Question: “I have a nice amount of savings saved up in the bank. Should I use that money to buy a home for myself or invest in a property?”
The question posed above is probably the most common (or one of the most common) questions in real estate investing history. You’re still waiting for the answer and probably a crystal clear one at that. Unfortunately, the answer to this question is never going to be cut-and-dry, and although I can’t give you a hard ‘yes’ or ‘no,’ what I can offer up is my point of view and investing experience upon the matter.
To ‘Buy And Live’ Or ‘Buy And Invest?’
I am a firm believer in Robert Kiyosaki’s views regarding investing and fully agree with his theories that owning a home with the sole purpose of investing is the only way to turn a liability into an asset; I do think there are more sides to the coin and a deeper discussion at stake. For those who are undecided as to purchase a property for investing or buy their own home, I want you to understand that I am not here to tell you that buying a home for you live in is a bad investment, it’s just that the potential margins to profit in the future are slim. It’s almost as if the stars will have to align for you to make “an investor’s killing” on a property where you want to live. The home will need to be in a safe neighborhood, purchased and sold when the market was just right, and not cost too much in upgrades or repairs.
It’s counterintuitive for some that buying a property for themselves is not an investment opportunity. Here are some of the reasons why that is the case.
Not So Profitable
Purchasing a property for your personal use is not as profitable as you might imagine it is or could be in the future. The property may not increase in value the way that you might expect that it would and in opposite affect, any of the following scenarios could occur.
Expenses Add Up— When you purchase a property for yourself, the costs do not stall the moment that you buy. Expenses, hate to say it, will continue for as long as you live in the home. There are things to consider like closing costs, interest on the mortgage, property taxes, repairs and improvements, and insurance.
Appreciation Is Not As Good As You Think— Appreciation doesn’t occur quite as nicely as we would hope. Unfortunate, but true. It’s a fact to say that appreciation does happen on occasion, but more often than not, the trend stays on track with inflation. In all honesty, it doesn’t help much in the grand scheme of things.
Inflation— Inflation is a two-faced devil that can play as both friend and friend. One wonderful aspect of real estate is that it can be a hedge against inflation. When inflation rises, so does the cost of homes. However, this also can cause a negative tailspin as both the price of your house, and others, will increase. So, if you sell your home, you will have to buy another house, and that house will also be pricey. This could result in no profit at all.
What About Investment Properties?
Investments properties do not offer a complete shield from financial distress but do offer some risk avoidance bonuses. Tenants cover the majority of costs and both appreciation, and inflation will work in your favor when you choose to sell the property. My style is to buy and hold for cash flow as opposed to relying heavily on appreciation.
Summary
Buying for yourself or purchasing an investment property ultimately does come down to a case by case basis, but I would strongly agree with Kiyosaki’s belief.
My standpoint is to take the route of purchasing a property as an investment as opposed to just a ‘live-in.’ I honestly am of the opinion and belief that home ownership being pushed on so many Americans is a huge scam. When you follow this path, you are simply purchasing a residence, not an investment like many people will tell you.
Think passive income through an investment. Earning money while you sleep sounds nice, right?