Like many, I’m hoping to buy a home someday instead of renting an apartment. In fact, my fiancee and I almost bought our first home during March of 2007. We were very excited at the time because it was going to be our first house and we even drove over to see other similar houses in the same neighborhood at 3:00am! However, we decided in the end to not put any offers in because we thought the housing downturn would get drastically worst.
Fast forward 9 months, and we are experiencing one of the worst housing slump in US history. Being in California, our decision to hold off on buying a house saved us at least $50,000 and might turn into $100,000-$150,000 when it is all said and done. One side of me is relieved because of the fact that I didn’t buy the house yet, but another side of me really want to live in a nice house that I can call my own. Should I look at the house as an investment? Or should I forget about the ups and downs of my potential house price and be happy that I will leave in a nice home?
Do you consider your primary home as an investment? Take the poll and let me know what I should do!
Promote or Save This Article
If you like this article, please consider bookmarking or helping us promote it!
Print Post | Email Post | Del.icio.us | Stumble it! | Reddit |
Related Posts
- Investing 101
- Joint Accounts and Filing Taxes on Schedule B of Form 1040
- Whether I Should Buy an Investment Property in The Current Housing Slump
- Buy an Investment Property or Dividend Yielding Stocks
- Figuring out Whether Mortgage Refinancing Makes Sense is Dead Simple
Subscribe! (and Get a Mini-Course with Free Registration)
Follow me on twitter! In addition, subscribe to grab free amazing content or take advantage of the newsletter to have content delivered to you. For starters, a 7-part mini course to help you spend less and be happy will be delivered to you when you subscribe!(Don't worry about spam, because we hate it as much as you do!)
{ 21 comments… read them below or add one }
This article (Renting makes more financial sense) at http://www.smartmoney.com/home/living/index.cfm?story=rent actually makes a good point with regards to housing as an “investment”. The article discusses the changes within the industry and the fact that your appreciation is negated by many different levels.
My wife and I are looking to buy a house as well, but we’re not approaching it as an investment — we’re approaching it as a way to “do what we want with it”. Renting usually prevents you from changing things around, its rare that you can paint the colors you want or even knock out a wall here or there just because you want to
Not until someone will lend money below the rate of inflation at which point the arbitrage will be tremendous … at least for a while
I consider the house I live in an investment, but just not a good one compared to stocks. My view is that aside from taxes I’ll be able to live rent free one day. I also consider my house an investment in an intangible asset – I couldn’t rent the kind of feeling we get from knowing we can stay in this house the rest of our life if we want to and make the improvements to it that fit exactly what we need.
I don’t consider our own house an investment, but that doesn’t mean that it won’t ever be. The first house we owned, we eventually converted into a rental property. Knowing we wanted to do this, it made sense to buy with an investment perspective.
But while I’m the one living in it, I wouldn’t consider it an investment.
I voted yes.
Your primary residence is an investment, but not in the sense of stocks, rental property, etc.
You might not make money, but you will most probably end up spending less than if you rented the same class of property, over a long period of time.
This is because:
1. Unlike your monthly rent, a major part of your monthly mortgage is tax deductible.
2. There will be appreciation over time. Even if it does not make you money above what you spent for the after-tax interest and property tax, it will still mean you spent more than rent.
I mean less than rent
absolutely not an investment. It actually makes me sad when I hear people talk about rising home prices as a good thing. The only way that you can “profit” from rising home prices is if you sell your house and then don’t buy another one. Otherwise, the next house you buy also will be more expensive. Since most people don’t downgrade over time, all that happens is inflation.
Only recently, have housing prices appreciated like they have making them seem like a good investment. People just have short memories.
I don’t think its a good idea to think of your home as an investment, because it is purely speculative at best. Most people buy a home, assume it will go up, sell later and call it an investment.
I share both opinions. The time comes when it`s worth to think about your home as an investment. I agree also with the idea that your cosy home is something that really belongs to you with all the memories. I think that we should find balance between the two alternatives. I also have nearly the same problem because I`ve seen lovely houses for sale in Toronto. Anyway, I won`t refrain from the idea to think of my home as an investment.
Maybe not an investment as such, in terms of making money, but even if it is more expensive to pay a mortgage, maintenance etc, at least at the end of 20-30 years you will have something tangible. If you rent for that same period you have nothing at the end of it, plus you need to keep paying rent, you have to live somewhere.
I’ve written quite extensively on the matter. A home is not a very good investment since it is not diversified amd it is very risky. That being said you do have to live somewhere. It is important to understand these questions at the very basic level. I believe there are hidden psychological and financial aspects to whether or not buy a home. I’ve written on these in my blog. Regards, Dorian
If you unsure as to whether something is an investment or a liability, ask your self this question,
“would it be listed on the asset or liability side my net worth statement and the most defining question is how much income does it produce. Investments produce money liabilities take money, Economics101.
Then of course income producing houses would become an investment. Is it smart to buy your primary home certainly.
if you house is your biggest investment, it just means you don’t have any real investments!
Interesting question. I voted no because when I bought my house I approached the entire process and deal for other reasons. If I were buying it for an investment I would have focused more on the “return” numbers.
Greg
Real estate is certainly a type of investment. But this type of investment generally involves great risk and time. Just becareful.
Yes, it is a perfect investment indeed but you need to manage it well. Not only just a good investment, you can enjoy it. What investment you can buy and use it for enjoyment at the same time?
Everyone: Decisions decisions decisions! I’m sure my fiancee will want me not to treat it as an investment but it’s quite hard to put the commitment to buy something that you know will depreciate significantly in the short term!
Absolutely an investment. It has value and that value may go up and down. It has cash outflows (maintenance, rates etc) and cashflow savings (rent). It may or may not be debt financed (a balance between tying up equity and commiting to debt repayments). All of these things require it to be analysed much like any other investment.
The fact that it may be a good or bad investment does not alter the fact that it is an investment. People can make or lose a lot of money on their investment in the home. (Given what has happened to property prices since we brought I am so glad we did.)
The fact that other investments may perform better does not mean that your home is not an investment. (And it certainly should be included in your net worth calculation:
http://aprivateportfolio.blogspot.com/2007/04/your-home-as-retirement-asset-2.html
The fact that other properties may have gone up or down is, of course, irrelevant to the question.
Are you out of your mind?? I love when people talk about their primary home as an investment and they do so with such enthusiasm and confidence. They do so with minimal knowledge of amortization and denial of maintenance and other expenses that go into their house. They do so with the mere fact that their primary home will appreciate over time and be worth more than what they paid for.
Folks your primary residence is not an investment if anything it’s a liability.
Let’s say you buy your house for $400,000 and then you sell your house for $600,000 10 years later. You’ll actually pat yourself on the back and be proud that you made this great investment over the last 10 years. You’re house went up over $200,000 what you paid for it. Nice a profit!!!! of $200,000
Now you can think that or you can read on…….. some of you are better off stopping here. For the others that are more in tune should read on…..
Now lets say for instance that when you purchased it. You put down down $80,000 and took out a mortgage for $320,000.
Over 10 years at a rate of6% you made a monthly payment of just mortgage of $1900 a month.
That means over 10 years (120 payments) you paid $230,000 in payments
and you have a balance of $268,000 left on your house. (1)
Now did you pay taxes on that house: Lets say on average you paid $3500 a year over 10 years.
That means over 10 years you paid $35,000 in payments to your taxes (2)
Home Owners Insurance?? $600 a year average? ($6000 in payments)
Now did you have the cut the grass?
Did you do landscaping at the house to keep it clean?
Did you add any additions to the house?
Did you buy carpeting?
Did you upgrade appliances? the kitchen?
Did you paint??
How about the water heater?
Did you redo the basement?
The roof??
The siding on the house??
Or did you leave the house in the exact same condition from when you bought it and it magically went up because of your foresight you had 10 years earlier
Yeah, lets add in these costs too…… because after all you kept up with your investment didn’t you?
I’ll let you come up with a price for this: (4)
Now lets do the math.
1. $230,000 in payments +
2. $35,000 in taxes +
3. $6,000 in home owners insurance
——————
$271,000 in payments that you made over the 10 years.
Now you are left with
$600,000 house – $268,00 mortgage – $maintenance = $332,000 of equity
$600,000 sales price comes with a 6% realtor commission right? $36,000 off the top of that investment… (huh, what’s that?? why???)
$332,000 –
-$36,000
- $271,000 in payments
—————————–
$ = $25,000 profit
– (maintenance+repairs+additions) of 10 years.
not bad for an $80,000 investment.
Now…… that to me is an investment!!!!
And of course your home purchase that you buy today will always go up in value because thats what everyone says… even my realtor who started working in the business 6 months ago and my mortgage guy who is looking out for me
Well…… I bought my house for $400,000 and sold it for $600,000 who’s better than me?!?!
Now over 10 years I’m in the positive for $25,000 – (maintenance for 10 years)
Ohh yeah…… now where am I gonna live?
Should i buy another house?
Think Mcfly…. think…..
Ok I’m tired…
Um…yeah, all of these costs you mention do need to be factored into the buy v rent decison. Anyone who does not allow for these things is deluding themselves. You also need to allow for the rent that you will not be paying if you live in an owner occuped home.
The point is, that given the amount of money that gets spent on a home, it would be foolish not to think of it as an investment and crunch the numbers accordingly (preferably without the “help” of agents and others with a vested interest in your decision). Sometimes it will make sense to buy (a good investment) and other times it will better to rent (a bad investment). Whether a home is a good or bad investment will depend on the numbers for all the items you mention above. To use our current home as an example, even after the recent decline in values, we are still comfortably ahead even after transaction expenses, maintenance etc are taken into account – and with the interest rate on our 20 year mortgage at 2.2% (I live in Hong Kong), the government having given a partial waiver of rates (property taxes), the monthly outgoings are below the current rental levels. (About 55% of the monthly outgoings are going to principal reduction.)
If I had brought a more expensive place at the top of the market my investment would have had a very different outcome.
Lastly, just for the record, there have been times when I have concluded that it is better to rent than to own.
It’s not so much that owning a house is an “investment”, but rather it really does follow the arguement, “You gotta’ live somewhere”.
Owning a home is more akin to “stop the bleeding” that comes by shoveling out $$ into rent. Even if you buy and sell your house for the EXACT same amount, if you lived in it for some period of time, you came out “ahead” of the person that rented for the same amount. Period.
It’s just that “ahead” may mean the rentor was -$80,000 and the buyer is “only” -$10,000. Even though the owner STILL lost $$ over the period of time, they lost LESS $$ than the rentor did. Which means their net worth will be MORE at the end of the time period than if they had simply rented.
I’ve seen a lot of articles in the past 6 months or so talking about the “virtues” of renting…and they’ll go through a long-winded math/reading problem showing how you don’t make any real money when you “buy” a house. To that, I say, “SO WHAT!” I’ve LOST $$ in my home ownership (owned for 9 years, on the market to sell, will sell short by about $10k). I’ll actually end up “losing” about $20,000 in the grand scheme of things from “owning” this house once it sells. But in those same 9 years, if I had kept renting my apartment, I would have LOST about $72,000 in the same time period… To me, -$20,000 > -$72,000…