Updated on 11.15.11

Is Your Home an Investment?

Trent Hamm

Monica writes in:

Some personal finance books seem to treat a person’s home as an investment. Others don’t treat it that way at all. I’m confused as to whether I should look at my home as an investment or simply as a living requirement. How do you handle this when you look at things like your net worth or decisions about where to invest your money?

From my perspective, it depends on a number of factors that cross the line between investing and living.

Are you likely to move in the future? If you have external motivations to move, like living near loved ones or chasing a career, then you should look at your house more as an investment and less as a residence. Instead of focusing precisely on where you want to live for a very long time, instead focus on the potential for increased property value.

Is it easy for you to move? The easier it is for you to pick up and move, the more you should view your house as an investment.

What kinds of factors determine this? Are you living near family? Is the house worth substantially more than the rest of your assets? Do you live lightly or do you have a lot of stuff that would have to be moved (which would greatly add to the cost of a move)?

Does your house have significant resale value? If your home is in an area that’s of high value – a nice neighborhood, a well-kept property, access to services and employers – your home will be much more likely to attract buyers than a home that’s in a poor neighborhood, not well maintained, or with poor access to services.

For example, if I were buying a house in an area where I didn’t intend to live for a long period of time, I’d buy a home that was located near places of commerce and near employers. On the other hand, if I were buying a house to live in for a very long time, I would buy a rural home with lots of trees and without easy access to services. In other words, if I’m going to live here for a very long time, I’m going to buy a home according to what I want to live in rather than a home that’s a good investment.

If you view your home primarily as an investment, you’ll do things like follow the prices of homes in your area and look at home improvements from the perspective of improving the home’s value (and avoid improvements that don’t have a good return on investment from the perspective of the selling price).

If you view your home primarily as a place to live for much of the rest of your life, you’ll not worry so much about the local real estate market and you’ll make improvements to improve your livability without worrying what buyers might think of the changes.

Right now, for example, I view our current home as an investment. I’m pretty sure that in ten years, we won’t be living here.

What does that mean in terms of how we view our home? We aren’t making any home improvements that aren’t clearly going to improve the value of the home. For example, I would completely re-arrange the basement (including removing a non-load bearing wall) if we were going to live here for a long time, but I’m pretty sure that such changes might actually reduce the value of the home to other sellers.

Our next home, though, will be a home that we will live in for a long time. That won’t be viewed as an investment.

Instead, we plan to build the home according to the exact specifications that we want, regardless of what the market might want. This might result in some quirky choices, such as a very large family room in the basement with some deep shelves for board games, as well as a dumbwaiter. These might improve the value of the home and they might not, but it frankly does not matter to us. We just want the home we’ve always wanted.

In the end, whether you consider your home to be an investment has more to do with you than it does with anything else. On some level, it is always an investment because of the amount of money you’ve sunk into it, but whether you treat it like an investment is really all about you, your needs, and your situation.

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  1. Other Jonathan says:

    I don’t own my residence, but if I were in the market for a house this is how I’d view it: I’d definitely consider it an investment in the sense that I’d be buying an asset that could appreciate, and definitely will not lose all its value. But I’d recognize that a lot of emotion goes into a home to live, and I would evaluate the purchase on much more than just numbers. If I were then considering moving, but not necessarily in a rush to move, I would definitely consider market factors in my eventual decision to sell (or keep and rent it out).

  2. D says:

    I think the biggest factor in whether the home is an investment is where you live – will your land appreciate in value or not? The house depreciates every year until you spend money to upgrade it – so upgrades don’t “make” you money on the house. The land is what appreciates. I consider our house an investment because where we live, the land is worth way more than the house that is on it and appreciates each year. If I lived out in the burbs where my land value was only a fraction of the purchase price, I wouldn’t want my house to decline in value because I may weird improvements, but I wouldn’t consider it an investment.

    I actually think that if you are in a house short term, it doesn’t make sense to do many improvements at all unless they are desperately needed. You max get a 90% return on a renovation if you sell it soon after.

  3. sjw says:

    My house isn’t generating money. Thus it isn’t an investment. If I was renting out part of it, it might be an investment.

    My investments either generate money (in terms of appreciation that I can sell at a higher number than I bought, or in terms of dividends), or should be if only the market behaved.

    They also can be broken into little pieces and don’t need to be replaced if sold.

  4. lurker carl says:

    Wanting your house to be an investment does not make it one. Buying and selling real estate with the thought of making money is speculation, not investing. A house is not an investment unless specifically purchased to produce income.

    Protection from the elements is a necessity, so is safeguarding your family and belongings. Buildings crumble away if you don’t keep up on repairs and maintenance. Fashion, style and design are fickle. Neighborhoods change. After all is said and done, very few people realise profits from buying and selling their homes. Tax and interest payments practically guarantee it.

  5. AnnJo says:

    I’m with sjw on this – my house, like my car and my furniture, is an asset but it’s not an investment asset. I didn’t acquire it to generate income or capital gains, but to live in. Granted that with luck and good timing it MIGHT generate a net gain on sale after inflation, but there’s no guarantee and if it does, chances are the gain will be market-wide, meaning that whatever housing I replace it with will have also increased in price and will eat up that gain.

    Sure, considering resale value is a reasonable thing to do when buying or maintaining/improving a house, car, or furnishings, but that’s not the same as considering it as an investment. The dangers of doing that should be obvious after the last few years.

  6. Jackowick says:

    My home is an investment in the sense that my region has been flat and I bought in a couple years ago (estimates put my home = what I bought it for).

    While yes, it does not generate money for me, I have built equity into the house; 20% down a couple years of paying more than the monthly min mean I can now borrow against the house value. I bought the home from a desperate seller so it had fresh (albeit boring) paint and new (albeit cheap) carpet, but I didn’t have to spend any money to make it liveable and clean and safe. So I have been able to take my time and do things when I want to, not because I had to, like a new kitchen floor to replace the old vinyl, or a new fence for the back yard to replace the beat up hole-filled one.

    I keep comparing my mortgage to my last apartment, it’s almost the same (amazing what 20% and living within your means can do) but I have freedom and space and can do anything I want, which is an INVESTMENT in myself.

    But I totally get what #3 SJW is saying. It isn’t generating money right now. It’s like having a CD at 0.05% (yes that low) interest which I can’t cash in for another 5-6 years, when the interest will hopefully be baked in by even a small market rebound.

    If you’re throwing money at your house in mortgage, repairs, or high taxes, you might want to flag it as the complete opposite of an investment… and consider a loss on a sale as a severence fee…

  7. Kacie says:

    My house is in a nice, desirable area (2 houses recently were in the market and sold in 2 days and 7 days respectively!). We want to maintain our home and make improvements that will add to our enjoyment of our house, and also contribute to it selling faster if we need to move.

    That’s it. I’m still funding my retirement and kid’s 529 plans, because nothing is guaranteed when we go to sell some day.

  8. Tracy says:

    This post really isn’t about whether a house is an investment or not, it’s about what criteria should you should think about when looking for a house. And it does nothing to answer the question Monica actually asked, which is “How do you handle this when you look at things like your net worth or decisions about where to invest your money?”

  9. moom says:

    You have to live somewhere and therefore if you own a house it does earn you a return in terms of rent you avoided paying. But it can be helpful to breakdown the value of a house into land and structure. Land is clearly an investment, the house itself which depreciates and needs to be maintained is somewhere between an investment and a consumer good like a car. Here in Australia where I live the land is typically worth more than the house so this is something important to distinguish.

  10. krantcents says:

    You have to live somewhere. I do not think I tconsider my home an investment where I would cash it in.

  11. Tracy says:

    Oh and to answer it:

    You absolutely calcuate your house as part of your networth – it’s just not part of your ‘liquid assets.’

    As to how it impacts your investment strategy – well, that does depend a lot on your individual situation *and* on the market at the time.

    But buying a house should not be a replacement for regular savings/investing for retirement. Ultimately owning the house outright will give you more cash flow than renting (probably, although in some cases not) but it will not reduce your costs to nil (there’ll always be upkeep, property taxes, etc) and you need to have enough to pay those costs as well as regular living expenses.

    One thing that should definitely affect your savings/investment strategy, however, is that when you own your own house you typically need to make sure you have more money in liquid assets than you do if you rent, in order to repair/replace things that a landlord would.

    But for excess money beyond savings for your other goals and savings for retirement – whether it makes more sense to throw it into the house or into another investment depends on things like your risk tolerance, your interest rate, the interest rate of savings/cds, etc.

  12. Steve says:

    A home is never an investment.

    If you plan on moving, and don’t already own your home, you probably shouldn’t buy one. The transaction costs are too high.

    If you already own your home, then you’re talking about “investing” in renovations. You have to keep your house in good condition if you want to sell it. Any other renovation will lose you money. Every single non-maintenance renovation costs you money. So don’t waste your money if you’re planning on moving.

    A house or apartment can be an investment if you are buying it for the rental income. And there are benefits to owning your own house, but they take a long time to overcome the transaction costs. Most of the benefits are non-financial (e.g. the ability to paint the walls whatever color you like, intangible feelings that you’re finally an adult because you pay rent to a bank instead of a landlord.)

  13. Rick Francis says:

    When calculating net worth I would count the home equity, but I would be pretty conservative on the valuation. You may lose a large % if you ever had to sell quickly.

    I would also count it as an investment, for good or ill you have put a lot of money into your home. The market price will affect your wealth once you sell it.

    The more important question- do you make your home primarily an investment? Do you pick your home for your enjoyment or so that it has the best potential to increase in value? That is more of a value judgment.

    -Rick Francis

  14. Des says:

    I calculate my net worth similar to Rick Francis. I take the zillow value of my house (which, for now, is pretty close to accurate for my neighborhood) and subtract 10%. I figure to sell my house I would lose 6% to the realtor, 3% to buyers closing costs, and 1% to make it look nice for sale.

  15. Bill says:

    If you get sick and must sell the dream house and it is full of quirks you may regret the decision.

  16. Bill says:

    I am confused over this, I’ve hated this analogy since reading ‘Rich Dad Poor Dad’, ‘if it doesn’t produce income it is not a investment’ is STUPID. My first house cost 45k, I sold it for 215k that was a profit not one day of that did I get a divined check. I bought another house for 263k, this house went up in paper value to 430k 4 years later. Sadly that house is worth about 220k now.

    So is my house an investment? Yes.

    I have a 401(k) That went from 220k to 106k during the recent down turn, it is now worth 270k was it not a investment when it went down and is now an investment when it has recovered?

    I have personal accounts that make money and sadly loose money. The difference is history, over the long term stocks go up in value. So does real-estate which make both an investment.

    Zero coupon bonds are an investment but don’t pay monthly cash, nor do most growth stocks. They are still assests and investments.

    The point they were trying to make in ‘Rich Dad Poor Dad’ was about being rich enough to be eligible to be considered a ‘Educated investor’ to be considered eligible to participate in investments deemed to risky by the SEC.

  17. deRuiter says:

    Of course a house is an investment, whether it’s a good investment or a bad investment depends on how savvy a buyer you are, how desperate the seller is, market trends, location, how handy you are at doing home repairs and remodeling, how shrewd you are at buying materials to do renovations or repairs. It wasn’t long ago peole were buying houses and flipping them, making money quickly on the investments. Like musical chairs, the last group who got caught owning houses they could not really afford lost money on their investment. You can still make a good investment in property, by buying distressed properties, short sales, foreclosures, and from estates where the heirs will take any amount just to get rid of an unwanted house sao they can get their hands on the cash. Eventually all the underwater houses will go through foreclosures, and real estate will begin to appreciate again. In the meantime you can make a good investment buying a below market property and fixing it, or living in a tear down for a few years until the market turns around. You can also rent out your garage for storage, your land for someone with a big truck to park, or a room to a tenant to get some income. You can run a home business from your house and save the money you would spend renting a place for your business. There’s lots of ways to make your home pay income. Even running a yard sale twice a year at your house saves you the booth rent at a flea market. Plus there is that lovely $250,000, $500,000. for a married couple tax deduction when you sell. You can’t flip houses now the way you could before 2005, but you can still make money in real estate.

  18. Kevin says:

    Of course your house is an investment.

    Here’s how I look at it. When devising your asset allocation for investing, you come up with a “pie” of investment sectors, and decide how much exposure you want to each type of investment. You might decide you’re willing to invest 30% in bonds and fixed-income, 40% in equity, 25% in real estate, and 5% precious metals.

    Say you have $100,000 in retirement savings, allocated exactly as described above. Say you have another $100,000 in equity in your house.

    Now, if the real estate market tanks, your asset allocation is worthless. You thought you only had 25% of your investments exposed to real estate, but in fact your $100,000 in home equity plummets, taking your net worth with it. So what was the point of that asset allocation, if you ignored your biggest single asset? How did that diversification protect you from major losses in any one sector if you ignored the fact that you were grossly over-allocated in the real estate sector?

    Thus, in my opinion, it absolutely is an investment.

    Also, to those commenters above who claim that something isn’t an investment unless it pays you interest of dividends, what about gold? Gold pays you nothing. Is Gold an investment?

  19. Kevin says:


    “Eventually all the underwater houses will go through foreclosures”


    Why would a bank foreclose on a house just because it’s underwater?

    If the owners are still making the payments, why would the bank foreclose? Just because it’s underwater?

  20. Telephus44 says:

    Yes, absolutely your house is an investment. That doesn’t mean that it’s a good investment or that owning one will be profitable. Sure you can ignore the fact that it’s an investment if you want to, but for an asset that is that large, I’d hate to NOT consider it when looking at my financial picture.

  21. Tom says:

    Hm, not sure I follow the line of thinking.
    As you get closer to moving, it becomes more of an investment?

    When you buy and plan on being there a long time, it’s not?

    I think what you’re trying to get at here is that, if you aren’t buying a “forever” home, then you should be more concerned about resale value and general appeal. Making a smart decision on where to live based the marketability of your house does not make it an investment, in my opinion.

  22. Izabelle says:

    Here is how I look at it:

    I bought the a detached house in a desirable market in 2008, just before the crisis hit. Including mortgage taxes and insurance, I am paying close to what an appartment suitable to my needs would cost in my area, including a parking space.

    Over the next 30 years, rents will go up and so will house prices. Already, my neighbourhood has appreciated so that I would not be able to buy a similar price today without forking over an extra 70K. I do not intend to sell. After these 30 years, my housing expenses will be limited to property taxes, utilities and maintenance. If I base myself on a curve of the housing market in the past 20 years in my area, I can expect renting costs to triple by then. I would therefore need to have significant retirement savings in the bank just to have a place to live. Instead, if I choose to downsize, I will very likely make a profit.

    Do I consider that an investment? You bet.

  23. Izabelle says:

    I meant buy a similar *house*, of course…

  24. Tim says:

    A home is a liability. It costs money to keep it up. It costs even more if you have mortgage. It is only an investment for the bank that you are lending from.

    A home is a home… a place to stay. It becomes something that you own and in that sense it is stable. It does add to net worth, but is not liquid and the value can swing dramatically. I would not want to count on being able to realize the equity in my home if I had an economic need.

    While some make money on changing out homes, it is more speculation because it hopes that the market will increase and that over time, you will make more than you put out maintaining and updating it. Hope is a really bad financial strategy.

    If you want to buy a home to rent it out, the numbers work really well and it is an investment. Otherwise, keep your home a home and buy it to enjoy and to meet the needs of you and your family.

  25. Courtney20 says:

    If you view your current home as an investment, then why do you exclude its value from the calculation that you call your “net worth”? It’s not like it magically goes from $0 value to $—K value the day you sell it (or pay off the mortgage).

  26. Steve says:

    Just because a house is an asset, does not make it an investment.

  27. MattJ says:

    The word ‘investment’ has an actual meaning, one that Robert Kiyosaki doesn’t get to change just because he needs some catchphrases to fill space in his books and time in his seminars.

    Houses aren’t investments, they’re liabilities

    is roughly equivalent to the statement

    Pets aren’t animals, they’re dogs

    Every time I look at the statement from another angle I can see yet another way it doesn’t make sense.

  28. Steve says:

    Kiyosaki said they are not assets. He didn’t say whether they are investments or not (as far as I know).

    It’s true that an asset does not have to provide dividends to be an investment. It’s also true that if an investment’s market value fluctuates down, it’s still an investment. However what is key is that the reason you acquire the asset is because you expect it to go up, after taking into account dividends and holding costs. A house does not meet that definition!

    An analogy may make it clearer: Your car is clearly not an investment (except in rare cases where it’s an antique or whatnot) but it is still an asset. You can sell it for money, so it is an asset. However you expect it to go down in value, so it is not an investment.

  29. lurker carl says:

    Invest – to commit money in order to earn a financial return.

    Speculate – to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations.

  30. MattJ says:

    #28 Steve:

    Kiyosaki said they are not assets.

    And he is dead wrong about that. An asset is something you own. A liability is something you owe. In the case of a house, it’s an asset. If you have a mortgage, that’s the liability.

    Regarding your 2nd paragraph – you’re fairly emphatic. Have you considered an investment as an inflation hedge? If inflation hits 10% and wages and rents shoot through the roof, the ‘house’ portion of my investment portfolio could start to look pretty good.

    Finally, as a store of value, houses and automobiles are categorically different. The value of non-classic cars drops a ton year-to-year until the car is junk, almost regardless of what the market for cars is doing. The only way to stop that from happening is to spend an unreasonable amount of money keeping the car cherry. The value of a house, on the other hand, is relatively stable, varying with inflation and the housing market, for non-zero but comparitively (to cars!) minimal upkeep per dollar value. The upkeep on on your dwelling is not something you can avoid paying, either, even if you rent. Renting just means you pay your landlord to do it, via higher rents.

  31. MattJ says:

    #29: lurker carl

    Can you give me some examples of investments that are not (at all – I mean 0%) speculative?

    Can you give me some examples of speculations that are not (at all – I mean 0%) investments?

  32. chris says:

    Our home was purchased when values were very low. We paid it off in 12 years almost to the date of purchase. Despite falling values, it is still worth about $200.000+ over what we paid. I view it as an investment in our future. It is paid off, we have a secured place to live, providing we pay our property taxes (darn feudal system!) and have value should something happen and we have to move, although we do not see that in our future. However, I do not view it as an investment, as in something we plunked money into in the hopes that we would make money in the end. We think too conservatively for that and would rather have the security, which we now do.

  33. lurker carl says:


    Open a certificate of deposit at your favorite bank, investment without speculation.

    Hoping the commemorative state quarters in your pocket change are worth more than 25 cents each, speculation without investment.

    You buy a house to live in. Not investing unless you’re renting it for profit. Not speculating unless you’re flipping. But in both cases you still have to live somewhere, there is no free lunch.

  34. Steve says:

    #30 Matt
    Kiyosaki said they are not assets.

    And he is dead wrong about that.

    I agree!

  35. Steve says:

    #30 Matt
    One mistake in my comment is that I said “expect it to go up”. Pretty much every house buyer expects it to go up, and did so even at the very height of the housing bubble. Obviously that expectation was unfounded.

    If you stay in a house long enough you may or not make a small profit from it. However the primary goal is to provide yourself and your family with a roof over your heads.

    If you think cars have relatively small maintenance costs, you have probably never had to replace a roof.

  36. Steve says:

    (wish I could edit)

    So if you insist, I could agree that some part of a house may be considered an investment. But the vast majority is an asset you use to fulfill a need. The amount that is an “investment” is dwarfed.

  37. MattJ says:

    #33 lurker carl:

    Open a certificate of deposit at your favorite bank, investment without speculation.

    Inlation risk

    Hoping the commemorative state quarters in your pocket change are worth more than 25 cents each, speculation without investment.


    You buy a house to live in. Not investing unless you’re renting it for profit.

    We part ways here, I guess. The money you put into your house needs to be considered an investment. You need to consider it for purposes of asset allocation, market exposure, inflation hedging, etc. Moreover, if you have a mortgage, it’s likely to be the only investment you’re purchasing on margin.

    Not speculating unless you’re flipping. But in both cases you still have to live somewhere, there is no free lunch.

    Agreed & agreed.

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