Simply speaking, an investment means putting money or capital down now in order to generate profit or income later.
Stocks are investments because you buy them now, receive dividends, and sell them later when their price has gone up. Bonds are investments because you buy them now, earn interest, and claim the face value later when the bond matures. Even a college education can be thought of as an investment since tuition money is paid now with the expectation of earning a higher salary later.
Is Buying a House an Investment?
For most people, the primary purpose of their house is to provide shelter — not to generate wealth. And since the primary purpose of an investment, by definition, is to generate wealth, it’s fair to say that most people’s homes are not investments.
Even though houses tend to appreciate in value over time, the “carrying costs” of home ownership more or less balance out these gains. Owning a home means paying interest on a mortgage, property taxes, insurance, utilities, and maintenance costs. By the time you own your home outright, its increase in resale value will be countered by inflation and a lifetime of carrying costs. You will not have generated any wealth — only transferred your existing wealth into a highly illiquid asset.
Which is not to say that home buying is a bad idea. Home ownership can be a smart financial decision in the same way that buying a car can be a smart financial decision because there are plenty of reasons beyond wealth generation to make purchases.
In addition to providing shelter, home ownership puts you in control of a tangible asset with inherent value. You can take pride in your property, modify it how you like, and make yourself comfortable in whatever way you see fit. Paying off your mortgage will give you full equity and financial peace of mind. Living in the same property for many years can let you establish yourself and build strong roots in your community.
The key here is that homeownership — and whether or not it makes sense — will depend entirely on your lifestyle, personal situation, long-term goals, and financial strategy. Just because buying a home isn’t a traditional investment doesn’t mean it’s not the right move. It’s important to evaluate your needs and the long-term costs of all available options, perhaps with the help of a real estate expert.
Can Buying a House Be an Investment?
Buying a home to settle down in may not be much of an investment, but it’s only one of endless options in real estate.
There are many successful strategies for generating wealth by purchasing properties. Some people buy fixer-uppers, put in a few months of sweat equity, and flip the house for a tidy profit. Others spot opportunities in up-and-coming markets and purchase properties low now to sell high later — just like investing in stocks. And of course, one of the simplest and most common strategies for property investors is renting. By letting tenants carry the costs of the investment, a property switches from a liability into a wealth-generating asset.
In fact, renting is an option even for those who live in their homes; you can turn your house into an investment property right now just by renting out a room or two. Some people will even purchase multi-family homes with the explicit purpose of living in one of the units themselves while turning a profit on the others.
How to Make the Right Move When Buying a House
Whether you’re looking for a new family home or out to buy a true investment property, you should consider connecting with an experienced real estate agent. A good agent can offer advice and guidance when evaluating your options, different properties, and the home-buying process in general.
Clever Partner Agents are all top-performers in their local markets and have experience finding perfect homes and investment properties alike. And whether you’re out to generate extra income or not, Clever Partner Agents can put extra money in your pocket — up to 1% of the purchase price of a property — thanks to the Home Buyer Rebate.