This Redfin Economist Says You Shouldn't Think of Your Home as an Investment. Here's Why

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  • Some people will tell you to treat your home as an investment.
  • While your home might gain value over time, its main purpose isn't to help you grow wealth.

It's a line of thinking that could backfire on you.

There's a reason so many people are drawn to homeownership over renting. When you rent a home, your money is used to pay a landlord's mortgage. And it's that landlord who gets to build equity in an asset that has the potential to increase in value over time.

On the other hand, when you own a home, every mortgage payment you make gets you closer to owning that asset outright. And since home values can climb over time, you have the potential to sell your home for a much higher price than what you paid for it.

But while homes have the potential to gain value, it's important to look at yours as an expense, not an investment. And getting on board with that line of thinking could help you avoid buying the wrong property or making a poor financial decision.

Your home doesn't have to be an investment

You might load up on stocks in your brokerage account in the hopes of having those assets gain value over time. And that's a perfectly fine strategy.

But while stocks clearly count as an investment, your home shouldn't necessarily fall into the same bucket. In fact, Chen Zhao, Economics Research Lead at Redfin, recently tweeted, "Your house can be an asset, but your primary goal is providing a place for your family to live." And that advice is really spot-on.

If you spend too much time focusing on your home as an investment, it might lead you to make poor decisions. You might, for example, decide to purchase a home closer to the center of town because you think having easy access to more stores and amenities will lead to a higher resale value. But what if moving close to the center of town means getting stuck with less square footage for your growing family, or a small backyard instead of a larger one? That's not necessarily the best choice.

Plus, you might make certain updates or improvements to your home with the goal of getting to command a higher asking price once you're ready to sell it. But in reality, you should spend money on upgrades if they'll improve your quality of life, and that of your family. You shouldn't upgrade solely because you think it's a good investment.

There are better ways to invest

If your goal is to make money on an investment, there are probably better ones out there than your home (or the improvements you make to it). Buying stocks, for example, might generate a much higher return on investment than a kitchen upgrade.

That's why you shouldn't be too quick to think of your home as an investment. There's a chance that by the time you're ready to sell your home, it will indeed be worth more than what you paid for it. And that's a great bonus.

But your primary goal in buying and updating a home should not be to make money. Rather, it should be to put a roof over your family's head and give everyone a comfortable space to enjoy. The sooner you get on board with that mindset, the greater your chances of avoiding a mistake in the course of buying or renovating.

Our Research Expert

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