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Is a home a good investment?

15 Dec 2021

Home Designs

arrangement economy elements - Coins

From Residential Building WA’s beautiful single and double storey homes in Perth to studio apartments in the big smoke and the city centre of Sydney, people don’t always think of their home as an obvious investment vehicle, unless it’s a property they plan to makeover and flip relatively quickly, or keep and rent out. For many of us, a house is a place to live and make into our cherished home, but your own house actually represents an incredible investment in so many ways, and not all of them are financial.

If your main goal is simply to use your money to make more money, then purchasing a home isn’t going to be the most efficient way you can do that. You’ll possibly be putting a lot of money into the property and are likely to see lower returns on the money you spend on real estate than you will when investing in other areas. Traditionally investing in housing has returned 3-4% per year whereas stocks, shares, and bonds typically return around 10%. There are a few other things to consider before we simply declare buying a home to be an investment not worth making so let’s look at some of the key points. 

The safe way to invest in the long term

Not all of us are born gamblers, made for the cut and thrust of the stock market, and neither can we all afford to invest large amounts of money into a scheme that might fail and we run the risk of losing everything. The housing market is the near-perfect place for the more risk-averse among us, as purchasing a home has traditionally represented a much safer, if more slowly appreciating investment. While homes and real estate can still actually lose value, the prevailing trend has very firmly been the exact opposite of this and house prices have risen steadily and predictably throughout recent history. Purchasing a home is a smart longer-term investment because your home’s value is, more than likely, going to increase over time, which of course increases your overall wealth slowly, but surely.

Buying versus renting

It seems obvious to state that purchasing your own home is generally regarded as a good investment compared to renting because when you rent there is actually no investment at all. Effectively all that you actually do is to pay someone else’s mortgage and increase their wealth. Not all people can afford to purchase property and there are certain cultures, particularly in Europe, where there is little desire to do so either way. The fact remains, however, that if you intend to live in a place for at least 3-5 years then buying a property makes more financial sense than leasing one. 

This is where our earlier reference to non-financial investment comes into play. For some people having a stable home to call their own is a comforting investment in their emotional well-being and gives a much-needed sense of stability. Younger generations, particularly in places like Europe and Japan now place a much greater emphasis on their free time and the quality of their lives in the shorter term than their ‘long game’ predecessors did. Owning a property does bring its own complications and headaches at times and there is a palpable loss of the freedom to just walk away that so many younger people now value so highly. They are less concerned with passing wealth on to the next generation and consequently, house-buying trends are seeing some major flux in affected areas. 

Tax deductions

Unlike renting, buying a home can actually have some welcome repercussions in terms of payable tax and can even, in certain circumstances, result in you receiving a tax credit. This is not a game-changing level argument in favour of purchasing single storey homes in Perth if all of the other elements involved don’t line up for you, but the small benefits add up over time and can eventually make a huge difference in the wider scheme of things. 

Men feeling tax form on computer - tax credits claim return deduction refund concept

Are investment properties a sound idea?

If an investment property is researched thoroughly and the location is chosen wisely with some understanding of the demographics of the local area then buying rental homes and investment properties can be a sensational way to create a passive income stream. You will need to calculate the projected net income that you can expect to generate and weigh it against your operating expenses such as management costs, upkeep and maintenance, and any governmental costs. There is a reason why so many people buy in order to let and it is a tried and tested way of creating wealth. It is not entirely without its risks or frustrations but they are far outweighed by the virtually guaranteed returns. 

The bottom line – should you buy a house?

It’s clear that there are no black and white answers when it comes to the subject of investing in property. It is among the safest and more satisfying of all possible investments and comes with the added bonus of providing you with a roof over your head when you need one, but it’s still not the answer for everyone. If you are content to spend an extended period of time in one location then you are already half the way there mentally and emotionally. Provided that you’ve done your homework and are ready and willing to undertake a large financial commitment, and feel that you will have a reliable source of income to keep up the payments on it moving forwards then there are no real downsides. 

As we’ve discussed, owning a home is not a rapid risk and reward type of investment that will be the cornerstone of any ‘get rich quick’ strategy. It should be looked at as more of an investment in a lifestyle that just happens to increase your wealth and equity as a very welcome side-effect. If you’re in need of somewhere to live and you love the place that you find yourself in then buying a home could be the smartest investment you’ll ever make. 
If you would like to discuss our amazing single storey homes in Perth or any other aspects of the article then please contact Residential Building WA today and speak to our friendly staff.