Here’s Why Owning Your Own Home Really is a Good Investment


Source: American Advisors Group.

According to a recent Gallup poll, more Americans are beginning to view real estate as a viable long-term investment. Thirty percent of those surveyed early last month took this view, up from 25% just a year ago. Gallup credited an improving housing market as being the chief driver of the change in popular opinion on this matter.

But, wait. Some experts, notably Yale economics professor Robert Shiller, disagree heartily with this view. In interviews over the past couple of years, Shiller referred to his research in which he studied home price appreciation from 1890 to 1990. He found that, considering costs of construction and inflation, homes really didn't appreciate in value at all.

Does that mean that buying a home is a lousy move? Not at all, and here's why.

How do you define "investment"?
According to Investopedia, an investment is the purchase of an asset "with the hope that it will generate income or appreciate in the future". Therefore, you may purchase a single-family house with the hope that it will appreciate, and it becomes an investment. Whether it is a good investment, of course, remains to be seen. Buying a duplex, by this logic, would qualify as a good investment, due to the ability to rent one side, therefore generating income, while living in the other.

But what if, as Shiller has suggested, you forgo buying altogether, and rent? You could then take the amount of a home's down payment and invest it in another vehicle, such as stocks. Currently, the S&P 500, for instance, has returned an average of 7.3% over the past 10 years.

Due diligence is key
That sounds a whole lot better than the 0% return on housing that Shiller refers to, doesn't it? But that scenario presupposes that you leave that money alone for the long term. Buying and selling at the wrong time can cost you big time, and, according to recent data, most people hold onto stocks for only around six months. Many buy high and sell low, eroding returns.

The same goes for housing, as those who became caught up in the foreclosure crisis can attest. Even the investment property scenario can sour quickly if you pay too much for the property and cannot secure a high enough rent to cover your expenses.

Buying a home is, like any investment, deserving of thoughtful due diligence. After all, you have to live somewhere, and paying rent is not an investment of any sort. At least those monthly mortgage payments will net you an asset that you will eventually own free and clear. If you plan ahead to pay off your home loan before retirement in order to reduce expenses, your residence becomes an integral part of your long-term retirement plan, as well.

Interestingly, the Gallup poll respondents who were most likely to say that buying real estate was a good long-term investment were those who owned their own homes – proving that home ownership can be – and often is – a great investment.

Owning a home isn't the only tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


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  • Report this Comment On May 10, 2014, at 3:19 PM, MelisssaLi wrote:

    What's wrong with renting??

    People should save their money until they have 20% or more. Cash only is ideal! Learn from the past people!

    Of course they look at me like I'm crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from Insurance Panda. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).

    You live exactly like people did in the 1970's, and suddenly there's tons of money. Usually moderate earners can save $500 a month on these types of luxuries. May not seem like much, but it's usually the difference between being in financial trouble, and at least not losing ground.

    My point is that it's so odd that people seem to forget all the little things we have, buy, use - that they didn't in the "better" times. That stuff isn't free.

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