For years, people have believed that their new home purchase is the same kind of investment as their 401k or stock and bonds. Even with the obvious drops in prices during and since the economic crash, many buyers continue letting their home be their only retirement asset. The main property you live in should be left out of your retirement investment math and planning, and you're about to learn why.
So, What’s the Big Deal?
Compared to other types of investments, the long term returns on your home purchase is nearly zero. Between the property taxes, changes due to inflation, interest on your mortgage and the cost of repairs or upgrades to the home you absorb most if not all or even more than the home's property value. Contrary to popular belief, the value of most property doesn't increase faster than inflation, at least according to history so far. Besides, that massive down payment you put together at the outset isn't earning any interest, and the other monies paid in are also tied up in the “investment” but not actually earning anything back.
OK, So Why Buy at All?
Buying a home isn't the best plan for your retirement plan, but there are plenty of other reasons to make a home purchase. You buy in order to have a place that is your own; a base from which to create your community, raise your family and establish your presence in an area for years to come or to have something of your own to pass on to your descendants. Here are some of the most common reasons to buy a home:
- The Joy and Pride of Ownership: Properties lived in by owners often are kept in better condition than those lived in by renters. Owners see the house as part of themselves and improve them regularly by investing in upgrades.
- More Space to Play With: Typically, dollar for dollar, a purchased home has more space for the monthly mortgage cost including outdoor patios and yards than a similarly priced rental property.
- Control Over the Looks: When you own a property, you can customize it how you want. Change the paint color or the windows or landscaping as you like.
- Safety and Security: Many homeowners feel safer in their own property. As the homeowner, you have complete control over the security measures in your home.
Should You Buy a Home?
Buying is a significant step in your life but only do it when its right for your financial circumstances. Make sure you understand the home's value both now and in your future and where all that money is actually going. If you genuinely want an investment property, look into purchasing a second property to use as a vacation home or rental property. Since you don't need that property to live in, it indeed is an investment.
When you think you're ready to buy, contact your local real estate agent to start discussing the particulars. Whether it's your first purchase, forever home or investment property, they are here to help.
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