Why your home is not the investment you think it is
by Andrew on 28/05/07 at 1:03 pm
5 comments
Here’s an article on Yahoo Finance about seeing your home as your primary investment.
If you sell it, what are you going to do with that big check in your
pocket after you’ve walked around for a couple of hours feeling richer
than you’ve ever been? You’ll probably spend most of it in just a day
or so buying another house.
It’s food-for-thought for us small business owners who make all sorts of excuses for not investing now – the 2 biggies are “I’m investing in my own business”, and “I’m investing in my home”.
Every decent financial advisor would recommend having a “diversified” and “balanced” portfolio, which means you shouldn’t be plowing everything you’ve got into one company (ie your own) or one residential area (ie where your own house is).
So, small business owner, what is your current investment strategory?
Andrew Smith is the pedantic systems guy behind Live Alchemy, a SA e-commerce company. Andrew writes for Ideate in an attempt to make the world a more efficient place. View more articles by Andrew.
Grant Pierrus
May 28th, 2007
Good question! After reading the 4 hour work week by Tim Ferriss. I have decided to invest my money into setting up systems that can run my businesses semi-automatically – leaving me more time to leverage.
Saberi
May 29th, 2007
This is a fascinating scenario. You put money into your house because it effectively reduces the interest you pay on the loan, thereofre your saving more money. At the same time, you enjoy capital appreciation so your assets are more valuable at the end of your tenure in your house than at the beginning (in theory).
An entrepreneur ploughs money into a business because he believes in a cause or has a dream or whatever.
The risk profile for the business is higher than that of the house. You stand a higher chance of loosing your capital outlay in the business than when investing in a house; and at the same time you stand a chance of making more money if you get the product/ service: market: sales ratio right in your business.
When you sell your house, you could buy a more expensive house or not, and then pocket the difference; which could be invested in many other ventures (maybe your business).
What do you think?
Andrew
May 29th, 2007
Saberi, the problem with seeing your house as an “investmennt” is that you can never really sell it for a profit. Where would you live? My parents have reached the age where they are looking at moving to a retirement village, and the cost of buying a unit there will be about the same price as what they will get from selling their family home that they’ve had for 30 years! A home is a necessity, and in the long term buying beats renting, but the article suggests that you shouldn’t see it as your nest-egg.
Your own business obviously demands capital input, and if you don’t believe you can get a decent return on that capital you should start applying for jobs! However, my point was that it is prudent to diversify our investments and not put all our eggs in one basket. I think we know that, but the temptation is to not do anything about it.
Michael
May 30th, 2007
Andrew, you have made investing, clear and simple . Your message should be on the cover of investing textbooks.
WizardMan
May 31st, 2007
If the point is not put all your eggs in one basket then HEY, I’m all for that comment, but to make a comment like “buying a house in not an invesment”, wow man, that’s a scary statement to make when considering some of the wealthiest businessmen in South Africa, and probably worldwide starting making thei cash by investing in their first piece of property!
Let me tell you, there is NO BETTER investment than purchasing a little property, in a good area with quick growth! There’s even the buy-to-let option.
Plus as was stated by Saberi “if you manage to pay of the interest portion of you bond as quickly as possible, any extra cash you put into your bond account means you start earning 12.5% interest on that money”. Show me an investment that gives you returns like that unless it’s high risk?