Here's Why Investing in a Home Is a Smart Move -- Even if Returns Are Higher Elsewhere
KEY POINTS
- Leave money invested in the stock market for long enough and you're likely to earn a solid return that buying a home will not give you.
- Buying a home can be a good idea anyway, though, as you'll be giving your family a stable living situation.
- You can also borrow against your home equity if you own your place.
Investing your money simply means purchasing assets that grow in value over time and can therefore give you a profit when you sell them (or otherwise generate income for you). There are many ways to invest, some with higher returns than others. A lot of people consider buying a home to be a kind of investment, and this does make a certain amount of sense. After all, when you buy, you're getting an asset that is likely to appreciate over time (although this isn't guaranteed, and there are a lot of factors at play).
But there are more predictable investments out there. For example, you could open a brokerage account and buy stock shares. If you created a balanced and diversified portfolio, you might be able to snag a very nice return indeed. The S&P 500 has generated returns averaging 10% (before inflation, that is) over the last 50 years, which means that if you invest with a long time horizon, you're likely to come out ahead.
Your primary residence will not give you this kind of return, especially since you're likely to be buying it using a mortgage loan you must pay back (with interest!) over a period of 15 or even 30 years. Buying a home is worthwhile for a lot of people, though, despite the fact that it's not really an investment in the traditional sense. Let's discuss why.
You're buying a stable place to live
First and foremost, when you buy a house, you're getting a place to live. That alone is worth a ton of intrinsic value. You can give your family stability, and guard your budget against housing cost increases. Renting comes with a lot of benefits (and is cheaper and more flexible than owning a home), but if your landlord decides to sell, you usually have to move out. Your landlord could also increase your monthly rent to a figure you can no longer afford, again leaving you in the lurch. Buying a home is considered a big part of the American dream, and since almost two-thirds of Americans own their home, it's clearly a priority for many of us.
You can do whatever you want with the house
I've rented for the vast majority of my life, and while it can be nice to pick up the phone and call the landlord if there's a water leak or a wasp problem, the trade-off of renting is that what I can do with a property is extremely limited. As much as I'd love to rip out all the hideous wood paneling in my current rental and replace it with actual drywall, I can't do that. But if I bought a home with wood paneling (let's hope it doesn't come to that in this very difficult market), I'd be free to do so.
If you buy a home in a neighborhood that's part of a homeowners association, you may be more limited than you want in terms of how you can paint your home, style your landscaping, and so on, but it's still likely more freedom than you'd get as a renter.
You can borrow against home equity
Buying a home gives you the chance to build up equity (the amount of money you have paid into your home) that you can borrow against later on, such as in the form of a home equity loan or a home equity line of credit (HELOC). You could even refinance your mortgage and get cash out of it in the process. This might be a good move if you need money to put back into your home in the form of renovations, especially if they could lead to you commanding a higher price for the house should you elect to sell it later.
No, buying a home shouldn't be regarded as an investment per se, but it still might be a good idea for you, for all these reasons, and likely more.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Related Articles
View All Articles