We hear a lot about things being "investments" — even when they aren't in actuality. And one of those things is buying a home. While we like to think that buying a home is making an investment (and for some, the real estate bubble made it so), having a home mortgage loan is not an investment.
If you plan to use your home as a primary residence and raise a family in it, you are not making an investment.
You can buy a home, financing it with a mortgage, and enjoy a number of benefits. Most of them are intangible:
* A (usually) safe and stable place for your children.
* Peace of mind.
* A feeling of accomplishment.
* A tax benefit on the mortgage interest and property taxes.
All of these are nice things. But from a financial standpoint, paying a mortgage on your primary residence isn't making an investment. (Buying property that you plan to make money on, like a rental, is another story.) You do not get a regular return, and when you sell the home, chances are that even an appreciated home won't cover the real amount of money you've paid out when you add in interest, taxes and maintenance.
But it's still nice to have a home, even if it does come with mortgage. We have enjoyed our home. I just don't tell myself it's an investment. It's really a long-term purchase.
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=30e4630f-372e-4d04-a2a8-375bca04744c)
Add to:
Clearing this "state of mind" approach for a person taking a mortgage and buying a home brings him/her to take a better decision with more confidence and peace of mind.
Posted by: Assaf | February 11th, 2009 1:08 pm |
I totally agree! Once you get it out of your head that you're making some fabulous investment, you feel much better about a lot of things…
Posted by: Miranda | February 11th, 2009 3:47 pm |
The fact that you are unlikely to make money on the deal does not mean that your home isn't an investment. As with any asset, appreciating (like a house) or depreciating (like a car), a home is both a purchase *and* an investment. You had better not ignore either one.
On the one hand you are purchasing a product at great expense, which you plan to wring a lot of non-monetary gain from. It needs to be appropriate for that purpose. On the other hand, all assets are investments. The ultimate cost of your purchase depends on the return on investment you manage to generate. Whether the end result is positive or negative doesn't change the equation - it's the total differential that matters.
Posted by: Ethan | February 12th, 2009 12:45 am |
You make a good point and an interesting argument. I guess you could say you are likely to get a negative return on this particular "investment." But I think that it is important to get out of the "I'm going to make money" mindset people have when they purchase a primary residence.
Posted by: Miranda | February 12th, 2009 6:54 am |
I'm looking to buy a home in the near future; and I see it as an "investment".
I will not 'make extra money', but I will save extra money when my home is paid off. The cash I'd be wasting on rent will now be mine to do whatever I want with it.
Posted by: PennySeeds.com | February 12th, 2009 4:07 pm |
It is true that if you pay off your home that you will not have to pay money for rent. This works best if you can pay off your home in 10-15 years. And, of course, depending, some of that money you save will be spent on maintenance and property taxes.
Posted by: Miranda Marquit | February 12th, 2009 4:56 pm |
I don't know when the "right" time to buy will be. No one does. In reality buying a house is a very personal decision for every family based on many factors. For me, I need more place for an expanding family, am planning to stay in my current location for a while and most importantly have sufficient funds to put down a healthy deposit while still having emergency funds set aside.
Posted by: Andy | February 20th, 2009 4:05 pm |
I think that you have a good point in that the "right" time is subjective. Buying a home, like other financial decisions, is largely personal has to do with what you can afford at the time, and what fits your specific needs.
Posted by: Miranda Marquit | February 20th, 2009 4:41 pm |