Buying a house has long been considered a good investment. But do you have to live in the home? Owning a home and renting it out may be the better choice.
You finally saved up an emergency fund and paid off your high-interest credit cards. You believe you are ready to go forward withbuying a house, the largest purchase you will probably ever make.
You need a place to live and you are tired of “throwing your money away” each month to your landlord. Your home purchase will make a great investment, right?
That depends.
Have you been thinking about buying a house? Do you actuallywantto be a homeowner or are you just doing what you think society dictates you should do next? Do you want a home ordo you want an investment? Do you seek security or freedom?
There are a lot of articles explaining the trade-offs between renting and buying but this article is not one of those. This is for the person who wants toinvest in real estatebut doesn’t know if the home should be where you live, a rental property, or if it can be both.
A Good Investment
A good investment is something that will pay you more than you paid for it.One of the most well known personal finance authors is Robert Kiyosaki.
Kiyosaki’s teachings and seminars have generated controversy but I think his definitions of assets and liabilities inRich Dad, Poor Dadare excellent and very simple to understand.
An asset is anything that puts moneyintoyour pocket. A liability is anything that takes moneyoutof your pocket.
So is a home a good investment?Does your personal residence put money into your pocket or take money out of your pocket? Rich Dad, Poor Dad examines why people consider buying a house as an asset, but by Kiyosaki’s definition, it is a liability.
Every month you have to pay the mortgage, insurance, property taxes. Even if the house is paid off you arestillspending money maintaining the house and paying your taxes and insurance. The house is still taking money out of your pocket.
But what about home value appreciation — does that make your primary residence an asset? It can if the purchase is timed just right, but most times it is not.
An Investment Property
So how is purchasing aninvestment property different? It’s not. There are still expenses that must be paid – the difference is you are not the one making the payments. Your tenant makes those payments.
Assuming you invested in agood cash flowing home,your tenant gives you more each month than what it takes to own the home. You are leveraging someone else’s time and money and now that same home is an asset.
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