Your Home Is Not An Investment

I spoke with a new buyer yesterday, and one of the first questions I asked was, "Are you looking to purchase a home or investment property?" The buyer said, "Both." She wasn't talking about buying two houses - she wanted one house to serve both purposes. Anyone else see something wrong with this picture?

I had to get a little more specific by asking the buyer whether she intended to live in the property or not, at which point we determined she was, in fact, looking for a home. The difference is if you live in it, it's your home. If you bought it with the intent to flip it or rent it out - strictly for potential financial reward - it's an investment. But her attitude that her home ought to be equal parts "place to live" and "investment vehicle" has become increasingly common if not prevalent among current and prospective homeowners.

The wild fluctuation in prices and market conditions throughout the recent real estate boom and bust has perverted mainstream America's idea of the purpose a home serves in our lives. Many of us have been fooled into believing our home is an investment account, a commodity to be bought and sold based on market fluctuations. Your home doesn't have a stock ticker symbol, it's not traded on the NYSE, and it is a very illiquid asset. While it's true your home may gain or lose value over time, the primary purpose of owning a home is not - or at least shouldn't be - to make money. 

I've had a number of seller clients close recently for just about the same price they bought the house for, 10+ years ago. After you factor in selling costs, which are substantial, on paper it's a financial loss. But those clients have enjoyed their homes for over a decade, created lasting memories, molded the home to fit their lifestyle, and yes, reaped some financial benefit in the form of tax deductions too. They may not have come out ahead on the resale of the property, but ask them if they gained in other ways from living there and I'll bet their answer is yes.

People have historically bought and sold homes as a lifestyle decision. That means you buy a home when your family's needs change. That includes upsizing and downsizing, marriage and divorce, having children and emptying the nest, bringing in or kicking out extended family, retiring, relocating, or simply looking for a place to settle down. Obviously there ARE financial implications to owning a home, but we would do best to get away from the mindset of putting those implications above our families' needs. Especially now that most experts are predicting a relatively flat market for the foreseeable future, if you're buying or selling a home with dollar signs at top of mind, I'd recommend you reconsider.