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You may want to own a home. But is it really a good investment? Read on to find out.
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There’s a reason so many people would prefer to buy a home rather than rent one. When you rent a home, all of the money you spend goes toward your landlord’s mortgage loan. When you own your own place, you get to build equity in that home, and you might eventually get to sell your home at a profit.
A good 85% of new home buyers think a home is a good long-term investment, according to
TD Bank’s First-Time Homebuyer Pulse. But if you’re going to become a homeowner, you’re generally better off not looking at it from an investment perspective, but more of a logistical one.
You’re not investing your money in the classic sense
When you buy stocks in your brokerage account, you’re doing so for the express purpose of making money. It’s not like having those stocks in your name does anything else for you or brings you enjoyment.
A home is a different story. You might consider a home an investment, and a good one at that. But in reality, the purpose of owning a home is not to make money — or at least it shouldn’t be. Rather, the purpose of owning a home is to have a place to live, and one where you get to set the rules as opposed to a landlord doing so.
If you buy a home with the primary goal of being able to make money when you sell it, you may wind up disappointed. That’s because it can cost a lot of money to own a home over time.
Let’s say you buy a home for $400,000 and are able to sell it for $500,000 in 10 years. Let’s also assume you manage to sell your home on your own, without a real estate agent, so you really are looking at a $100,000 profit more or less.
At first, it might seem like the home you bought and sold was a good investment. But think about the money you spent during those 10 years to live in that home.
Maybe you spent $6,000 a year on property taxes, which would take $60,000 away from your profit. Maybe you also spent $4,000 a year on general maintenance and repairs. All told, residing in that home for a decade cost you $100,000. And that brings your profit from selling your home to — wait for it — $0.
Buy a home for the right reasons
You may end up making money from the sale of your home eventually. And if so, great. But don’t go into homeownership with the mindset that you’re buying because you think real estate is a good investment. Instead, buy a home because you want a place of your own, and because you’re eager to enjoy the stability that comes with it.
You never know when you might have to sell a home and what market conditions will look like at that point. If you tell yourself that the home you buy is fulfilling a specific need, you’ll be less likely to end up disappointed if you don’t make any money on it.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
