Purchasing a home is a big decision and it is one of the largest purchases that people will ever make in their lives. With this in mind, one wants to be sure that they are getting the best bang for their buck. Often, people talk about their homes as an investment, but is one’s primary place of residence truly an investment?
First, we need to decide if a home is a need or a want. I would dare to argue that it is a need. Whether one is renting or own their home, they need a roof over their head. This might beg the question: why would somebody own a home if they can rent? It would come down to dollars and cents. Is renting giving that person a potential asset? Is the cost of owning equal to or less than renting, or at least not overly inflated in comparison to renting?
Many of us will certainly look for appreciation in our homes as we age and consider downsizing. Would this be considered as an investment strategy? Some people will think so and some people will not. Surely we will want to have other investments outside of our primary homes, whether it be in stocks, bonds, or rental properties, etc. Others will look to the appreciation sooner in order to utilize the capital for other investments, but is this wise? Real estate markets can be volatile and the equity in homes can go up, but they can also go down. Many financial experts would recommend against investing money that you do not have as liquid capital.
Owning secondary properties where one is renting them out to others can certainly be considered an investment, and if played wisely, one can do very well. Considering a purchase for something that you need as an investment (you don’t need a secondary property) can be dangerous.
It is interesting how we view other needs from a financial lens. For example, many of us need an automobile. We need to go to and from work and we need to shuttle our family around from place to place. Would we consider this need an investment? What happens one drives a new car off of a car lot? It depreciates. As one adds kilometers to a vehicle, it further depreciates. We accept this fact because we need it anyway.
Understand that there is a time a place to utilize the appreciation of one’s home if people have the stomach for it. There is nothing wrong with this approach, but one will want to make sure that there is lots of room within that appreciation to continue to weather any potential storms within their local real estate market. This is the safe play.
The take home message is all of us need a roof over our head. Stressing from year to year over one’s home value is a futile act and one that creates more harm than good. Remember, you need that roof. If a home is purchased for the purpose of housing you and your family, and you are staying there for the long term, your values will rise and you will realize equity over time, a bonus. Any secondary properties can then be considered investments.