Is your home really an investment?

At this stage in the property cycle, everyone who has bought property is a winner.
Just ask them.

“Mate I sold my home for $300k more than what I paid for it, listen to what I say.”

The question is, did they actually make money?

The simple answer is yes,
The complicated answer is maybe not.

Your own home (Principal Place of Residence – PPR) sits in a property market made up of owners and investors.
Who buys your home when you sell it will depend on the market at the time, the home itself and about 1000 other variables.
In essence it does not matter who buys your home, just Show Me the Money.

This is where it gets complicated.

At the time you bought your home, there was most likely other options for you to buy.
When you sell your home, do you check to see how those other houses have performed and what their current pricing is?
Has the other property(ies) sold to check their price or are you just guessing?

Why is this important?

If you bought a house for $500,000 and sold a couple of years later for $650,000 then have you made $150,000?

As before, the quick answer is yes, the longer answer is maybe?
If all other houses have also increased in value, then when you go to buy again, you will be spending $650,000, like for like comparison.

If your house has performed better than market average maybe you can buy back in for $600,000, like for like.

But if your house has performed below market average, then you might have to spend $700,000, like for like.

Using the above examples, the return range on your property is from plus $50,000 (above market performance) to minus $50,000 (below market performance).

Most of the time, I would suggest it sits in the middle, average market performance, meaning you don’t actually make money from your own home.

Investopedia defines Investments as:
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time.

When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. An investment always concerns the outlay of some asset today—time, money, or effort—in hopes of a greater payoff in the future than what was originally put in.

For example, an investor may purchase a monetary asset now with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.

The last line, ‘Sold at a higher price for a profit’, only applies to your own home when you want to exit the market or downsize.

And then I would be arguing, that downsizing is simply not spending as much next time around, in fact you are buying a different asset.

Bit like buying a carton of beer and then next time buying a 6 pack and saying you saved money.
Not the same thing I know, but still not comparing like for like.

If we now agree that your own home does not derive a profit, what can?

Is it investment property?

By the Investopedia definition above, then yes, investment property does qualify as an investment, due to not consuming the good (unlike last weeks scribbles) and taking a profit at the end.

The profit from investment property can be capital gains through market performance and economic rent, or it can be from income (cashflow).

Now this is where it gets tricky.
We know that your PPR is not an investment and that investment property is.
We also know that averaged out across Australia, about 60% of property is owner and 40% investment (very rough).

Meaning that your home is in a market where there are 2 investors for every 3 owners.

While your home might not be an investment, 40% of property is. In my opinion, this makes the market, a marketplace, and your PPR purchase needs to have some wisdom about it.

While you might not be buying your next home to sell anytime soon, what if you had to?
It would be placed back into the market with other property for the attention of owners and investors.

I suggest your next purchase needs to be planned like your own home and bought like an investment, on figures, without the emotion and having a full awareness of your exit strategy.

To surmise, buy your own home with your owner eyes and pay with your investor wallet.

Treat your home like your home, not an investment, remembering that when you come to sell, the only way you can cash out, is to next time buy a 6 pack, not a carton.

If you want to secure your financial future using property, then contact us here  or call now on 1300 66 77 89.

Since 2004, Scotty North has been helping people buy the best properties for their needs at prices that simply speak for themselves.
Scotty has been instrumental in bridging the gap between financial planning and traditional real estate transactions through his property advice model.

Scotty North is a Qualified Property Investment Advisor (QPIA), with accreditation’s in financial planning, mortgage broking and real estate.

By carefully considering his clients’ goals and planning for market changes via demographics and trends, Scotty designs a future proof outcome not only specific to the client’s needs but dynamic in its execution with performance indicators and exit strategies built in.