No matter what Wall Street would have us believe, owning a home is not the same kind of investment as buying stocks or bonds. Just like stocks or bonds time is a necessary element to realize positive returns. Unlike the stock market, real estate is a “use” asset that depreciates over time while it grows in market value. Generally speaking, if you keep your home in good repair, you have maximized your investment. Here are a few other things to ponder that make real estate a unique investment-
The government knows that owning a home comes with it’s own set of headaches. That’s why you get tax incentives. They are basically bribes from the government to entice you to buy. Think about this-What other investment can you pay 5% down of the total cost of the asset, collect all of the profit of appreciation, and pay zero capital gains? If you live in your house for more than two years, according to current laws, you can make up to $500,000 per married couple without paying any capital gains tax.
With stocks and bonds you put all of your money in for a small piece of the company. With a house or vacant land you put a small percentage down and get the entire house. In this way reaping profit from the sale of the entire house.
When participating in the stock market you are paying a CEO 500 times the average workers salary. (Who’s performance would usually cause the average worker to lose their jobs if they were evaluated!) With the purchase of a home you are in control of where you live, how much you pay and what you buy. You are in control repair issues and design updates which let you insert your style or preferences for better profit. You are also in control and benefiting the local economy of workers on many different layers. In essence you are helping goods and service workers of all types put food on their table and pay their propane bill.
Homes seldom become worthless but sometimes companies crash and take their shareholder’s money with them. Barring a major catastrophe, your home will gain value given the proper time and maintenance. This is the reason home owners should not become unnecessarily nervous or anxious about market fluctuations. If I know my numbers, housing has only lost value 1 year out of the last 35 on the national level. Given normalcy, the real estate market beats inflation by about 2%.
It is by no accident that I list this reason last. I write this article while sitting in a friends house in Highlands Ranch Colorado among a myriad of suburban track homes. It works for him and his family but I love the unique character of Pagosa and the wonderful variety of home buying options. My journey so far in life has brought me to Pagosa Springs Colorado for the lifestyle. I love everything about our town- from the amazing grandeur of our National Forests all the way down to the smallish town struggles that we are walking through in our government arenas. With a home purchase you are buying a vantage point for you and your family which can be customized to your specific needs and desires. When buying a home you are purchasing a lifestyle.
If you are a stockholder on average you lost a greater percentage in the stock market this past year than if you owned a house. You lost more on your SUV. And you sure lost more on your iPhone.
When it snows, which would you rather have over your head — a roof or a stock certificate?