What’s the difference between being a homeowner and real estate investor? Is buying a home a real investment? How are other types of real estate investments different? Which should come first?
Everyone Needs to Buy a Home
Everyone should own a home. Even those that crave nothing more than to travel the world have a lot to gain from owing a home. Fortunately, homes are about as affordable as they are going to be for some time. Today’s combination of low interest rates and housing prices is extremely powerful, and so is the edge it will provide homeowners in due time. Even if you don’t plan on living in the same residence for the long haul, or won’t live there full-time for several years, buying now can be powerful for building up equity and cash. That can be used to upgrade housing later, or at least help make it more affordable later in life.
Everyone needs shelter. Even the thrill of world travel can get old. Having a home base can do wonders for recuperating and productivity. Acquiring a modest property now can mean you’ll be free and clear of housing debt later in life. That is critical when approaching retirement. That’s something everyone needs to plan for now.
Your Best Investment Ever
We’ve all heard that Warren Buffett has called buying his own home his best investment ever (after buying his and his wife’s wedding rings). The same will be true for most individuals. Considering that your housing costs will be among the bulk of your life’s expenses, the sooner you stop paying for housing, the sooner you will be financially free.
While home prices fluctuate overtime, they have consistently moved up over the long run. In fact, the bulk of wealth created by most individuals will be in their homes. That’s where most of their legacy money will be built up. Data clearly shows that homeowners are overwhelmingly wealthier than renters.
On The Other Hand
Some argue that, for many of the same reasons above, a home is not really a true investment. Why would they make such an assumption?
The assumption is that you will always need a home. You’ll always want a property to provide a roof over your head. That will never be totally liquidated during your lifetime. Personal residences are not normally traded like stocks or other investments. Though, some do treat them like that.
Vacation properties, second homes, and retirement condos can be a bit of a grey area. It really depends on your long term plans for them. However, they can also be great investments, with serious tax benefits, and income and wealth building potential. They offer the chance for personal use on weekends, holidays, seasonally, of later in life.
How Investing is Different
Warren Buffet and his mentor, author of The Intelligent Investor, says “Investment is best when most businesslike.” It’s difficult to be truly business like about your own home. Even if you can be, it’s not always the case for the rest of the family. There is a lot of emotional attachment to homes. Most people just aren’t that disciplined, or face more costly emotional expenditures when they are.
There is a lot more freedom in acquiring, managing, and disposing of pure investment properties. You can be far more objective. That helps lower risk, and increase real returns. It frees you from location, price range, and looks, to hone in on the facts and figures.
Everyone should both by their own home, and invest in real estate for profit and wealth protection. Some swear by buying a home first to get experience in the process and create a financial foundation. Others suggest investing first, and then using the proceeds from investments to pay for your home. If you have neither right now, opting for a duplex of triplex as your first purchase can achieve both goals at once.
