Is Your Property Worth The Monthly Payments - Private Lending Blog

Is Your Property Worth The Monthly Payments

| Posted in General Lending

September 24, 2021

Purchasing a property is likely the largest purchase you have or will ever make financially.  Owning your own place feels great, but you may not always be sure if your property is worth the monthly payments.  Given the current housing market, many people are considering whether or not to put their homes on the market. As nice as making a quick buck sounds, you should not base your decision to sell on that alone. There are several factors that should help guide your decision to either stay where you are or put your house up for on the market.  Here are a few tips to help you conclude whether or not you’re property is worth the monthly payments.

Rent Would Be Greater Than The Monthly Expenses

Diving deeper into the numbers can help you more clearly understand if the monthly payments  on a property ultimately make good financial sense. Look at whether or not the rent (after expenses) divided by the current market value is greater than the interest rate on the monthly payments. If the home can bring in more money than the cost of the monthly payments then it may be a worthwhile investment for you.  Anyone can use this formula regardless of whether or not they are actually planning to rent out a property.  Regardless of where you are in the decision making process, these findings can be very insightful on guiding you towards making a more educated decision whenever the time comes.

You Intend To Keep The Property Long Term

Even if your monthly payments are a little higher than you may ideally like, it does not necessarily mean your property is a bad investment.  Over time, with the more payments you make, less money will go to the interest and more goes to paying down principal.  This means the longer you hang onto a property, the more the monthly payments may become worth it in the long run.  One of the best questions you can ask yourself is ‘How long do I plan to keep this property?’ in determining if the monthly payments are worth it.

Property Taxes Aren’t Too Crazy

Regardless of where the property is located or who you are, ultimately, all property owners have to pay property taxes.   Property taxes in some areas are relatively reasonable but in other areas they make up a substantial part of a persons monthly mortgage, which could be a huge red flag.  Property taxes are known as a sunk cost, meaning it is money that cannot ever be recovered.  It’s important to be thorough and closely evaluate how much of your monthly payments are going to property taxes, how much to interest, and finally, how much is going to paying down your mortgage principal.

Great Location

It is not uncommon for many folks to purchase a home with the automatic assumption that the property value will always increase over time. However, this is only the case if the house is in an area people actually want to be in.  Some buy properties in the middle of nowhere hoping the value will increase but fail to consider that many may not wish to live in the middle of nowhere. More remote locations often make it harder to travel for work as well as provide fewer opportunities nearby to socialize.  These are just a couple of the reasons that could cause property values to climb much more slowly than in more densely populated areas.

You Can Afford It

No matter how much you love your home, it’s bound to be stressful if you can barely afford the monthly payments. Being house poor can make it hard to keep up with other essential expenses as well as enjoy even minor indulgences such as dining out or traveling periodically.  Perhaps your income has decreased since you bought the property or your expenses have increased. It could be that your budget is the same, but you’ve simply realized the monthly payment you signed up for are much too high.  No matter what the case, if a large monthly payment is causing a lot of stress in your life, it may not be sustainable long term.  On the other hand,  if the payments are within your monthly budget and not creating any financial strain than it could be worth the equity you will build to hang on to the property.

It’s Not the Most Expensive In The Neighborhood

There’s much more to life besides owning the one house on a street with the highest price tag. It can be tempting to envy the neighbor’s larger, more extravagant house, but the reality is, it’s probably not worth it.  Real estate agents use comparable local properties to gauge a home’s value. A house with a sale price notably higher than everyone else’s on the block was most likely valued too high.  Hopefully you’re not the neighbor with the overpriced house, but if you are, there’s likely a reason everyone else paid less to live in the area.

It may sound a little cheesy but home really is where the heart is. If you can easily afford your monthly payments and are truly happy with your property, then the monthly payments are probably worth it.  Whether the location is convenient to most everything in your life or it provides you peace from an otherwise hectic world, it’s not always so simple to put a price on your overall happiness.  If moving to save money on your mortgage payment would likely decrease your quality of life, it’s probably wise to simply stay put for the time being.

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