When you prepare to enter the real estate market for the first time, you may find that many well-meaning individuals will encourage you to buy as much house as you can with as many amenities as possible because home ownership is an investment. You may even believe this yourself. After all, if you plan to stay in the house for twenty or thirty years, inevitably, when you sell you will recoup your investment plus make a profit, right?
Not necessarily.
Simply put, a home should not be viewed as an investment. A home affords you a comfortable place to live, which is a necessity, but it should not be looked at as investment. Consider how many homeowners in recent years have found themselves upside down in their mortgages for tens of thousands, if not hundreds of thousands, of dollars. Ultimately, many of them just walk away from their homes, foregoing any money they have paid out thus far for mortgage payments.
If you are truly interested in real estate as an investment, consider buying investment properties. If the investment works as it should, the landlord will make at least 125% more per month in rent than she pays out in mortgage payments. Ideally, the property will continue to increase in value, giving the landlord more money in his pocket. Yet, even if the property doesn’t rapidly appreciate, there are still many tax deductions such as the interest paid for the loan that the landlord can take to cut his tax liability.
When buying a primary residence, don’t delude yourself that it is an investment. Buy what you can afford to comfortably pay each month. If you later sell and make a profit, great, but don’t expect that. If you seek to make money from real estate, look into owning property to rent and making a profit from that. Rental properties are investments, not primary residences.
Guest Post by Melissa
I think the old adage that homes double in value every 10 or 15 years is being relearned by many. I agree that it’s not an investment.
Agreed: your primary residence is a necessity. While you’re paying off a mortgage, you’re providing a secure future for your family. Rental property, on the other hand, may enable you to gain a side income that could be used to round out your retirement fund. The pro’s and con’s are endless!
“If the investment works as it should, the landlord will make at least 125% more per month in rent than she pays out in mortgage payments.”
you have to be kidding? if not i am deeply interested why/how/where?
I think that is Melissa’s goal rather than a hard and fast rule. I KNOW plenty of landlords taking in less…although it makes you wonder if owning the property is worth it in the short term if you are taking in that much less?
Too often people look at homes this way. Thats why you see people go through 3-4 different homes. When I purchase a home it is going to be one that I plan on living in and paying off. Not just something for the time being. I also like the advice of if you want to look at a home as an investment buy an investment home.