House hopping has become a popular home buying tactic in recent years. The idea that house hopping will help you grow your wealth and make you happy is perpetuated in society. But it's not necessarily true.
Statistics show that 94% of the latest homebuyers were at least somewhat content with their house purchasing process. So, why the constant moving? Let's dive into some more information about house hopping and how it affects your finances!
What is house hopping?
House hopping is when you buy a house, live there while it increases in value, and then sell it after a short period of time and do the same thing with another house.
In other words, it's when you move a lot. Most people do it because they think it will make them money. But house hopping actually impacts your finances in many ways.
5 ways house hopping can impact your finances
As I mentioned, people usually take to home hopping as a means to cash in on some extra money. However, there are quite a few factors that will do the opposite for your finances.
1. Closing costs
Closing costs are the costs that go above and beyond the cost of buying a home. These costs will incur and typically be finalized at the end of the home buying process, hence "closing" costs. These will include taxes, like a land transfer tax for example.
Closing costs are not a small amount. Your closing costs can range from 2-5% of the home's purchase price.
To be incurring these costs so often through house hopping is certainly going to deplete your bank account. Not to mention, it may not fare well for your credit health!
2. Moving costs
Even though there are certainly ways to make moving cheaper, moving costs add up quickly. Hiring movers, renting trucks, taking time off work, and purchasing moving supplies like large boxes will rack up quite the bill.
According to Forbes, the average moving cost is $1,400. And of course, this is dependent on the distance you are moving. And with house hopping, you'll be paying these costs every couple of years.
3. Renovation/Repair costs
It is not uncommon to move into a new house and want to make a couple of renovations, or notice something that needs to be repaired.
According to CNBC, 77% of homeowners dealt with a problem that required home repairs within the first year of owning. The repair costs varied, but 30% of surveyed home buyers said they paid between $1,000-$2,500 in the first year.
If you're making these "first-year" payments every couple of years due to home hopping, you're probably spending more than is truly necessary on renovations and maintenance.
It's important to remember you can make small changes to love your home that won't break the bank!
4. Realtor fees
Not everyone chooses to hire a realtor, but it won't come cheap if you do. Of course, a realtor can certainly be worth it when it comes to taking the best approach to home buying.
But if you're house hopping and constantly being charged these fees, it adds up fast. Realtor fees are approximately 6% of the final price of a house.
5. Property taxes
Every municipality sets its own property taxes, so the cost will vary depending on where you live. Property taxes are in place to fund public services and are typically paid annually.
In the U.S. today, the typical single-family home has approximately $3,700 in property taxes to pay. Some states will cost you more or less, but you're unlikely to pay under $1,000/year.
When it comes to house hopping, you're going to wind up making annual property tax payments of varying degrees pretty often. And these fees will probably overlap with home hopping, having you pay double the taxes some years.
6. Earnest money
Earnest money is a type of deposit that you put down, basically to show that you're good for the rest of the down payment and intend to buy the home. If you go through with buying, this isn't an extra cost; it's considered part of your home costs.
But if you decide not to buy, the seller of the home may keep the money. In some cases it may be returned to the buyer, depending on contingencies.
Earnest money is usually around 1-3% of the home's sale price.
5 steps you can take instead of house hopping
While home hopping might seem tempting, there are alternative steps you can take to find a home that suits you and builds your wealth!
1. Don’t start house hopping and rush your search for a home
When you rush yourself, you're bound to make impulse decisions. And with something as significant as buying a home, you want to leave impulse out of it.
Rushing your search may lead to an urge to house hop, whereas when you take your time you can consider what you really want out of a house, and what you can afford.
2. Be realistic about what you can afford right now instead of house hopping
Rather than trying to predict the value a home will have in a couple of years when you plan on selling and house hopping, be realistic about what you can afford with what you have right now.
It's always a smart call to not spend money you don't have. Even if it's figuratively with the prospect of house hopping on your mind.
Map out your budget, take a look at your savings, and make a list of what you're looking for in a home. Once you've considered these factors in regards to your personal finances it should be easier to realistically house hunt for what you can afford.
3. Save a house fund for fees and moving costs rather than house hopping
Rather than trying to muster up ways to make money off a house as soon as you move into it with the intention of upgrading, save a house fund beforehand to save up for what you really want long term!
Considering saving a down payment, some money for moving costs, and other fees within your house fund!
4. Avoid house hopping and get clear on your timeline
Having a personal timeline in place can help you make a plan for home buying, instead of home hopping.
If you're job hunting in another city or state, or planning to move in with or buy a house with a partner, you may want to hold off until you have things a little more solidified! Not rushing into these big choices will save you money in the long run.
5. Find other ways to build your wealth without house hopping
Rather than trying to muster up elaborate methods for building wealth, like house hopping, take a more straightforward route. You can build wealth in many ways. And it only takes making a few simple choices to begin.
By tackling your financial habits and choices in a critical way you are opening up opportunities to build your wealth. And chances are there'll be fewer strings attached than there are with home hopping.
House hopping is probably not the best choice for your finances
All in all, house hopping can be costly. Despite the motivation for a home's increasing value, the costs of this endeavor can outweigh the benefits and leave your finances depleted.
Of course, everyone's financial wellness and experiences are unique to them, but I definitely think these alternatives are worth considering if home hopping is on your mind.
And of course, Clever Girl Finance offers plenty of other financial advice through our free courses to help you be a successful manager of your money. Check them out today!