Van Soest, who’s been buying properties in southern California since 2008, says between 30% to 40% percent of his firm’s deals start that way. “The buyers calling back lately hadn’t really planned for higher purchase costs,” he noted. That’s a big problem for real estate buyers, who sit on the sidelines for a year or two, thinking rates will come down. “They might or might not, but you’re still not where you were in 2021,” Van Soest noted.
Skyrocketing insurance rates have also curbed real estate’s investment appeal
In hard-hit California, Van Soest said the fire corridor markets his firm’s work have seen insurance rates rise two or three times what standard coverage cost five years ago. “That number wasn’t in anyone’s calculation when they bought a property, and it catches people who did everything else right,” he said.
For real estate buyers, maintenance and repairs are a big add-on cost
Some real estate experts say that buying a home to live in isn’t a pure-play investment like a stock or an index fund, which, aside from the purchase price and fees, incurs no additional costs.
“A primary residence should not automatically be considered a true investment,” Jesse Wyatt, CEO of Synergy Redevelopers, Synergy Buys Houses LLC, in Jacksonville, Fla., told Moneywise. “It can appreciate, provide stability, and protect someone from future rent increases, but it usually does not produce income. In many cases, it continually requires more income to maintain.”
That’s a point homeowners often miss, as most sellers calculate their return by comparing what they paid and what they eventually sold the home for. “They often leave out years of mortgage interest, property taxes, insurance, repairs, maintenance, renovations, closing costs, realtor fees, and selling expenses,” Wyatt said. “They may have made money, but the increase in the selling price does not tell the complete story.”
Large amounts of cash are also spent on making a home personal, adding to an owner’s liability costs. “There’s nothing wrong with that, but a homeowner should not assume that every dollar spent on upgrades will be returned when the property is sold,” Wyatt added.