Is Your Personal Residence an Investment?

When it comes to investment, majority of buyers prefer investing their money in a residential property for themselves and consider their home a safe an investment. But the truth is that just because it is an investment, it does not mean the house you are purchasing is a good investment – a prized asset. It could be a bad investment as well that may become a liability. Here a question arises: what makes an investment good or bad and how can one determine before making an investment decision?

When you buy a home as an investment – you gather down payment or take out from your financial assets (saving accounts, bonds or stocks) and invest it into another asset – you are taking risk with a hope that its value will increase. On the contrary, if you know that property will go down in value, you would not buy it. Just because you are taking risk and you are expecting that your residential property' s value will go up – it becomes an investment. Still, you will have to learn how to distinguish between a good and bad investment.

What is a Good Investment?

With time, the real estate must appreciate in value, due to which you can earn wealth from your gained equity. However, you should think that will you be able to earn more if you invest in any other investment vehicle or purchase a different home? Experts state that if you want to take more profit from your personal residence investment, you must own the property for a long time. Short-term ownership rarely increases the net wealth to your financial picture. Therefore, you should go for a longer plan such as at least for five years.

However, if you doubt about your holding power – skip the plan to invest in real estate and continue with the other investment vehicles. And do not forget to inspect the property before parking your investment there.

What is a Bad Investment?

Bad investment is the one where the probability of the residence to add to your net wealth is low. For instance, you invest in property that needs more renovations and add significantly to the cost of property compared to the cost of a similar property in the same area.

Real estate is an extremely risky business – whether the condition, the financial aspect of ownership or myriad of other issues. Owning a property for long can compensate for many of these issues – but making smart choices upfront is the way to mitigate the chances of making a bad investment.

Beware of all such risks before you property so that the home you buy will be a net addition to your wealth.