Is your primary house an investment?
Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
Is your primary house an investment?
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Real Estate Investor · Member since 2013 · 866 posts · 487 votes
12yIf you don't treat it like an investment when you purchase it then you are fooling yourself by pretending it is an investment.
If you bought your current house because you and your spouse fell in love with it and thought it would be a great place to raise your family then I seriously doubt you analyzed it as an investment going in. In addition, if you do any improvements or repairs you are not likely to sit down and methodically decide the best return when you pick your appliances for that new kitchen.
Nope, you are more likely to pick what you like, perhaps with upgrades if you can afford them because you want to enjoy your time in the home where you live.
Can it be an investment? Sure, there are lots of people who buy not because they like it as a place to live but because they can live in it while fixing it up and then sell it and move on to the next one.
So, I suspect the reason a debate broke out over this is because at the end of the day, "it depends."
115 Replies
- Investor · PA · Member since 2013 · 1k+ posts · 602 votes12y
If your mortgage payments are significantly less than what the house would easily rent for then I would see a primary residence as a potential investment otherwise I would probably see it as a forced savings plan, a place to live, and a tax shelter at best. If it would easily rent for at least the amount of your mortgage payments, you could always live somewhere else, let someone else pay off your mortgage, and potentially generate cash flow. There's also the option of leasing rooms or finished garages/basements which could itself pay for the mortgage, added utility cost, and potentially generate cash flow as well. I pay about 600/mo for my primary 4/2 residence and I know if I wanted to, I could rent 2-3 rooms for 400-500/mo each or I could easily rent the whole house for 800-1000/mo.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
Originally posted by @Rick Baggenstoss:
In another thread this debate was started. Is your primary dwelling an investment?
One argument for is that you expect your primary dwelling to appreciate, therefore, it is an investment.
However, an argument against your primary dwelling being an investment is that it often doesn't appreciate enough to compensate for the payments, effort, expenses.
What are your thoughts?
Rick
The equity amount of any asset is an investment held. Business assets, personal assets, it all flows through to your net worth. :)
- 12yNicole A.Pro MemberRental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
It's an investment in the sense that it builds equity that we may use to buy more rentals later and provides $1400 in income per month by renting out two bedrooms. This income is not positive cash flow though, but does split our PITI in half. We don't need that income, but it sure is great. Also, one day we'll move and we might rent out the house and it may not cash flow with the mortgage, but there's less than 15 years left on the mortgage, so after that, it will cash flow. It's a long term thing...if we even decide to keep it.
- Investor · Long Island, NY · Member since 2010 · 99 posts · 23 votes12y
If it is costing you money every month it is a liability.
- Investor · Gaithersburg, MD · Member since 2013 · 660 posts · 441 votes12y
I think everyone on here is confusing the question. He asked if your primary home is an "investment". The opposite of "investment" is not "liability". If you buy a rock for $5 and hope to sell it for $10 a year later because it appreciated, it's still an "investment". A stupid one, but it's still an investment :). Your primary home can absolutely be an investment. You may never realize a gain or you may realize it 30 years down the road when you sell it, but if you are buying it and you hope you can sell it for more than you paid for it later (which is 99.9% of people who buy homes), it's an investment (by it's very definition).
The argument for whether something is an asset depends on context. For me personally, a negatively cash flowing property (primary home or not) is a liability, but if you ask the IRS, any property is an asset and the note on it is your liability. So in specific terms, anything you own (whether it cash flows or not) is an "asset" in the eyes of the IRS and general accounting practices (your car too for example). If you don't believe me, try and keep your books and put any piece of property in the liability column. You'll be laughed at. So when Robert Kiyosaki says your home is not an asset, he's not giving accounting advice, he's giving real world advice so you don't think about what you own in the wrong state of mind.
To sum up, I don't consider anything that doesn't positively cash flow for me an "asset", but whether it cash flows are not, when I do my books and taxes, it's an "asset" :) Confusing yes, but it makes sense when you think about it :)
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes12y
I think you have to define one key piece to the equation in order to give a reasonable answer to this question.
And that piece is how much would it cost to rent the same house you plan on owning and how long do you plan to stay? Without knowing that, you can't truly state whether owning a home is an asset or not.
Someone above mentioned the kiyosaki rule that an asset puts money in your pocket. Well, if I were to rent the house I'm in now, I'd be paying about 2k a month. My mortg is 825 and taxes/insurance about 600 a month. I'm paying 1425 a month so I'm saving 600 a month right there by owning.
So I'm saving 575 a month by renting. Plus I'm getting a tax deduction of 6k for my taxes and another deduction of 8 or 9k for my interest. 15k deduction is probably worth about 3k in a tax refund - which is another 250 a month in savings to me.
So by owning, I'm actually putting an additional $825 a month more in my pocket. Does that not satisfy the rule of an asset putting money in your pocket????
Maintenance you say? Well, it doesn't cost me 825 a month in maintenance. AND I haven't even started to talk about appreciation which is typically 3% a year. And even if you discount appreciation, I definitely have principal paydown that is increasing my net worth. And I'd guess my principal paydown is every bit as much as my annual maintenance if not quite a bit more.
Now, those are my numbers where I live but clearly does not reflect all areas. But as far as the area I'm in and, for that matter, most of the middle class areas here in Illinois, you're going to come out far better owning than renting. The numbers are the numbers.
Oh, and btw. I was able to use the equity I had built up in my home as my funding source for the investing I've done to date. Had I rented this same house instead of bought, I wouldn't have been able to buy the homes I bought.
So, whenever I see this debate, I always like to chime in. Without making that decision to buy my home, I wouldn't have the 23 homes I have today (soon to be 24). Yet again, another reason why owning a house should be considered a valuable wealth building asset.
- Investor · Gaithersburg, MD · Member since 2013 · 660 posts · 441 votes12y
So here is the bottom line after reading all these posts:
Yes, it is an "investment"
No, it's not an "Asset" in terms of it generating you cash flow (putting money in your pocket monthly (monthly being the key word).
Yes, it is an "Asset" in the eyes of accounting principles and the IRS.How's that for a short answer? :)
- Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes12y
As far as I'm concerned it is a great investment. Yes, it doesn't produce any income per say but it does, you just don't realize it until later. I don't see it any differently then an investor telling me he has and investment but it has negative cash flow. I would say I have the investment because I can live there which is definitely worth something. And in the areas I have lived and bought, house prices doubled every ten years. I bought fixers in great areas. And when I sold it was definitely a great return thus a great investment.
I am reminded of two friends of mine way back when. Three similar houses came on the market in the same area, in a great school district worth about $25k each and I knew we could get them for $20k. We were all just forming our families and this was a good place to plant our roots. One friend bought one, I bought one, and the other guy said no he was going to wait and went out an bought a new car instead, so I bought the third one and resold it while it was in escrow. Anyway the guy who passed on buying rented all his life, at least that I know of, I saw him 8 years ago (I wonder how much he paid in rent all those years). The other guy still lives in the same house and I would guess the current market value to be about $2.7 million and of course it was free and clear a very long time ago. And with proposition 13 his taxes are very low.
You can view it any way you want but I would say guy number two has a great investment. His return at the moment the difference between what his rent would be (guy number one) and his low overhead now plus his homes value will continue to climb over time. And if he sells he has enough to live the rest of his life on.
- GA · Member since 2011 · 62 posts · 6 votes12y
I struggled with this question for a while before we bought our current more expensive primary residence. My conclusion is that it may not be a great investment, but nonetheless still an investment. We have more than a dozen rental properties free and clear, which generates more than $14000 gross rental income per month. My husband and I also work full-time. Before we bought our current primary residence, our living expense was less than $4000 per month. But my thinking was with all the money saved, we still need to invest somewhere, be it stocks or more rental properties.
The home price has inceased a lot these days that it is not easy to find a good rental property any more. But we could still land a decent primary residence with very low interest rate. I think the low interest rate is what makes this primary residence a little more like investment. Besides raising my kids in a nice neighborhood is more important than buying one more rental property. I plan to sell this property eventfully when my kids go to college, and then we move into one of our rental properties. Since this property is located at a prime location, I do think the value of the house will be very stable, if not increase. When that happened, we could almost think we have lived in this house rent free. I have considered quitting my full-time job for a while because I could not stand my new boss. But this mortgage is what moviates me to try even harder. Now I views this job as an challenge to overcome.
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
depends on where it is... IN Amits case SF bay area its an asset and a stellar one at that.
Most cities in the mid west and rust belt its a liability like one person said.. just depends on where our market went after the Great GFC.. same could be said for those that bought at the top I vegas Phx.. Atlanta .. Fla.. etc etc.
Mid west like Memphis indy, Detroit , etc etc etc. the values have not really changed no matter what in decades. or if they did it was so insignificant as to not be an asset.
What amit is talking about Is buying a SF bay area house for ( and I am just throwing this out I have no first hand knowledge) 500k and selling it for 1 mil or more using that tax free cash to roll into other deals...
Not going to happen in most parts of the country with a very few exceptions.
So as we all state it depends on where the Primary is.
- Real Estate Investor · Grass Valley, CA · Member since 2014 · 124 posts · 85 votes12y
A primary residence is also probably the easiest way to obtain a HELOC, which you can use for investment purposes. We all have to live somewhere, and in my home town, my mortgage is way less than a comparable house would rent for, so I think it was a sound financial decision to purchase, but ymmv.
- 12yKahanu NoaPro MemberInvestor · Maui, HI · Member since 2014 · 48 posts · 10 votesBeing a newbie investor from Hawaii, I agree with Mike H. Market Rents are high for the area I live in and range about $400-$600 than PITI.
- 12yJ. MartinPro MemberRental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
Yes, the potential for my primary as an investment was an important factor in the purchase of my primary home. In my case, it was a 4plex, and probably the best decision I ever made for my first purchase. I was young, flexible, and knowledgeable in certain aspects of real estate, so got lucky. But as @Jay Hinrichs
and many others have said, it could be huge for you.. I just don't think you need to sell all of them! ;)
- Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes12y
@jmartin yes, it seems if you go into thinking it should be an investment, then it's more likely to be a good investment. Otherwise, it's more likely to be a liability.
- Real Estate Investor · Roanoke, TX · Member since 2014 · 11 posts · 1 vote11y
Rent in my area for my same house is $1600. I pay $1,100 PITI per month for my mortgage that's a savings of $500 minus exenses. I've put essentially $4,000 + DP and closing cost into the property = $14,000.
The house could easily be sold for $185,000, I purchased for $130,000. We are looking to sale fairly soon, I owe around $120k.
This means, I will have made roughly $47k on my primary. Yes it can definitely be an investment. Blanket statements are stupid and they always will be. For some people, it is not investment, but it depend on the numbers.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes11y
Didn't really read all the posts, but you have two worlds you're placing under one definition. An investment is an asset purchased and held in hopes of appreciating value and generating income in a business, your personal financial world buys assets for functionality, the use and consumption of the benefits from owning and appreciation is desired, but not necessary as you gain economic values from that asset, even so, it's an investment on the personal side. The returns on these investments can be very different and we generally only measure investments and performance out of the business aspect. When you dispose of a personal asset you may then determine it's value and success as being a personal investment. IMO :)
- Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes11yI do live-in longer term rehabs with my wife. Then we move on and rent them out. So yes my primary is an investment, although it will not pay me until I'm out of there. We don't have kids yet, but when we buy that family forever house I'll have to adjust strategy as that one won't be an investment like the others.
- Involved In Real Estate · Latrobe, PA · Member since 2010 · 26 posts · 9 votes11y
I guess it depends on who is being asked.
For the vast majority of folks...it's a liability. For my family, it's an asset. In the past, we've purchased a duplex and rented 1/2 out. My current home is comprised of 3 units. A SFH and a duplex. We live in the SFH and rent out the duplex. Did it all intentionally from the start...using RDPD philosophies.
PS...I was thinking you were asking everyone from a "personal" perspective whether their homes were assets or liabilities...seems like most are answering in general terms...for what it's worth.
Take care,
Brandon
- Investor · Gaithersburg, MD · Member since 2013 · 660 posts · 441 votes11y
I think the basic question was asked around those that have an SFR to just live in. If you have a triplex that you are renting out (getting money from) on 2 of the units, I think that's the very definition of an asset/investment.
The bottom line is this. Something you buy to make personal use of that you don't plan on getting a constant return on (car, house, vacation home that you don't rent out, etc) is a liability. It goes in the liability box (not the asset box). Any of these things can appreciate of course, but that can only be realized at a certain point (refinance or sell). The overwhelming majority of people who own a home pay way more in interest over the years they own it than what they would get if they sold it. You also have to consider property taxes, insurance, any money spent on the home as part of what you've "put into it" along the way. Unless you get lucky and just buy at the beginning of a bubble and sell before it bursts, you're not going to come out of it on top in the end. A traditional primary home just goes against the very word investment.
Keep in mind, what I just said is for those who buy a house solely to live in it. There are ways to make your primary home an investment if you do it from the start. One such strategy is to buy, fix, live in 2 years (long term flip if you will), and just keep trading up that way. Ideas like that are against the normal purchasing of a home that 99% of people do and can absolutely be considered an investment.
Again, I'm just referring to what most people do in that they buy a house, live in it for 15 years, sell it for 50% more than they've bought it for and think they've gotten a return on their "investment". In fact, when you calculate the interest they've spent, insurance, taxes, money put into it, selling costs, etc, they've probably lost that 50%.
All I'm saying :)
- Engineer · Bel Air, MD · Member since 2009 · 136 posts · 24 votes11y
what if you have your home and rent out all rooms and basement?
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes11y
Originally posted by @Justin B.:
I think the basic question was asked around those that have an SFR to just live in. If you have a triplex that you are renting out (getting money from) on 2 of the units, I think that's the very definition of an asset/investment.
The bottom line is this. Something you buy to make personal use of that you don't plan on getting a constant return on (car, house, vacation home that you don't rent out, etc) is a liability. It goes in the liability box (not the asset box). Any of these things can appreciate of course, but that can only be realized at a certain point (refinance or sell). The overwhelming majority of people who own a home pay way more in interest over the years they own it than what they would get if they sold it. You also have to consider property taxes, insurance, any money spent on the home as part of what you've "put into it" along the way. Unless you get lucky and just buy at the beginning of a bubble and sell before it bursts, you're not going to come out of it on top in the end. A traditional primary home just goes against the very word investment.
Keep in mind, what I just said is for those who buy a house solely to live in it. There are ways to make your primary home an investment if you do it from the start. One such strategy is to buy, fix, live in 2 years (long term flip if you will), and just keep trading up that way. Ideas like that are against the normal purchasing of a home that 99% of people do and can absolutely be considered an investment.
Again, I'm just referring to what most people do in that they buy a house, live in it for 15 years, sell it for 50% more than they've bought it for and think they've gotten a return on their "investment". In fact, when you calculate the interest they've spent, insurance, taxes, money put into it, selling costs, etc, they've probably lost that 50%.
All I'm saying :)
So 15 years off free rent? If rents were ONLY $1,000 a month that's $180,000!
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