Home Failure 101: Why Your Property Could Be A Liability

Most people think of their properties as an asset. However, if you’ve been in real estate for any length of time, you’ll know that they can also be a liability. Things can go seriously wrong, and homeowners will often lose money to the detriment of their lifestyle. While home insurance can fix some problems, it can’t deal with everything. Some issues simply aren’t covered by most standard policies.

In this post, we look at what can go wrong and potentially how you can resolve these issues. Here are some of the ways you can prevent your home from damaging your lifestyle. 

1. Constant cash outflow

One of the biggest issues that property owners face is the constant cash outflow associated with owning a home. Mortgage payments, property taxes, and homeowner’s insurance can all eat up a lot of a household’s annual budget. On top of this, there are utilities and HOA fees— even for things as simple as basic upkeep. Hidden costs can amount to over $16,000 a year for the average American. This means that all of that money that could have gone into things like holidays or restaurant meals is simply going to maintain a property. In more expensive areas like New York and California, this issue is even worse. Property expenses can often outpace the growth in the price of the property, meaning that the extra equity isn’t being created.

The good news is that you can fix most of these costs by being smart with your location and budget. If you can choose the right area and spend the right amount on a house, you shouldn’t find that your income is significantly affected by it. 

2. Maintenance and unexpected repairs

Another issue that a lot of homeowners run into is the cost of maintenance and unexpected repairs. Because you own the property, you’re 100% responsible for the payment, and you can’t pass it off to a landlord. For example, roof replacements can cost between $10,000 and $20,000. If your HVAC system fails, that could cost you $5,000 to $10,000. Plumbing and electrical issues can also run into the thousands of dollars, as can tree removal and pest control. 

The best policy here is to forge relationships with companies that can help you. Look for those offering the best price and trust Bumble roofers if you discover a leak. Also, try to arrange regular inspections. Professionals can tell you if you have a problem on your property and deal with it before it becomes a more significant issue over time. 

3. Legal and premises liability risks

Another issue you face as a property owner that you might not be aware of are legal and premises liability risks. According to US law, if somebody gets hurt on your property, you’re actually the one who’s responsible for it, not them.

One of the most common issues is slip and fall accidents. This is when people going to your properties simply fall over. For example, a real estate agent or a mail delivery person might fall over on uneven steps and then sue you in the process. That’s why it’s so important to have insurance.

The same is true of dog bites and injury to visitors. If a tree branch falls on a neighbour’s property, that’s also a liability for you personally.

The best way to deal with liabilities is to prevent them from happening in the first place. By doing more maintenance on your property, you can reduce the risk of claims being made. You can also ensure that you have a proper insurance policy in place that protects you against these issues. 

4. Opportunity cost

The opportunity cost of owning a property is also a significant issue for a lot of homeowners. When you think about it, when you put money into a property, you are losing money that you could be using elsewhere to make additional money. For example, if you have money in your home in the form of a down payment or equity, then you can’t put that elsewhere for higher returns. For example, you can’t invest in a stock market rally or rental properties in your local area that are doing better. 

What’s more, if you try to sell or obtain that equity house, you have to pay a bunch of fees. This creates a lot of friction which most people don’t think about. The vast majority of property owners never make any money because they aren’t generating a return. 

5. Hidden post-purchase surprises

This one is a favourite. Many property owners run into post-purchase surprises. They think they are getting one thing, but they are getting something completely different. 

For example, a lot of properties have undisclosed defects. These should have been included in the contracts. But sometimes leaks, mold, and structural issues aren’t. New homeowners often wind up paying for the fixes because it’s too expensive to chase after the old property owner for the money. Rising costs in some areas, which we’ve already mentioned, are also a problem. Places in coastal regions usually see increasing taxes and insurance spikes. Then there is the issue of over-leveraging. A lot of property owners simply stretch their budgets too far. 

6. When does a home stop being a liability?

This discussion begs the question: when does a property stop being a liability? It is possible for a home to be an asset, but it just requires the right planning.

The main sign that your home is not a liability is if you sell it for a profit, i.e., if you build up equity and sell it for more than you bought it for. If you can house hack, that’s another way to stop your home from being a liability. Renting out individual rooms can be a good way to offset the costs associated with the property. 

Conclusion

Wrapping up, it’s always worth being careful whenever you own a property. For most people, owning a home is a lifestyle choice, but if you’re really careful with your money, you can turn it into a proper business proposition that actually returns money to you in the future.