Homes – Investment or Liability?

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I’ve mentioned earlier that I am looking for a home to buy, and have heard some readers share their opinions about how a permanent residence is a bad investment.

Buying a home as an “Investment” brings out a lot of heated argument in the investing world. There are typically two schools of thought. Many people believe that paying rent is wasted money that could potentially be building equity. Why subject yourself to a continuous expense to have nothing to show for it, right? Well, the folks on the other side of the table see it differently. Owning a home means you are liable for all repairs and maintenance, additionally it means you’re tied down to living in the same place.

Personally, I think both views are too rigid which have major flaws in their logic. You do gain value from the money you pay each month in the form of having the service of someone else handling the maintenance issues. So saying that the money is wasted is a little extreme.

In regards to flexibility, it is true that needing to sell your house before you move is more complicated than moving out of an apartment. However, people often forget about the fact that renters typically have a 1 year lease with expensive penalties for leaving early. Additionally, when it comes time to renew that lease, the tenant usually needs to commit to the next term months before the current lease is even up. So if you want to move without penalty, you need to know you’re moving months ahead of time and can only move in that short window as the lease is ending. I really think the flexibility argument is pretty weak on both sides.

I’m curious to hear from the people who say that a residence is a liability instead of an investment and what they think of owning rental properties. With a rental property, you still have all of the problems of a residential home like maintenance but with the added complication that you could have a crappy tenant that doesn’t respect the home. I think people also tend to forget that you need a place to live just the same as you need food and oxygen.

Owning a home is like owning a rental property where you are the tenant. If you rented out a rental property to a tenant, and then rented your residence from someone else, you’re basically breaking even, assuming they rent for the same price. So at that point, you’re really just taking on additional risk by involving a 3rd party as the tenant.

That’s just my 2 cents, what do you think?

P.S. – The home in the photo is one we’re buying next month! We’re very excited.

Comments


DivHut said:

The question is, do you see a home as an investment or simply a place to live and make a life for yourself. I think, especially these days, we all see homes as investments. This is wrong. Shows, like flipping Vegas/Boston, Property Wars, etc. etc. only fuel the fire that homes must be purchased at “good” times and have the lowest possible interest rate. When my parents bought a home in the 70s their interest rate was around 18%. People still bought home then…. See homes are places to live not an investment. The money made on a home is simply the gravy. The security it gives you and your family is priceless. Thanks for sharing.

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Kevin said:

Thanks for stopping by DivHut,

I’ve been extremely fortunate in that every home I’ve been able to buy has provided better value than the renting market. If interest rates were 18% right now, I’d probably be singing a different tune. Right now, it just seems silly to rent if you can afford to own.

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