A Home is Not an Investment: Unless You Plan to Sell It!
It's all over the news! I’m certain you’ve heard about the housing market in 2021 in that it continues to explode like fireworks. It's definitely a sellers market. The law of supply and demand are all working together to make homes sales go kaboom!
So, maybe what they say is true - that your home is your biggest investment!
Well, let’s take a look at it.
While it is true that houses generally increase in value over time, the single biggest reason why most people do purchase a home is to provide shelter - not for investment purposes.
One of the most basic factors that makes an investment an investment is your ability to control the timing of your ownership. That means that you can buy it and sell it at times and under circumstances that are likely to maximize your investment return. Investing in stocks, bonds, and mutual funds are prime examples in this case.
Since your house is your personal residence, you will have little control over the purchase and sale from an investment perspective. You'll purchase the house when it is needed for shelter purposes, and sell it only when it no longer serves that purpose, and it's time to move on.
Are You Selling Your House
A house can’t be an investment if you never plan to sell it. After a home’s value has experienced a significant amount of price appreciation, the most effective and efficient way to profit from it is to sell it. And selling a house is highly disruptive because it means you have to move.
More importantly, when you do sell, you will most likely have to use the equity from the sale to purchase the next house. After all, you will be moving from one residence to another.
Why Would You Tap Equity
The only time in which you won’t need to tap the equity is when you plan to sell the house, either to trade down to a less expensive house, or to move and rent an apartment. In that way, you will sell the property and cash-out on the equity.
Finally, here are the two biggest reasons in a nutshell why so many people should not consider their house to be an investment. First, your home simply won’t offer any form of incoming cash flow when you’re a homeowner. That is, unless you own an investment property and rent it out.
Secondly, a house requires an ongoing investment of cash. Not only do you have to make monthly mortgage payments, but you also have to pay real estate taxes, homeowners insurance, sometimes private mortgage insurance (PMI), utilities, etc.
So, your home is not an investment. It is actually a liability as long as you live in it.