Firstly, there needs to be a good understanding of the key differences, both financially and emotionally, between a property purchased for investment reasons, and a home purchased for you and your family to live in. It sounds obvious, but I recently heard someone say “A property is a property”, implying that they were all the same. The possibility that some of our readers might feel the same concerned me. So, let me attempt to shed some light on why you buy one emotionally with your heart, and the other by the numbers… with your head.
True, most properties will (hopefully) appreciate in value at the same rate regardless of if you’re living in them yourself or have a tenant doing the heavy lifting for you. And while the end result of potential capital growth is what we are all striving for, the financial roads we walk on the path of getting there can be entirely different.
There is really no question when it comes from a purely financial stand point that the economics of owning your principle place of residence, as opposed to renting and putting that money into an investment property, yields far inferior results.
Unfortunately however, it’s just not that simple, as we don’t live inside a spreadsheet where financial gains are the sole purpose of life. Well, not for most of us anyway!
There’s something romantic and rewarding about owning your own home, no doubt about it. It’s the little things; hanging hooks on the walls, the potential to add a pool or a back deck, or simply saying “this is ours” has it’s own return that can’t particularly be measured in decimal points.
For this reason, the traditional path of property ownership has typically been buy what you want to live in first, even if this means moving a little further afield due to affordability restraints. Typically this includes pushing yourself to the financial boundaries that your wallet and sanity allow, and then compensate by depriving yourself and your family’s needs in order to get by.
Hopefully throughout the lifespan of the family home all that hard work will pay off. You’ll enjoy a bull market or two, and as you relentlessly pay the bank manager month in, month out for the better part of your life, you’re left with a fully paid off property that has gone up in value since you bought it, so you feel pretty good.
There’s no doubt that in most cases, if you buy and hold property for long enough you’ll look like a rock star in the end. What won’t show up in the numbers over that time is the sacrifices that were made in order to meet those financial demands. Perhaps holidays were sacrificed, the old Camry had to push on for a few more kilometres, maybe even the children’s education options may have been impacted by the lack of cashflow.
“Time in the market can make up for lack of timing the market”
It’s for these reasons that I believe the family home isn’t really an investment. This might ruffle some feathers, but it’s my firm belief that any asset should be putting money into your wallet, not vice versa. For your family home, the returns are measured differently.
And this is where the largest distinction between your home and an investment property occur. You should be buying investment properties with your head; going by the numbers, doing your due diligence and forecasting as best you can for the future.
But when it comes to your home, where you raise a family and spend the most intimate moments of your life, this special place will always be bought with your heart. How it feels, if you can you see yourself growing old there, and if there is room for the family to grow trump all possible financial overlays.
Like anything else in life, there is always a place for your head and heart to coexist. In other words, have your cake and eat it too when it comes to owning your home and investing in property.
In the Stone family, we’d like to think we have all bases covered. And when it comes to investing, our criteria has allowed us to boast a 100% success rate in picking growth markets right around Australia. To learn more about how we research and identify these markets for our customers, claim your complimentary seat at one of our live events now.