Here's Why You Shouldn't Think of Your Home as an Investment

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  • Buying a house just because it's an investment isn't the best way to approach homeownership.
  • Your house's primary function is as a home for you and your loved ones, and if you sold it, you'd still need to find a new place to live.
  • While you can sell a home for money, homes can be difficult to sell, making them an illiquid asset.

One of the comments you're sure to hear frequently if you're a renter is that buying a home is an investment (and renting is "throwing money away"). On its surface, this comment makes some sense. After all, when you buy a home, you're spending money for an asset that appreciates in value and that you could someday sell for money. Yes, all this is true. But here's why you shouldn't really consider your primary residence in quite the same investment class as the stocks in your brokerage account.

It's first and foremost a place to live

If you live in a house you pay on a mortgage loan for, I'm willing to bet that when you were house hunting, you were looking primarily for a place to live for you and potentially your family, not a place that would be an investment. Homes you buy to rent out don't have to be appealing to you personally, they just have to make you money. For example, the house you buy to rent out to tenants might be a multifamily home in a part of town where there are a lot of renters. Whereas, you perhaps live in a neighborhood of smaller single-family homes where most are owner-occupied.

Your home likely isn't going to generate a lot of cash flow

Yes, your home certainly can generate some cash flow. If you have extra space -- say, a garage you don't use -- you could rent it out. Or maybe you have a finished basement and you rent that out on Airbnb because you live in a touristy area. But again, if you and your family live in that home, that's likely the most important thing to you and your bottom line. And remember, your home is a large expense in and of itself.

If you sell, you'll still need to find a place to live

If you put your home on the market tomorrow, you wouldn't be free and clear, cash in the bank. You'd still need to find another place to live and would have to rent a home or buy another one. But if you sell your stock holdings, you won't need to buy more or risk your family's health and happiness.

Homes may not steadily appreciate in value

This one may hurt some people to hear, but dig this: Homes don't always gain value. While by and large, yes, homes appreciate over time (and especially the land under them; a house must be maintained and kept in good shape to gain value), home values and sale prices are coming back down after a few years of frenzied pandemic home-buying. I guess in this respect, a house has more in common with a volatile stock value than those who call a home an investment might have intended!

Homes aren't a liquid asset

One final reason it's best not to think of your primary residence as an asset, per se, is because of its illiquidity. Cash is the most liquid asset of all, followed by bonds, stocks, and then real estate. You can turn an investment like stocks or bonds into cash more easily than you can turn a house into cash. You might not get as much money for bonds and stocks as you paid, but you won't have to get them into sellable condition, find a real estate agent (or go the FSBO route), market them, wait for a qualified buyer, wait for that buyer to get their financing in order, and so on.

For all of these reasons, be wary of anyone who tells you to buy a primary residence because of its nature as an investment. Buy a house because you want a long-term place to live for yourself and for the people (and maybe pets) you care about.

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