I’ve read several times that your primary property is not an investment. I don’t agree with this logic. Are houses expensive? Definitely. Are there markets where it’s better to be a renter? I doubt there are many. Here are the reasons why I think that your primary house is an investment.
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A Renter’s Market
Let’s start with the good things about renting.
Not having to do any maintenance such as yard work is great. Sometimes one or all utilities are included which bundles all your payments into one lump sum monthly. You also don’t have to worry about a leaky faucet because that falls on the landlord to fix. Renting is a hassle-free way to live. You get home and enjoy your home and nothing else. There is definitely appeal to that lifestyle.
A Buyer’s Market
Conversely, there are also some not so great things about renting. First of all, equity plays no part in your life at this point. Either the landlord is pocketing the money, or you’re building his equity. Regardless the money you pay monthly doesn’t benefit you at all.
The landlord might be a jerk. I’m a landlord myself, and I’ve gotten lucky with my tenants up to this point. Hopefully, they all have nice things to say about me, but let’s face it; you’re living in their house. They have a key (which hopefully they don’t use too often). And from the stories I’ve heard, they can be kinda pushy at times.
Another factor to consider is location. There are markets, such as Miami, that renting is outrageously expensive. My mortgage right now is $1750 for approximately 2000 square feet. My rental property rents for $1500 for 980 square feet. This doesn’t include utilities either, the tenant is in charge of those.
The Free House Fallacy
You’re right to think that there are extra expenses when owning a house. Unfortunately, your A/C will break, your sink will start leaking, some unexpected mini-disaster is waiting to happen at every corner.
The real issue comes in with the thought that whether you have a 15 or 30-year loan, the interest you pay will be more than the equity. And I agree with that statement. You are going to lose money on a house no matter how you look at it, but what other options do you have.
What gets failed to be mentioned when people talk about this subject is that you need somewhere to live! Yes staying at mom and dads house forever is definitely cheaper than buying, but how does it compare to renting.
By The Numbers
So I wanted to try to be as fair as possible with these numbers. I tried to not use ‘Miami prices’ for the rentals so I settled on $1300 rent. For the house, I used my own numbers. Let’s say you own a $300,000 house at a 4.75% interest rate. Appreciation value for houses definitely vary from city to city, so let’s average it a little under 2% a year (statistically low). Throughout the year, sending in your payments, you are cutting $4800 off of your principal. Your payment is $1750 a month. You still owe on your loan so your equity is at approximately $77,315.
So overall your net loss for your house is a little over $10,000 a year. For your rental, it is $15,600 a year. Do you expect $5,000 worth of repairs throughout the year? Do your utilities add up to the $5,000? What about next year when your appreciation goes up a little bit higher because of compounding interest?
Your Primary House Is an Investment
So with these numbers, I don’t know how you can not consider your primary house an investment. Is it a great investment? Hell no, you’re bleeding out 13% yearly! But compared to the other realities (living with your parents or being homeless), it seems to be a better investment than others.
Do you live in an area where these numbers don’t work? Do you still want to rent instead of own? Tell me why in the comments!