Still the best investment
If more people thought of their home as a place to live, rather than a financial investment there would be a lot less turmoil in the real estate market. Despite what Wall Street wants you to believe, owning a home isn’t the same type of investment as owning stocks or bonds. A homes value can’t be totally calculated as a percentage point. Thinking of the family home as an investment opportunity is partly to blame for our current predicament. It’s confusing to view homeownership and high-risk investments as the same. Owning a home requires an investment of money but is more than a financial transaction. It’s a use asset. No other investment vehicle provides us as many tangible and inherent benefits.
We seem to be using the term “investment” more often and for more things that traditionally have been considered an expense. Purveyors of goods and services have discovered Americans prefer to use the term investing when parting with their hard earned dollars. It somehow justifies our purchase if we are investing rather than spending. So we no longer spend money on anything; we invest it. Today we invest in clothes, entertainment-technology, health care and beauty products. Is buying an expensive car really an investment or just an expense? What about my wine collection?
Owning a home is both an investment and an expense just as it is an asset and a liability. It’s a hybrid. Owning a home isn’t as risky as owning stock in a subprime mortgage company but having a mortgage is a greater responsibility than owning common stock. An investment in a home has more in common with an investment in a savings or retirement account than it does with day trading in stocks. It’s a long-term commitment. Tracking the monthly percentage increase or decrease of the national housing market and then relating it to an individual property is fruitless and frustrating. Every home is unique and a personalized use investment.
Some real estate purchases are indeed traditional financial investments. Buying vacant land, rental or commercial property for future resale value or income production should be strictly an objective financial decision. A true real estate investor will analyze income and expenses of a property to make a determination as to its value. Investors are objective when deciding where to invest their dollars while homebuyers make subjective decisions based on personal preferences.
My stock portfolio averaged a 6 percent return last year. I have had better years but worse also. My home value fell too but overall I think I did better in my home than in mutual funds, here’s why. I have never seen one of my stock certificates but I have seen some beautiful sunsets from our back deck. I have never visited the corporate offices of any of the companies where I own stock but I have walked peacefully through our pasture and oak woodlands. I don’t know any corporate executives of publicly held corporations but I know all my neighbors by their first name. I have never been to a shareholder’s meeting but I have never missed a neighborhood picnic. Experiencing life at home is worth more than a positive decimal point on a balance sheet. In addition to lifestyle, here are a few other differences to think about when comparing a traditional financial investment to owning a home.
Years ago I purchased a substantial number of shares in a high tech company that was on the verge of going public. Prior to their public offering and my “guaranteed earnings”, the CEO skipped the country with his self-proclaimed severance package and my money. The company declared bankruptcy, dropping my stock value to zero in an afternoon. Barring catastrophe, a homes value will never be as worthless as was my high-flying stock. Long-term value and the security of a real estate investment are well worth occasional fluctuations in home prices.
Controlling one’s investments is a comforting feeling. When buying stocks you put all your money into a company and have no influence or control of its direction. You’re paying some CEO 500 times the average worker’s salary for results that you would lose your job over. Homeowners have complete control of their investment making decisions. We determine when to buy, sell, improve and expand our home. The only board of directors we need to answer to is our family members.
Leverage is another investment advantage. With stocks, all of your investment ends up owning a small piece of the company. With real estate, a buyer is able to own 100 percent of the investment for often a small downpayment. There are still many loan programs available that offer 100 percent fixed rate loans. A few will even advance the closing costs.
Buying stocks provide no tax advantage, while buying a home has several. What other investment can you purchase by using none of your own funds, be provided a federally subsidized below market interest rate loan, reap all the appreciation, deduct all interest and taxes during ownership and when you sell, pay no capital gains. The federal government subsidizes homeownership and farmers. If you’re not one, you should be the other.
We seem to be using the term “investment” more often and for more things that traditionally have been considered an expense. Purveyors of goods and services have discovered Americans prefer to use the term investing when parting with their hard earned dollars. It somehow justifies our purchase if we are investing rather than spending. So we no longer spend money on anything; we invest it. Today we invest in clothes, entertainment-technology, health care and beauty products. Is buying an expensive car really an investment or just an expense? What about my wine collection?
Owning a home is both an investment and an expense just as it is an asset and a liability. It’s a hybrid. Owning a home isn’t as risky as owning stock in a subprime mortgage company but having a mortgage is a greater responsibility than owning common stock. An investment in a home has more in common with an investment in a savings or retirement account than it does with day trading in stocks. It’s a long-term commitment. Tracking the monthly percentage increase or decrease of the national housing market and then relating it to an individual property is fruitless and frustrating. Every home is unique and a personalized use investment.
Some real estate purchases are indeed traditional financial investments. Buying vacant land, rental or commercial property for future resale value or income production should be strictly an objective financial decision. A true real estate investor will analyze income and expenses of a property to make a determination as to its value. Investors are objective when deciding where to invest their dollars while homebuyers make subjective decisions based on personal preferences.
My stock portfolio averaged a 6 percent return last year. I have had better years but worse also. My home value fell too but overall I think I did better in my home than in mutual funds, here’s why. I have never seen one of my stock certificates but I have seen some beautiful sunsets from our back deck. I have never visited the corporate offices of any of the companies where I own stock but I have walked peacefully through our pasture and oak woodlands. I don’t know any corporate executives of publicly held corporations but I know all my neighbors by their first name. I have never been to a shareholder’s meeting but I have never missed a neighborhood picnic. Experiencing life at home is worth more than a positive decimal point on a balance sheet. In addition to lifestyle, here are a few other differences to think about when comparing a traditional financial investment to owning a home.
Years ago I purchased a substantial number of shares in a high tech company that was on the verge of going public. Prior to their public offering and my “guaranteed earnings”, the CEO skipped the country with his self-proclaimed severance package and my money. The company declared bankruptcy, dropping my stock value to zero in an afternoon. Barring catastrophe, a homes value will never be as worthless as was my high-flying stock. Long-term value and the security of a real estate investment are well worth occasional fluctuations in home prices.
Controlling one’s investments is a comforting feeling. When buying stocks you put all your money into a company and have no influence or control of its direction. You’re paying some CEO 500 times the average worker’s salary for results that you would lose your job over. Homeowners have complete control of their investment making decisions. We determine when to buy, sell, improve and expand our home. The only board of directors we need to answer to is our family members.
Leverage is another investment advantage. With stocks, all of your investment ends up owning a small piece of the company. With real estate, a buyer is able to own 100 percent of the investment for often a small downpayment. There are still many loan programs available that offer 100 percent fixed rate loans. A few will even advance the closing costs.
Buying stocks provide no tax advantage, while buying a home has several. What other investment can you purchase by using none of your own funds, be provided a federally subsidized below market interest rate loan, reap all the appreciation, deduct all interest and taxes during ownership and when you sell, pay no capital gains. The federal government subsidizes homeownership and farmers. If you’re not one, you should be the other.
posted by Ken Calhoon at 8:09 AM
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