Don’t buy a home as an investment, says CFP: It’s just a ‘roof over your head’ (2024)

FAQs

Why is buying a house not an investment? ›

In addition to the down payment, there are a number of ongoing costs specific to homeownership, too, including mortgage payments and interest, property taxes, utilities, homeowners association fees and ongoing repairs. All of these expenses may make homeownership out of the question.

Is owning a house a good investment? In the long run, owning a home is a good investment. When you rent, your money goes to your landlord, whereas you can see a return on your investment over time when you put your money toward a home.

When people think of an investment, they often think of something that will either appreciate in value or generate passive income (or both). Well, if you live in your home, unless you have roommates whom you charge rent, it isn't generating passive income. So your only hope is for it to appreciate in value.

Whether you should sell your house or rent it out depends on several factors. These include your potential rental income compared to expenses, the work you want to put into it, your potential profit if you sell, and other goals you have. And it's certainly a difficult decision, even for experts.

As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.

Home prices have doubled in the last decade, with much of that growth happening in just the last four years. By one measure, housing affordability has fallen to its lowest level since the 1980s. And high interest rates have exacerbated the problem, ballooning monthly mortgage payments.

A home is a long-term investment. If you buy a home as a primary residence, it can increase in value over time and provide a financial windfall when you sell. You gain equity in the home over time, which can provide a source of emergency funding if your financial situation takes a turn for the worse.

One of the major benefits of renting versus owning is that renters don't have to pay property taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. In some areas, the costs associated with property taxes can amount to thousands of dollars each year.

Basically, if you buy real estate that you'll use just to make a profit rather than as a personal residence for you and your family to visit at times, that property is considered an investment property. Second homes are used for personal enjoyment.

Given the financial definitions of asset and liability, a home still falls into the asset category. Therefore, it's always important to think of your home and your mortgage as two separate entities (an asset and a liability, respectively).

Is it better to pay off primary residence or investment property? ›

From a financial perspective, it's usually best to invest your money rather than funneling extra cash toward paying off your mortgage faster. Of course, life isn't just about cold, hard numbers. There are many reasons why you might choose to either pay your mortgage early or invest more.

An Asset Provides Income

These assets either pay dividends/interest or spin off cash from operations that end up in your pocket. Your home, however, does just the opposite. Rather than generating income, it costs you money through mortgage payments, property taxes, maintenance, utilities, and other expenses.

Real estate investing is not like investing in the stock market, where you can buy or sell on a daily basis if you so desire (though we wouldn't recommend it). A home is a long-term investment. If you buy a home as a primary residence, it can increase in value over time and provide a financial windfall when you sell.

Of course, there are cons to buying in the Golden State: Property prices tend to be higher than the national average. Property taxes are high in the state. There is a risk of earthquakes and wildfires in some regions.

An investment property is real estate property purchased with the intention of generating income. The income from an investment property can come from rental income, the future resale of the property, or both.

Because home prices tend to rise over time, buying a home has traditionally been viewed as a safe investment. Still, an important point to consider when looking at a home as an investment is that it won't ever pay off unless you sell it.