Is your primary house an investment?
Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
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
If 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."
It may have been said before but the definition of investment is "the action or process of investing money for profit or material result." This definition is completely open for interpretation. I can buy a piece of gum for 50 cents and hope to turn around and sell it for $100. By definition, that makes it an investment because I have intent for profit or material result, but it's obvious what the problem with my "investment" is and no one in their right mind would consider it an investment.
So anyone can call anything an investment (then there is good and bad). This is a great thread because we get all kinds of viewpoints. In my opinion, the definition is great but it's missing a piece. I would add "with that being the primary purpose." So "The action or process of investing money for profit or material result with that being the primary purpose." That doesn't mean you can't get some personal enjoyment out of it. For example, I know someone who invests in antique cars. He knows how to make money on them, but he also loves to drive them occasionally while he has them. But make no mistake, the primary purpose of what he's doing is to make money.
Again, my opinion is if the investment is not the primary intent, it's not an investment. When people buy stocks, rental houses, flips, etc, the primary purpose is absolute to make money. When most people buy their primary residence it's to provide a place to live for themselves. Any investment thoughts are secondary. And that's where I draw the line between what I consider an investment and what I don't. That line I'm describing may be the line between what others think a good and bad investment is, but my line for good and bad is further over :).
@Victoria S. you can go about it with cash funds or leveraged funds. This discussion starts to get into the weeds so it is probably better in person. I usually get to @Johnson H.'s meet up around 4pm. If you are still interested we can talk more about the use of both of these types of funds to get positioned for the next round.
reading this thread is kinda funny....it's like there are two separate conversions going on here ;) But to clarify, if you buy well in premier blue chip markets like costal CA, Hawaii, Manhattan, Seattle, etc., of course your primary is an investment. And you can use the gain by borrowing against it (for additional investments) or you could sell it and move to a cheaper location for retirement. I know loads of long term middle class owners in SF and Silicon Valley that sold their debt free 30+ year old "junker" for north of $1mil, and are now laughing all the way to the bank as retirees in AZ, FL, Mexico, etc. Well played :)
Also, dismissing appreciation as pure speculation is willful ignorance. Of course markets have cycles, but it doesn't take a rocket scientist to conclude that buying in highly desirable and growth markets will lead to more appreciation than no growth, low jobs, open land everywhere type markets. Just because you can "analyze" an immediate profit of $100 a door, doesn't mean you will get that profit 6 months, 1 or 2 years from now. One water heater going out kills your profit for 9 months. A new subdivision with newer units will lower your rents, and you'll need to deal with Lowe end, high maintenance tenants to keep your building occupied. Of course there are experienced investors that know how to work in these types of markets and make money. But my point is that profit is not a given. Frankly I think that a well timed purchase of a primary (or first investment 2-4) in blue chip markets is a much easier way to make an initial financial gain. And, you get to live in it :)
I was reading a book on Warren Buffett on the plane this weekend and during a fun FIVE hour lunch with @Account Closed yesterday it reminded me of a quote I read from Buffett:
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
I realized that this can be easily applied to prime Bay Area real estate with my take on the quote:
"It's far better to buy a prime property at a fair price than a nonprime property at a wonderful price."
I don't think I've ever heard of someone owning a SF property for 30 years say they wish they never bought it. :)
@Rahul,
I totally agree with you. I am looking for to buy my primary home early next year.
Thanks!
Regards,
Gautam
@Arlen Chou that's tremendous - since I am coming from Oakland, I am planning to get there abut 4 too! Thank you! I look forward to meeting you all - @Johnson H.and hopefully @Account Closed , @Kathryn M.. and all the others that I have yet to meet! Don't temp with pizza!
I actually do! appreciation works in your favor only when you know how to use it in conjunction with your other financial decisions.
On the other hand, Saying a primary residence is not an investment is like saying sleeping pills aren't harmful; it all depends on how you use it, if that's the right type for you, where do you buy it etc.
@Assaf Furman tell us your anecdote of someone who bought 30 years ago and wished they had not! I am curious!
@Assaf Furman tell us your anecdote of someone who bought 30 years ago and wished they had not! I am curious!
In the past two years I've been door knocking to get leads, and from time to time people open up and tell me their story. This one is an elderly guy who relocated to San Jose from Boston and helped his four kids by buying them cars, paying for their schools and down payments for their homes (one of which was foreclosed)- all from repeated cash out refi's on his own home. They've all been living in the east coast since school and rarely come to visit, and he's left to pay the mortgage payments and high cost of living without them helping him (the way he said it it felt more like he was too ashamed to ask). When I asked him why wouldn't he move there, he said it's not an option for him at this point, yet he should have done it years ago and have his kids sort out their expenses.
Not all people understand the meaning of the word asset, let alone creatively utilizing current assets to fund high performing ones to create a margin of profit. Those that do can proudly call their home an investment.
Well he's cashed out refi'd a bunch of times, that's a lot different. He would probably hate it no matter where he lived. Plus it sounds like his reasoning for moving there wasn't based on the value of a home.
I think the statement was meant to say "I don't think anyone who bought 30 years ago and hasn't refi'd a bunch of times to pull cash out regrets the value they now have in their home".
@Justin B. That's beside the point. The argument here is whether a primary residence is an investment or not, and when @Johnson H. claimed there couldn't be someone with regrets on owning a home in the bay area, I chimed in saying it depends on your other financial decisions - meaning whether you do something smart with this equity or not. Since he didn't he regretted buying that house in the first place. Like him there are families who still lose their homes back to the banks and by that foregoing any of the appreciation the houses had gained since they bought them.
@Justin B. That's beside the point. The argument here is whether a primary residence is an investment or not, and when @Johnson H. claimed there couldn't be someone with regrets on owning a home in the bay area, I chimed in saying it depends on your other financial decisions - meaning whether you do something smart with this equity or not. Since he didn't he regretted buying that house in the first place. Like him there are families who still lose their homes back to the banks and by that foregoing any of the appreciation the houses had gained since they bought them.
He was making a general statement and even put a :) at the end of it. Whenever I saw him post that I just knew someone was going to jump up and say "Oh, I know someone!". It happens every time....
Next time I just won't take the bait when someone does it. It's pointless. My bad.
We live in Brooklyn, NY. Our primary is most definitely an investment. We haven't even been in this house for a year and the prices of the real estate in the area are so much more expensive. It is insane. We are both native NYers so we really scoured the nooks and crannies and found an affordable diamond in the rough.