Many moons ago when I first got into real estate everyone talked about your home being the “largest investment you will ever make” and what a great investment it was supposed to be.
Today the sentiment has changed and there are countless blog posts, articles, and talking heads saying the exact opposite – that your home is NOT an investment at all.
So what is the truth? Is it an investment or is it not?
Well, let’s look at one common definition of Investment;
To invest capital (money) in order to gain some future profitable returns, income or increased value.
That is one of many slightly varying interpretations of the definition.
Now let’s look more specifically at the definition of real estate investing;
The purchase, ownership, management or sale of real estate for profit.
To determine whether your home is or is not an investment comes down to the reasons you are purchasing a specific property and what you intend to do with it in the future. In other words – YOU get to decide for yourself whether your own home will be an investment or not.
So What’s Your Objective?
To determine whether your home is an investment or not really comes down to just that – what you are intending to do with it. If you are planning to sell it (or rent it out) at some future date and expect to make a profit from it, then it is an investment – at least as far as I am concerned. But whether it is a good investment or not depends on many things, some of which I will mention later.
On the other hand, if you do not intend to sell it, or rent it out for rental income then you may decide it is NOT an investment, at least not in the typical commonly defined meanings most often used.
That’s why it is important to clearly understand what you are trying to do before you go and buy a home to begin with – or to sit down and do an honest evaluation of your situation if you already own a home.
Two Different Strategies to Consider
Let’s say you decide that your home is just your home and you are not concerned with selling it or renting it out at all. In this case, your home is a place to stay and to keep you and your belongings safe from the elements, secure and that provides the other amenities that you need and want.
There are a multitude of ways to own a home that can do all that and more – and that can do it without it costing you a fortune.
If you choose this route you will view the selection and purchase of your home very differently than if you choose to view it as an investment. For example when I first started selling and investing in real estate decades ago I was taught to consider schools, location, layouts, number of bedrooms and baths etc. all with the idea of these things appealing to a future buyer – regardless of whether we had kids or not, whether I personally liked the location or not – that future buyer was a big concern.
These same things were taught to home buyers. They were told to consider all these things carefully so that when they were ready to sell the home in a few years they would be better positioned to do so than if they just bought something they liked that may not be “marketable” in the future.
That is opposed to how an owner who has no intentions to sell the home and is unconcerned with such things would view a specific property. That homeowner is going to focus on exactly what he or she wants and can afford and will disregard any other considerations. It doesn’t matter if it is in a good school zone or not, close to public transportation or out in the country, has a weird floor plan or not (like my home which we designed to use the bathroom as a passthrough so as to avoid wasting floor space for a hallway) that may be unappealing to a potential buyer. This homeowner doesn’t care about that – at least not as a priority anyway.
It only has to meet whatever needs the homeowner decides it needs to meet – with no consideration of future profit. This homeowner doesn’t care about whether someone else would like it or not.
In fact, a “home” does not even have to be real estate at all. It may be some other unconventional type of home such as a tiny house on wheels, a boat, RV or some other type of little human habitat (my definition of anything that can be lived in or aboard long term on an ongoing basis that meets certain minimum needs). Some people choose such options to avoid having any mortgage or any housing debt at all – so they can invest the money into other things as they see fit. Others do it to live a more minimalist lifestyle, or at least simpler lives.
On the other hand – if you choose to go with the “It’s an investment” option – then you are going to want to take a whole different approach and you will be very concerned about being able to sell it or rent it out at some future date. All those other things and many more will play their parts in whether the sale or rental of the home is profitable or not and in how much time and effort it will take to make it happen.
Investment Real Estate Considerations
Before you even think about buying your first investment property you need to become informed and gain some specialized knowledge. That is true regardless of whether you intend to buy a home as an investment property where you will first live in it for a while before you sell or rent it – or whether you buy a home with the intention of immediately selling or renting it as an investment property from day one. The good news is that all the information you need is easily available, very affordable and it will not take you years to learn.
You do need to find the right information though – and to separate the true information from the hype and get rich quick garbage. Once you have it – then it will take effort and it will take you at least enough time to get a basic understanding of real estate investing, and that is a problem too many have.
People are always looking for simple, easy and quick – and I get that. But real estate is not as simple as some want you to believe and if you want to be successful over the long haul – it is not going to be easy either. It will take serious effort, hard work and time. So start with getting a good basic education.
Next, you will need to decide on your strategy. Fundamentally you want to buy a property below market price. The lower the price the more equity you instantly have and the better your cash flow from renting it, or your profit from selling will be. While it is true that you can buy a property at full market value and still make money on it in time – the risks and the time it will take are increased, so especially when starting out that is NOT the way to do it. Always remember – you need to buy your property below market. The further below market value it is the greater and faster the potential profit will be – so long as you choose a good property.
This can be done through negotiation and will vary greatly depending on your own skill and ability to communicate and negotiate. It will also depend on your ability to search for and find the right property. Many misinformed investors buy properties whenever they see they can make a deal and get it. That can be disastrous and should be avoided. Only buy a particular property if and when the numbers work, and all other necessary things are present – and when you can make a deal and acquire a property on terms that work in your favor.
I have purchased properties at fifty percent – or less – of market value. Over the years I have helped many investors purchase properties at far less than market value too. Some people will tell you that isn’t possible. They are wrong. It just may be that they haven’t figured out how to select the right properties or how to make and present offers properly.
All these things and everything else you need to know can be learned and you will develop your own skills over time. Your success in buying a property will depend on the situation and motivation of the seller. You will need to learn how to assess that too and how and when to move on to another seller vs wasting too much time and effort working on a deal that will likely never work out.
Your focus should be on finding and acquiring the right property or properties only. In some cases, such properties will need repairs and improvements. Upon completion, the property will be at or near its maximum market price potential and you should be able to find a buyer, sell it and take your profit. How long will that take? How long do you want it to take?
Want to learn more? Check out my blog, articles, podcast, and links to my courses and other publications which you can find at www.ldsewell.com and start getting the information you need to build a better life for yourself and those you care most about.
Real estate investing is a fascinating thing – and so is home ownership.
There are many different ways to approach both real estate investing and home ownership and some ways work far better than others. The bottom line is that YOU get to decide whether you want your home to be an investment or not, and then proceed accordingly.