We hear all the time that a home is the biggest investment that you can make. In some cases, we hear that it is the best investment you can make.
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But is your home really an investment?
It doesn’t work out that way for everyone. In some cases, a home just turns out to be a money pit. Other times, a home is really more of an emotional investment than a financial investment. Whether or not a home is a financial investment depends on your plans for the home and other factors.
Your Mortgage and Your Primary Residence
When you have a mortgage on your primary residence, it’s harder to see your home as an investment. After all, your mortgage is a liability. It’s debt that you have. Plus, when you live in your home, you’re not making money on it. You’re making payments on your loan, but not seeing any income from the property.
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Over time, your mortgage can cost hundreds of thousands of dollars. If you keep a mortgage for 30 years, you can easily spend a couple hundred thousand dollars in interest alone. Consider a mortgage of $275,000 at 4.15% APR. Over 30 years, you will repay $481,242. That means more than $200,000 in interest.
Now, consider the other costs of owning a home, from property taxes to home insurance. Don’t forget about utilities, maintenance, and repairs. Over time, this home could easily cost $300,000 on top of the original cost to buy. Even with tax deductions helping to offset the cost, it might not be enough for you to break even in the end.
Building Equity and Financial Stability
One of the reasons that people view homeownership as an investment is due to the way it’s possible to build equity. At the end of 30 years, you might have enough equity in your home to sell it for a large chunk of capital. Even if you don’t break even, you still have a nice big amount of money that you can use to downsize or turn into some other good account.
Others like the idea of owning a home without a mortgage in their later years. It eliminates some of the expenses related to housing when you don’t have to make a monthly mortgage payment. You can use your money for other things. You have less worry over living expenses. You still have to pay utilities and taxes, but at least you don’t need to pay for the home itself.
A home can be an investment if you plan to use it for financial stability down the road. However, unless you see very good appreciation over the years, you likely won’t end up even with more than you put in.
Instead of seeing your home as a financial investment, it can make sense to see it as an emotional investment. Many people like the idea of having a place of their own. They can make changes to the home without worrying about a landlord getting upset. They can also provide stability for their children and put down roots in a community.
Being able to choose what to do with your home can be a big draw to homeownership, even if you don’t end up making any money out of the home. Just knowing that your kids have a safe place to call home can make a big difference in your home life.
In the end, you need to carefully consider your goals when you buy a home. Chances are that you won’t see a big financial return on your investment. However, there are benefits that people find attractive, and that can make homeownership worth it.