Your primary home is not an investment in the normal sense of the word. Dictionary.com defines Investment thusly*: “the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.” Some of you will argue that you buy your house because it will appreciate in value. But, to fit the definition, you must have bought it specifically for that purpose. And in the case of a primary residence, that isn’t true.
When you bought (or buy) your primary residence, you’re looking for a home. You’re looking for a place to call your own where the money that you spend on it goes towards your ownership of the home. Sure, it may show some returns by way of appreciation of value, but those are locked into the house until you sell. And, truthfully, you probably don’t care about that unless you sell, so if you plan on living in the house (the definition of primary residence) it makes little difference what the house is worth as long as it provides a home for your family.
So, don’t be fooled into looking for a good “investment” when you buy a house. Look for an affordable home that will provide for your shelter needs. When (if) you sell the house, it gets converted into an investment and you will have hopefully made some money, but when you’re looking for a home, pick the one that will fit your needs. Not the one that shows the most potential for return. That’s what second homes and rental properties are for.
*I know that thusly isn’t really a word. I blame it all on Alton Brown.
Photo Credit: svilen001 @ sxc.hu
While it may not be an investment, depending on your perspective, I do think your primary home is a major part of your personal financial plan.
I have tried to share this sentiment with people before. It is a huge part of your finances, but the primary benefit is a home, not appreciation.
You’ve got the backing of “Rich Dad, Poor Dad” author Robert Kiyosaki on this point (he strongly advocates that your house is a liability rather than an asset because you it takes money out of your pocket each month rather than put it in). I also subscribe to this logic. My house will not provide me retirement or give me cash flow when I need it someday. My investments will. My house is my shelter (and my castle if I let me ego do the talking), but not anything more!
houses are for keeping you warm and dry, nothing more, nothing less.
I totally agree about the home not being an asset. I always like to do the balance sheet and P&L test. Is your primary home bring in income or taking away.
I agree. The home isn’t an asset until it is saleable. And once it is, it ceases to be the home, and is merely an asset. Then you’ve got to find a new liability (either a new home or rental).
You’re right mate people need to think before they go for a house. What’s the purpose? Future sell or living?
Great reminder. While I consider my house to be an asset, it’s certainly in a separate category from my real investments.