The biggest consumer purchase most of us will ever make is a house. It’s also the biggest investment. The house itself is the consumer purchase; the land underneath is the investment. Your house depreciates in the same way that your car does, but more slowly. Eventually, a house reaches the end of its economic life. But the land it sits on is as functional as ever.
Homes do have advantages as investments. Here are some things to consider when investing in a home:
* Improving value. Growth in nearby job and leisure opportunities raises land demand. That pushes up land values. But land supply can increase too, from rezoning of industrial or agricultural land to residential use, or from cuts in minimum lot sizes.
* There are tax pluses. Home owners get a tax-free, rent-free benefit of having a place to live. Profits on home sales are also tax-free.
For maximum capital gain, it’s best to buy a small house on a big lot in an improving area. You may be able to get it for little more than land value. Years later, you may be able to demolish the house and divide the land into several building lots.
* Good schools nearby. Another thing to consider is the quality of nearby schools, even if you don’t have children. Properties near good schools tend to have higher values and attract a wider range of buyers when it’s time to sell.
* Blend in. For maximum investment safety, buy the most common house in your area – a two-story four-bedroom, say, or a three-bedroom bungalow. Usually, it will be easier to sell.
* Buy just a bit more. For maximum enjoyment, buy a home that’s a little bigger and nicer than your family will need in the next, say, 10 years. Chances are you won’t regret it.
You should be wary of buying (or holding on to) bargain-priced homes. They can turn out like stocks that seem too good to be true. Well-informed homeowners may be eager to sell due to subtle changes going on nearby. Before you buy a house, walk through the neighbourhood and take a critical look at your potential neighbours.
Ultimately, the house that is most comfortable for you and your family is the best investment. If you skimp on the house in hopes of future gains that don’t pan out, you and your family can never get back the time you could have been living in the home you really wanted.
This post originally appeared on TSI Network.
Patrick McKeough, host of the TSINetwork.ca investment website, has been a professional investment analyst for more than three decades. He is also a portfolio manager and the editor and publisher of four investment advisories: The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor. Follow Pat on Twitter and Facebook.
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