We’ve all heard people say “a home is an investment.” When they say this, they’re usually referring to hopes of appreciation that, years down the line, may pay off when they retire or downsize.
For your average homeowner, this might be the only way they every invest outside of a savings account—and the truth is, neither of those things is an investment. Not in the way that is going to bring you real, reliable financial security for the future.
No, truth be told, your home is not an investment. An investment is an investment. While you may want to hang your hopes on appreciation, we’ve seen with various recessions and market crashes why this isn’t a sure strategy. If you want to actually find financial freedom in real estate, you have to move beyond the home you’re living in.
3 Ways Your Home Just Isn’t an Investment
You can’t rely on appreciation alone.
A home that your purchase for yourself or your family is an expense, not an investment. We’ve been telling ourselves otherwise because yes, there is the chance that you might be able to sell it for more years down the line. But there’s a big problem with relying on appreciation: it’s not reliable.
It’s tempting to believe otherwise when looking at emerging markets where home prices are exploding, but we don’t have to look back far to see the disaster of the last Great Recession that left millions of families with home values bottomed out, underwater with their mortgages, or foreclosed upon.
The risk is there, and if you’re putting your eggs in the appreciation basket, you’re headed for trouble.
You’re living there 24/7.
A home is a home, and it comes with challenges that an investment property just doesn’t. Namely, you’re always living in it. With an investment property, every season of tenant turnover brings an opportunity to deep clean, renovate, replace and repair, and overhaul for a sense of modernity. There are constant teams in place to keep tabs on maintenance.
When you’re in a home living life, you don’t have the time or resources to always do all of that. Homes don’t stay in the same great condition. Rental properties, under good management, actually wind up in better condition.
Life takes a toll.
You think about value differently.
We also have to realize that when we buy a home for ourselves, we buy in a vastly different way than we buy an investment property. We usually look at schools, crime, and our own individual employment prospects and preferences, but we don’t look at things like population trends, overall economic growth, and development trends. We’re not running numbers to make sure our home is going to generate wealth for us.
We just value different things because this isn’t an investment property. It’s a home. We’re treating it differently and that’s okay. We just can’t fool ourselves into thinking we can place our financial hopes and dreams in our personal residence.
2 Ways Investing in Real Estate is a Better Strategy
You earn passive income.
The big advantage that real estate investment has over homeownership is the passive income earning potential. When you own an investment property, you don’t have to rely solely on the hopes of future appreciation. You can profit now by renting out the property. This stream of passive income is where the real money is, and you can use it to start building wealth for your future now. Appreciation is just a happy bonus if you decide you want to sell a property for a profit in the future.
You can scale and grow your wealth over time.
With real estate investment, there’s also the advantage of scaling. We only live in one home at a time, but we can own any number of investment properties. By scaling and acquiring multiple properties, you reduce risk through diversification, increase your streams of passive income, and build up your wealth for retirement.
Best of all? It can all be passive. Through turnkey real estate, it doesn’t have to be difficult or time-consuming to invest in real estate. The heavy-lifting is taken care of by your turnkey real estate provider and you can focus on wealth building.
And no one does it better than Memphis Invest!