Conventional wisdom tells us that your home is not an investment, but rather a liability. It is a constant drain on your free cash, even long after the mortgage is paid off. Repairs, maintenance and taxes will continually demand capital. These expenses are often called the cost of home ownership, and by definition an expense cannot be considered an investment.
However, in terms of your personal finance, your home can’t simply be looked at as either an investment or a liability. The dwelling you call home can actually straddle the line between an investment and an expense depending on how you look at it and which aspect you’re considering.
How long will you live there?
Look at your current home and ask yourself how long you plan to live there. If you have purchased your dream house and plan to live there for years raising a family, it’s probably an investment to you. Not only is it a financial investment, but an emotional one as well. Your house will probably appreciate over the years, and you will also make priceless memories raising children, investing in remodeling projects to personalize the space and enjoying your life.
However, if you have strong motivation to sell in the near future or like to live closer to family or a job, you will likely be looking at your home as a liability. You will be making changes to increase the value of the property, rather than to make it more enjoyable to live there. However, you can’t guarantee the value of your home will increase when you need to sell, so it’s a liability, and a risky one at that. You can compare your home to others found nearby through home searches, but the value of your home will always only be what someone else is willing to pay for it, regardless of the Italian marble in the foyer or the professionally landscaped lawn.
Is it cheaper to own or rent?
When the housing bubble burst, many people lost their homes. That resulted in renters flooding the market and rent prices went soaring. Because of this, in many areas buying a home is actually cheaper than renting one. If that’s the case, a home is surely an investment. It’s a means to save money while providing shelter.
When you rent, you have a zero percent chance of ever seeing a return on your investment. When you finally move, you walk away with nothing. However, when you own your home, you can conceivably sell in the future and make back at least some of the money you put out in mortgage payments. While it’s not necessarily a great way to accumulate wealth, there is some small return on your investment, unlike when you rent.
In the end, it really does not matter if you view your home as one of your assets or as a liability. In a lot of ways, owning a home is always an investment because of the money and time you will spend on it. However, if you choose wisely and pick a home in a good neighborhood, with a nice layout and attractive features, your investment can substantially pay off when the time comes to sell and move on.
3rdvista is a financial account reconciliation software used by financial professionals to aggregate client’s financial information into a single consolidated dashboard. It allows professionals to spend more time giving their clients advice rather than spending hours sifting through hordes of bank and investment statements. Its data can help in the decision process regarding if a client buying a house would be a feasible move or not.