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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 about 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 from. If you’re searching for ways to invest your money, here’s why your home can be your next best investment.
Uncover The Investments Most Fail To Do
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 your investment type, there’s always some risk. A good rule of thumb is that the higher the risk, the higher the reward. And the lower the risk, the lower the reward.
No pain, no gain.
You must 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 up the process of growing your income.
After speaking with several entrepreneurs, I know this is the best investment you can make. By investing in yourself, you’d not only feel good but also reach your goals faster.
Odds Your Home Isn’t A Smart Investment
So how do you know if your home is an investment?
First, do an honest self-analysis on why you purchased your home in the first place. Chances are that if you purchased your home primarily to live in it, it’s not an investment.
A common strategy that many investors do is to buy homes to then rent them out to tenants. This process is like buying a home, except they wouldn’t live in it. Another difference investors make is crunch numbers before closing a deal.
Like investing in the stock market, you wouldn’t blindly invest your money. Instead, you’d 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 prospective homeowners today require roughly seven years to save for a 20% down payment for their homes–compared to 5 years two 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.
How To Turn Real Estate Into An Investment That Brings Results
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.
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 many different ways to invest.
Here are some of the common strategies investors use:
Buy and hold
This is my favorite strategy because you’d have passive income once set up correctly. It wouldn’t be completely passive since you’d manage several properties, but it would be 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 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.
As a flipper, you’d buy a real estate property at a low enough value to still earn a significant profit. For example, Bob purchases a home for 70K and invests 20K in renovating it. Once finished, he’d sell this property for 120K, netting a 20K–30K profit.
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.
Why You Need To Crunch Numbers When Purchasing Any Home
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 most significant 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 can afford.
Other numbers to keep in mind include closing costs, moving costs, and down payment. Begin with the end in mind, so your finances aren’t negatively affected.
Transform Your Home Into A Money-Making Machine
You’re probably convinced that your home isn’t an investment.
This will be the case for most people, but there’s hope. Even if you live in your home, you can still turn it into an investment.
With house-hacking. House-hacking is a term with many different names, but it boils down to renting out an available room(s) in your home. It’s done best with duplex homes since two people can live separately under the same roof.
But house-hacking isn’t only limited to duplex homes. People have rented out space in their basements and their backyards. Others use Airbnb to rent out their extra space.
For some houses, hacking is apparent–especially if they’re single or have no kids. For others, renting out their unused basement is an obtainable goal. Consider your circumstances to determine if you can earn extra income using your home.
Choose The Right Investments To Live Your Dream Life
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 into an investment.
You now know many strategies to turn real estate into an investment. It won’t be easy, but anything in life worth chasing shouldn’t be.
What type of investments will you invest in to secure your financial future?