August 6, 2018
August 6, 2018
There is and always has been a strong focus on higher property values when it comes to purchasing a home. A house is widely seen not just as a place to live, but also as an investment. But even if your house doesn’t rise in value – even if it’s at exactly the price you pay for it 20 or 30 years from now – the house would still be an excellent investment.
Here are a few factors, apart from the increase in property value, that make a house a good investment.
Do you notice that I did not say it provides shelter? That’s not an accident! You can find shelter in an apartment, a trailer home, or even a tent in someone’s backyard. Yes, a house does represent shelter, but it provides so much more.
It’s quite literally true that a house provides a place to live your life. That includes shelter and storing your stuff. But it is also a place where you will build memories, maybe raise children and/or pets, and create the lifestyle of your choosing.
All of that affects how you live your life. Since a house usually has more room than an apartment, there is simply more room to spread out. You can designate certain corners of the house for hobbies, or install a swimming pool or create a garden in the backyard. The point is, homeownership accommodates that kind of growing in your life, in a way that a rental situation never can.
A house also represents a place of shared purpose. Your entire household can work to customize the home and turn it into the kind of living space that you aspire to. Even working to keep the house during troubled times can be an important bonding process for the whole family.
Many people either telecommute or run their own businesses. Either enterprise may be done from home. And while you can telecommute or run an Internet-based business from an apartment, it’s usually easier if you own your own home. That’s because you’ll have the extra space needed for a fully stocked home office, as well as storage space for needed files and supplies.
It’s also a fact that certain types of businesses cannot be run from apartments. For example, if you are running a plumbing, electrical, or carpentry business, you won’t be able to do it from a cramped apartment. A detached house, complete with a backyard, a large garage or basement, and outbuildings if necessary will be much better suited to running such a business.
As was the case in days of old, your home may also be the place where you earn your living. If that’s your situation, you will need your own house, and preferably a fairly large one. And even if you don’t work from home, owning your own home could set the stage for such a venture in the future.
This is best demonstrated with an example.
Let’s say you purchase a home for $300,000. You put down 5%, or $15,000, and take a 30-year mortgage for the balance of $285,000.
Now there’s no debating that at the beginning you have something close to nonexistent equity in the property. But after 30 years, the mortgage will be fully paid. Even if the value of the house does not rise in those three decades, you will still be sitting on an asset that is worth $300,000. And you will have 100% equity in the home.
For most people in America, that would easily represent the single biggest asset that they own. Granted, it’s not like winning the lottery. But it’s still a big chunk of value, and large enough to be of the life-changing variety.
When I say life-changing, I mean that having that kind of capital opens up a lot of options in your life. It might even open the possibility of early retirement when combined with other financial assets.
Speaking of which…
Retirement planning is one of the biggest financial concerns in America today. There is a tremendous amount of information on the subject in the financial media and throughout the Internet, dealing not only retirement itself but also with the growing topic of early retirement.
Most of it focuses on creating, funding, and growing a large retirement portfolio. That’s as it needs to be. But often neglected in the retirement mix is the family home. For many people, the home can be a game-changer in connection with retirement.
Using the example from above of a fully paid-for $300,000 house, this can represent an important leg of your overall retirement plan on at least three fronts:
That last point might be the most important. If you will not have sufficient retirement assets saved in traditional accounts, like a 401(k) or IRA plans, the proceeds from the sale of your home could be that all-important extra capital that will give you a large enough retirement portfolio to enable you to retire comfortably.
All of the above factors notwithstanding, the potential is very good for your house rising in value.
According to Federal Reserve housing data, the median price for a home in the US increased over a 20 year period, from $144,100 at the end of 1996 to $308,500 at the end of 2016. That represents a more than doubling of the median price. And that’s during a time that included the Dot-com Bust and the Financial Meltdown!
The moral of the story: despite several bad housing markets, house prices have moved steadily higher over the long-term. Maybe your house will never make you wealthy, but the odds of it increasing substantially in value over many years are extremely high.
On top of all the other benefits that it provides, a large increase in value could be the icing on the cake. As such, you should think of owning a home is being a critical part of your overall long-term financial strategy.
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