Should You Think Of Your Home As An Investment?

Many people believe their home is an investment. The idea is to buy property now, keep it in good condition, and sell for even more later on. Other investment folks like to say that a home is actually your biggest liability. Through depreciation and taxes you end up losing money. We can agree that for most owners, a home is their most valuable asset, so is buying a property to live in a good investment?

There are three major factors to consider when investing in a home: Taxes, Maintenance, and Appreciation. Property taxes take away from your return and tend to go up the longer you own the home. A good accountant will find some good tax breaks, but you will always end up paying Uncle Sam for having property.

Maintenance will creep up on you as well. Sometimes it’s small, like gas to run the lawn mower. Sometimes it’s calling a plumber overnight to fix a burst pipe. Utilities also send a monthly bill. Renovations can add value, but unless you are in the flipping business, don’t expect to get more than what you put in.

Let’s look at the facts. The return on investment of an average house purchased in 1980 was 0.02% by 2012. That’s not very good. The housing bubble did not make things better, and reminds us that we don’t live in a perfect world where every investment goes up. When you have totaled up all the expenses and inflation, are they more or less than this measly 0.02% appreciation? Probably not, so what is the benefit of home ownership?

The not-so-obvious benefit of a home investment is you get to live in it. You can put a few hundred thousand in the bank, but they won’t let you sleep there. The takeaway here should be to think of your home like a bank. If you keep depositing, your funds will be there down the road, not ever really getting bigger than what you put in. Except at this bank, you can sleep in the lobby.

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