Everyone should think of their home as an investment. Perhaps your home is not your only investment, but it is probably your largest asset. Like stocks and bonds, your home should be managed for maximum future value. At first it may seem peculiar to think about your home as a piece of your portfolio, but good home management now can pay off handsomely in the future.
Consider, first, stocks and bonds. Investors watch these investments like hawks. They study the markets to ensure they are invested at the right time and that they are fully diversified. Even investors who simply invest in index funds (stocks that represent the total market) understand how macro environmental factors affect their investment. This same vigilance should be applied to the home you live in.
Pick the Right Place to Invest
Many homeowners treat their home as nothing more than a place to live. Any benefit they receive in the form of appreciation or interest rate reduction is often more a result of luck than planning. Sadly, many homeowners don’t get the maximum value out of their home because they don’t treat their home like other investment vehicles.
It starts with where you decide to live. Look beyond the obvious: Good school districts, proximity to business, or access to major road ways. Homeowners should be looking at where the neighborhood is going in the next five to ten years. Ask questions like…
- Are businesses moving in or out?
- Are people beginning to move out of the major city into the suburbs?
- Is there new construction planned that will make this neighborhood more or less desirable?
- What kind of people are moving into the area?
- What is most important to the people in the area? Schools, jobs, infrastructure, preservation, etc.
The #1 rule of investing, past performance is not indicative of future performance, holds true in home purchasing. This is even more important if you plan to live in an area for more than five years.
Be an Active Investor
Homeowners that act like investors care about their neighborhoods and their property values. This means paying higher taxes to support better schools, supporting business development, and encouraging good home maintenance. Real estate is a long term investment that requires regular capital expenditures. Deferring maintenance on your home or voting down tax referendums that will increase program offerings at your schools would be like buying an expensive car and never replacing the oil. It will certainly run for a while, but you can guarantee it will not be worth much in a year or two.
Additionally, homeowners should be active in their communities. Taking pride in your neighborhood goes beyond keeping your yard mowed. It means attending planning meetings, voting in local elections, and getting to know your neighbors. This does not mean that you have to sacrifice your job and all of your free time to obsess about every little piece of news in your area. But, it does mean that you should be abreast of major events in your city and township.
An investment in stocks or bonds requires thorough research, active engagement, and solid market understanding. Your home should command the same attention or more because of the significant amount of cash invested. Treating your home like an investment could result in thousands of dollars of additional appreciation over the lifetime of your stay. When it comes to your home, think like an investor.