miniature home on financial graph - why house is bad investment - financial planning farmington
  • Posted June 9, 2020

Why Your House is a Terrible Investment

If you want to be a homeowner, you shouldn’t think of it as investing. An investment implies that when you put money in, you’ll get more money out. Although a home offers innumerable benefits, in investment terms, your house is not a good investment.

Illiquidity

In part because it is so hard to buy and sell a house, and because houses are usually sold for less than their original value, real estate is considered an illiquid asset. An individual home is risky. You can’t turn it into cash as quickly as you could stocks; instead, in order to gain anything from it, you must spend perhaps months or years attempting to sell it on an unreliable market. Just sitting in the neighborhood, your house does not generate any revenue. Your house is a way to build your net worth, but it doesn’t provide any monthly dividend or cash flow.

Costs

Your house actually costs you money to keep, including monthly expenses like utilities, mortgage payments, and home insurance, not to mention repairs and other upkeep expenses. Some costs can be reduced, and there are still ways to cut your monthly expenses like utilities.

You can reduce your electric bill by conserving energy, such as by unplugging devices when they are not in use and line drying your clothes. You can also make changes to your house, such as switching to a tankless water heater or installing solar panels, in order to cut utilities costs. When it comes down to it, however, your home costs money.

Location Risk

Not only is it hard to sell and expensive to keep up, but even location also has an impact on your home’s value, thus making it less reliable as an investment. If something occurs to make the location of your home less desirable, your house’s value will plummet. For example, say you move into an area due to its many employment opportunities with one large company. If that company goes out of business and suddenly all those employment opportunities vanish, your home’s value will soar downwards.

Although owning a house is a great thing in many ways, providing you a home and boosting your net worth, in the end, a house is a terrible investment. Considering the definition of an investment, a house does not fulfill the goals of investors. Houses are illiquid assets, difficult to sell, and they include both costs and risks which can jeopardize their resale value.

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