On the internet, you won’t find a shortage of articles explaining why your home isn’t an investment.
While maybe true, this does little to no help when you’re on the fence to purchasing your first home. Or, if you’re looking for creative ways to invest your money. The truth is your home can be an investment.
As with anything, it depends on which angle you view it in. If you’re searching for ways to invest your money here’s why your home can be the next best investment you can make.
So, what’s an investment?
An asset you buy with the expectation that you’d generate a higher return in the future. This isn’t only limited to bonds, stocks, and real estate–it also includes resources like books.
No matter which type of investment you make, there’s always some type of risk. A good rule of thumb to follow is the higher the risk, the higher the reward. And, the lower the risk, the lower the reward.
No pain, no gain.
It’s important that you understand what an investment is instead of the many types. Why? Because many times it’s easy to miss the investment opportunities that are in front of you.
Take, for example, the most important investment many people miss. Themselves. Although cliche, investing in yourself can speed the process of growing your income.
After speaking with several entrepreneurs I know this is the best invesment you can make. By investing in yourself you’d not only feel good but also reach your goals faster.
So how do you know if your home is an investment?
First, do an honest self-analysis on why you’d purchased your home in the first place. Chances are that if you’d purchased your home primarily to live in it, it’s not an investment.
A common strategy that many investors do is buy homes to then rent them out to tenants. This process is like buying a home, except they wouldn’t be living in it. Another difference investors do is crunch numbers before closing a deal.
Like investing in the stock market you wouldn’t blindly invest your money. Instead, you’d do research to be as confident as possible that you’d have a high ROI (return on your investment.) This is where many run into trouble because they fail to prepare beforehand.
Data shows that prospect homeowners today require roughly 7 years to save for a 20% down payment for their homes–compared to 5 years 2 decades ago. But, because most people fail to create a budget it’s hard to imagine that the average person waits to be financially ready to purchase their home. This means that the only way for your home can be an investment is if it’s done intentionally.
After reading books on property management and real estate investing I became hooked.
I learned about investors renting out their properties, netting a $100-$300 profit for each one.
The only problem was that I didn’t have enough cash to make a down-payment for a home. Despite this obstacle, I managed to get involved with real estate. I helped a coworker find tenants for her rental property.
This became my first real-world experience with real estate. As I kept learning more I discovered that there were many different ways to invest.
This is my favorite strategy because once set up correctly you’d have passive income. It wouldn’t be completely passive since you’d manage several properties but worthwhile.
With this investment strategy, you’d invest in specific types of homes. Then, replicate the process until you hit your freedom number. For example, if you’d wanted to have $2000 in passive income, you’d invest in 10 single-family homes (generating $200 each.) But, you’re not limited to single family homes–you can invest in duplexes, complexes, and much more.
Recommended resources: Buying A Property A Step By Step Guide
As a flipper, you’d buy a real estate property at a low enough value, where you’d still earn a significant profit. For example, Bob purchases a home for 70K and invest 20K renovating it. Once finished he’d sell this property for 120K, netting a 20K–30K profit.
Recommended resources: Expert Tips and Tricks for Successfully Flipping Houses
As a wholesaler, you’d act like a broker for the sellers and buyers of real estate properties. Then markup the property’s price to net a profit.
This process seems like the easiest way for new investors to get involved with real estate. The problem is that it’s not easy to find eager sellers and buyers, along with legal complications.
Recommended resources: The Ultimate Beginner’s Guide to Real Estate Wholesaling
Whether you decide to use your home as an investment or not, at the very least you’d still need to crunch some numbers.
Why? Because buying a home is one of the largest purchases you’ll make in your lifetime–often taking more than 20+ years to pay it off. Instead of ballparking your costs, search for homes with a price you can afford based on your income.
Bankrate recommends spending no more than 36% of your income. But, these are rough estimates. Spend anywhere from 15–35% of your income, after deciding what you’d be able to afford.
Other numbers to keep in mind include closing costs, moving costs, and a down-payment. Begin with the end in mind so that your finances aren’t negatively affected.
By now you’re probably convinced that your home isn’t an investment.
For the majority of people this will be the case, but, there’s hope. Even if you live in your home you can still turn into an investment.
With house-hacking. House-hacking is a term with many different names, but it boils down to renting out available room(s) in your home. It’s done best with duplex homes since 2 people can live separately under the same roof.
But, house-hacking isn’t only limited to duplex homes. People have rented out space with their basements, and on their backyards. Others use Airbnb to rent out their extra space.
For some house-hacking is obvious–especially if they’re single or have no kids. For others, renting out their unused basement is an obtainable goal. Think about your circumstances to determine if you can earn extra income using your home.
No doubt, purchasing a home can be one of the most exciting times in anyone’s life.
The problem is that most people end up purchasing homes beyond what they can afford–assuming it’s an investment. The good news is that if you prepare well enough, you can transform your home to an investment.
Whether you decide to do house-hacking or buying rental properties–turning your home into an investment is possible. As long as you’re hitting your financial goals it doesn’t matter in which type of asset you invest in. Invest in the stock market and yourself to get one step closer to financial independence.
One day you may find yourself living the lifestyle you desire.
You wouldn’t wake up to do a job you’d hate. You wouldn’t feel stressed about your finances. And, you wouldn’t wish you were living someone else’s life.
You now know many strategies on how to turn real estate into an investment. It won’t be easy but anything in life worth chasing shouldn’t be.
Now, what type of investments will you invest in to secure your financial future?
Chris writes personal finance and productivity articles for software companies. He gets fresh ideas through continuously investing in himself and interviewing successful entrepreneurs.