I read a few articles questioning if your home is an investment or not- but who really cares what you call it? If you lose a ton of money when you sell your home did it really matter if you called it an investment or not? Are people really looking for a justification for spending more money on a home? If a home is an investment then I can spend more on it without any guilt.
My thought is that you should put as little money into your house as you can while still having a place you will be happy to live in because there are better investments out there. Here are my reasons to invest in something other than your house:
#1 Your primary residence is more than just an investment it is also a place to live and the two uses are sometimes at odds with each other. For example you may want to live somewhere close to where you work, but the most likely properties to appreciate in value may be far away.
#2 If you buy a more expensive house you will be more tempted to spend more to keep up with the Jones.
#3 Your living expenses may increase if you invest in a larger house- property taxes, utilities, etc. Buying more stocks or bonds wont affect your monthly expenses.
#3 Your home is not diversified- it is one home in one location. Its putting all your eggs in one basket- a basket that could get flooded, or burn down, or infested with termites. Instead you could buy a share in a REIT (Real estate investment trust – which is a company that owns many investment properties) or a fund of REITs like VNQ giving you instant diversification.
#4 Your home equity is not very liquid if you need to tap your homes value you need to sell or take out a loan. There are many investment classes that are much more liquid, allowing you to sell as much of your investment as you like within one business day.
#5 The costs to buy or sell a home (and get financing for it) are huge. Most other investments have far lower costs, and many have no costs.
#6 You cant easily buy $50 or $100 of a house but you can do this with other investment types. Want a REIT index fund then VNQ is currently $52, how about virtually all of the stock market? VTI is about $60, or Total Bond Market ETF BND is about $84.
Do you have any other reasons for or against investing in your home? If so leave a comment.