Many people buy a house thinking it is a good long term investment. They even have their retirement ties to being able to sell their house for several multiples over what they paid for it.
Others have no plans to ever move and look at their house as a place to live and raise a family. No matter how you actually define your home purchase, it may not be either. In fact there are a lot of variables that can make a house a wise or poor investment. And if you are not to ever sell it then you have to consider if it is worth what you will be spending to live there.
As usual, nothing is ever really that black or white so in this article we will take a look at whether you should consider your home an investment or not.
Spoiler: Your house is actually an expense!
You may be planning to sell your house at some point and use the money to either invest again or use for your retirement. However, in the meantime, you are going to be paying a mortgage every month, insurance, maintenance and a variety of other expenses. Hopeful this all comes back to you when you do sell, but that is beside the point.
If you were to invest in index funds, you don’t need to pay for them every month to give an example of what an investment looks like. And they are more liquid than a house. What if you decide to sell just as the housing bubble bursts. You may be lucky to break even. Of course, any investment can also lose value overnight, but you aren’t paying into it every month.
Invest in real estate, just don’t live there
An investment should be paying you over time. A home’s increasing value doesn’t do much good until which time as you sell it.
Instead, invest in actual real estate by either buying housing stocks, or buying a rental property. You can then buy a house to live in and just use it as a home while your other properties bring in some money. Systems like Fundrise can help you get started in buying investment real estate if your money is tied up in the house you live in. You can read a review of Fundrise to see if it is going to work for you.
Sometimes renting is better
Sure, owning a home is the American Dream. Renting means limiting your options and being at the mercy of somebody else. Which, truth be told can also be the case when you buy as the bank actually owns your house.
If you are looking at which will make you more money, buying vs renting, there are times when renting will actually pay out better. But, you have to actually invest your savings into something like index funds or something very low risk.
If your rent is lower than what your mortgage and other homeowner expenses are, then you can take the savings and put them in an index fund every month. At the end of 30 years, your index funds could well outpace your home value if you were to have bought it to use for retirement. And this is counting a 3% rise in your rent over time.
