19 Feb 2021
house an investment

A lot of people go into homeownership with the idea that their house is a good investment. Being such a major financial decision, it makes sense to want the peace of mind in knowing your money has been well spent. Unfortunately, a home in most cases is not actually an investment. Owning your own home is a common dream and one that is worth perusing. However, it is in no way a smart investment.

Is A House An Investment?

Why A Primary Home Is Not An Investment

Many people consider buying a house to be an investment. This makes sense considering that home prices usually increase over time. The longer you own a home, the higher value it will have. However, most people buy homes with the intention to stay long-term, not to sell them. Just because your home appreciates in value doesn’t make it an investment.

A home has an essential primary purpose. and anything you buy with the intention of keeping can never be an investment. Thinking that your home is a way to invest money can lead to poor choices that strip your home of equity in the future. Aside from rentals and investment properties, a house will not generate an income, thus disqualifying it as an investment.

Appreciation is Not Guaranteed

Homes tend to appreciate only a bit more than the current rate of inflation. While this is great for people who own property over several generations, it is not an effective way to invest for single lifetime returns. In some areas, homes may appreciate very little, or not at all. In the worst cases, home values can drop. This will mean that you owe more on your mortgage than you actually paid for your property. Most real and highly desirable estate markets will see gains, but homes in those areas tend to require a heavy investment that is not often worth the cost for a single home buyer.

What Defines An Investment

One of the main things that define an investment is a person’s ability to control their ownership timing. Owning something that you can purchase or sell during opportune times that maximize your ROI is the epitome of an investment. Mutual funds, stocks, rental property, and even bonds all fall under this banner.

Primary residences are generally the main base of operation for a family. Therefore there is very little control over how or when you can sell it. Most people buy a home when they need to fulfill a purpose, such as expanding to accommodate more members of the family. Selling a primary residence also usually occurs only when the home no longer fits the family’s needs, such as it has become too small or a family may need to relocate for work or school.

Buying a Dream Home Is Not Investing

Buying your dream home usually means you plan to live there for a while, or even forever. Homes to increase in value, but most people would not dream of selling the home they love just to get a few bucks. Very few people buy a home outright, which means you will put money down in addition to securing a mortgage. The money that you put down and your monthly mortgage payment goes into your equity. If you sell your home, you will get your equity back, but it will generally go towards buying another home, not your savings account. The equity in your primary residence is considered trapped equity. Therefore they are not investment proceeds because these funds will always go towards your living arrangements.

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