Why your home is not an investment

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Why your home is not an investment

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A home is a belonging which every person should own. It is and has been among the main goals of people around the world. Although I have nothing against owning a home, it is not an investment.

Buying a home for personal use, either as the primary or secondary house is almost never a profitable venture hence is not an investment. Don't get me wrong, I never discourage you from owning a home but if you are looking for a way to invest your money, your home is not the way.

There are many reasons to reach this conclusion and here, we will overview the most common ones.

Your intention is not correct

Whenever you are buying a property to live in, your intention is to buy a place which you can live in peace. You want to own the place you live in. You want to have control over life. You want stability and security. You are looking to create the life you always wanted for you and your family.

This is a noble intention, the one that everyone should have. However, the same noble intention can keep you away from making an investment.

While finding a place to live, you look for certain qualities such as a good neighborhood, good schools (if you have children), number of rooms and finally, whether your family like the place or not. You look for the place which suits you. You buy a house when you have the money. And once everything is in order and you have found the dream house, you make the move and try your best to get things done. After all, you don't want to disappoint your family.

Even though the qualities which you have been looking for are necessary for every purchase, you need to have some other criteria to make an investment. An investor looks for a bargain and the right time to buy a property. He or she is willing to negotiate the crap out of the deal and is not afraid to walk away if the deal is not favorable.

In many cases, the very fact that you buy a property for any other reason than an investment changes everything.

You don't have a plan to use and sell the property

Ok, you managed to buy the home you always wanted at a bargain, at the right time with the best possible method of financing possible. However, a homeowner has a different use for the property and in most cases, no actual plan on selling the property.

My father is living in the house which he bought 33 years ago and still doesn't want to sell his house. I'm not implying that my father should sell his house. I love that house! However, it also means that my father has not made an investment 33 years ago.

Unless you buy a property with an actual and active plan on how to use it and when to sell it, I highly doubt that you make any money out of that property.

An investor gives the property for rent or modify it to add to its value and finally, has a plan and target price to sell it. These plans, along with all the efforts of buying the right property at the right price will result in a profit hence an investment.

On the other hand, a homeowner has no way to monetize the property while owning it and no active plan for adding any value to it. The typical homeowner doesn't sell his or her house either. The two most common reasons to sell a house are usually upgrading to a better house or needing the money. In the former, the owner might be forced to sell the house below the wanted price to be able to secure the next house he or she is going to buy and in the case of latter, the owner would be very lucky to get the fair market value.

You still need the money

As I said before, you might have no plan to sell your home. But, let's imagine that you sell your home eventually. After you sell your home, you either have to buy another one or rent a place.

If you want to live in a rental property, you can use the money you earned on anything you want (as long as you don't waste it of course) but if you are planning to buy another one, you may not be able to use your money as freely as you want. You see, the same way that your home has been increasing in value, so have any other property. If you want to upgrade to a better house, you have to add something to money rather than using it. If you want to have some leftovers, you, most likely, will have to downgrade and even then, a great portion of your money will again be tied to a property which you don't have a plan to monetize and sell. All these are based on the assumption that you didn't have a mortgage to clear or your local government is not going to charge you a hefty fee for taxes.

Conclusion

If you are planning to buy a home for yourself and your family, you should have a clear mind that you are not going to make an investment. You will, most likely, end up overpaying for the property which was not a bargain in the first place, will not monetize it or add to its value and when you want to sell it, you might do so under not-so-good circumstances. So, I can say with great confidence that in most cases, you are not making any investment.

However, I am not discouraging you to own a home. I believe everyone should own a home but not as a way of making money because you won't be making any. If you want to increase your money, look for other ways rather than buying yourself a home. Look for a home whenever your cash flow can support it and whenever owning a home can make your finances better rather than worse.


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