I've always found the way people look at their home, their primary residence as some sort of magical "investment" interesting. It's interesting in the sense that a lot of people look at it like they do their stock portfolio, a self employed business person would or how someone in the real estate business does. Rarely do people treat it like they would the above.
I won't get into the own vs rent debate very much but there are a lot of basic differences that others have highlighted here.
You do need to live somewhere and being your own landlord, having your own property and looking after it does have a lot of benefits. Don't get too caught up on the value of the home, that's literally only important if you are needing to sell or you need to borrow against the value of the home. Market changes from year to year for someone who isn't selling or borrowing in some ways can be irrelevant. Very few people who have the ability to afford their current home, have had very little change in their financial picture make the "change" in their primary residence.
If you think about a stock portfolio or a business, your going to make the adjustments and the needed moves in order to continue to achieve your returns. People don't make drastic changes to their primary residence for value purposes based on a sale down the street but they do when they are in the real estate business.
At the end of the day, for people who only have 1 property and view it as some magical investment, it's not the best use of capital to continue to fund changes that doesn't serve a real purpose. It's shelter, a roof over your head. Far too often people are spending a massive amount of money for the appearance of the home in the hope new kitchen cabinets or a renovated bathroom will bring them some new found wealth. That capital could be very well better suited to reduce the mortgage which will free up cash flow to invest in another property or to make other investments to generate other revenue.
Heck, how many people will spend thousands to make changes to their kitchen but won't spend thousands to get additional training, schooling, certifications or business credentials for their primary income? I actually have friends of mine who spend more money on their home's kitchens than their kitchen in their restaurant. They will frown upon spending money in their business for growth but won't bat an eye if the wife gives them the gears to upgrade the houses's kitchen with all new "chef inspired" toys.
It's interesting when you look at it like that.
|