Unpopular opinion alert - your home is NOT an investment.
I know that I am in NZ where property is the most beloved asset class that has given a large portion of my parent’s generation phenomenal returns….but I find it mind-blowing how many people talk about what a great investment their home is and use it to justify all sorts of decisions that they otherwise would not be making.
Getting back to basics - an investment is an asset acquired with the goal of generating income or appreciation. Let’s be real - if you are living in it, it is not generating income (minus granny flat or flat mate situations).
Yes it may appreciate in the future, especially over a long time horizon. But if you are planning on selling and buying another home in the future, the appreciation will net off if you are buying in the same market.
Obviously if you are purchasing a property as a rental then it is an investment. But if you are buying a property to live in - just be honest and know that there is a fine line between necessity vs. luxury and mixing the two can easily lead us to justify an array of luxury items into necessities (I have experienced this first hand myself so no judgement here!).
To be clear I am a home owner myself, I love being a home owner (minus the maintenance that it comes with!) and I have no objections with people buying a home.
However, what I do see ALOT are people calling their primary home an ‘investment’ and using it to justify all sorts of cringey money decisions which I don’t think they would otherwise make such as:
Borrowing the maximum amount that a bank will lend them because it is an ‘investment’, even though when interest rates rise (like what we are experiencing now) it gives them little to no wiggle room to save, invest and enjoy life
Taking out extra loans against their home for new cars because their ‘investment’ made a lot of money during the property boom (Truth bomb: you haven’t made any money if you haven’t sold your house and are still living in it)
Taking out extra loans for renovations because you are ‘investing’. Yes, there is a chance that you might be able to sell the house for more than what you spend depending on what work you are doing, but if you are not planning on selling the home anytime soon be honest with yourself - the renovations are a lifestyle upgrade, not an investment. There is nothing wrong with that if you can afford it! We personally pay for renovations with cash because it’s easy to get carried away when you borrow money to fund renovations. I like to call this the ‘monopoly money effect’ where when you spend borrowed money (especially big numbers related to home renovations or purchase of a home), your brain doesn’t see it the same as ‘real money’ that you would normally have to earn and save up for and it is WAY easier to spend more as a result. (Phew! *Pauses to catch breath.*)
Ready for a real world example of the ‘monopoly money effect’?
Real Money Persona: ‘$5 for an avocado! I puts it back…..’
Monopoly Money Persona: ‘Goes into an auction intending to spend $800,000….. ends up paying $950,000'.’
What’s the big takeaway? At the end of the day it doesn’t really matter whether your home is technically an investment or not. It all boils down to this - by you calling your home an investment, are you spending more money and borrowing more than you would be if you were to call it a lifestyle cost?
Friendly reminder: The above is formed from my personal opinion. As always all my posts and content are for entertainment, inspiration and education purposes only and is never financial advice.