. Insurance: Most mortgage lenders require the buyer to have insurance on the property in case of an event involving a natural disaster like earthquakes and hurricanes, which could lead to the destruction of the property. Therefore, in order to protect their interests, the lenders insist on insurance. Other than covering the value of the house, many house owners also do insurance for home contents as well in the event of an unforeseen scenario. This too adds to the cost of the property. Taxes on Property: When a property is bought, buyers agree to make a stream of payments to the government every year until perpetuity! These are known as property taxes and almost every government in the world levies these taxes, which, also contribute to the cost of home ownership significantly. These costs are often adjusted in value over time which rises with inflation at same rate. Maintenance: Properties, nowadays, comes with amenities. Gated communities with swimming pools and jogging tracks are common. This is done to provide the people with a lifestyle and not simply a home. However, they require a lot of maintenance. As such, these charges are also billed to the homebuyers as a monthly expense which also raises the cost of investment in a property. Utilities and Furniture: These are small costs involved with getting the utilities transferred to one’s name as well as furnishing the house. These costs too add to the total cost of home ownership. Home ownership is therefore a complex set of arrays of multiple costs. One needs to be very careful in understanding and budgeting for these hidden expenses as omission of these expenses can significantly dent the budget in the future.

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