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

Naysayers may disagree, but owning rather than renting can be a viable investment – with the right planning

May 3, 2014 at 1:44PM

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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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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