HapiMoney

Those real estate agents are tricky, prone to all sorts of chicanery. They will tell you things like “oh, this home is a great investment!” and fill your head with dreams of your home doubling, or even tripling in value.  Certainly, you will live here and raise a family here, but you are also putting your money to work.

Unfortunately, this type of thinking is wrong…murderously wrong.  Oh, fine, not murderously wrong, but I’m prone to hyperbole.

So why isn’t your home an investment? After all, it can appreciate in value, often significantly.  To answer this, I’m going to ask a question in return: provided your house has increased in value, how do you capture that value? Do you sell your house? Okay, so where do you go?

The problem is that property values do not rise or fall in a vaccuum – rather, they all tend to rise together and fall together (a major part of the problem with the current recession). So when your home has tripled in price, so has your neighbors house, and probably every house in your area. And, this is a major assumption, but I’m assuming that if you were to sell your house to capture the rise in price you would want to live somewhere else, which means you’ll have to buy again – but you’ll be buying at increased prices.

In fact, there are only two ways to “profit” from your home:

1. Significantly decrease your standard of living by selling your home and moving into a worse house in a poorer area
2. Make significant capital improvements to your home (new kitchens, bathrooms, etc) and hope that the value of the home rises far more than the money you spent.

Now, don’t misunderstand, as real estate can be a valuable investment, but your home (or primary residence) should not be considered part of those investments.