Tuesday, 19 August 2014

My Home is Not an Investment

While having blogged about various aspects of property investments in the last few months, I wanted to caution my regular readers about the dangers of mixing a home and an investment.

Capgemini, a consultancy, defines a millionaire to be anyone with investable assets of $1m or more not including their residential home. There is good reason for this definition as having a roof over your head is considered a fundamental need.

My home is not an investment.

Investment grade properties may not simultaneously meet your criteria of an ideal home or fit into your family’s lifestyle. Some may prefer a home in a location near their workplace or close to their parent’s/in-law’s out of convenience. With lifestyle considerations, it is very difficult to optimize a property’s investment value.

Due to inflationary pressures, selling your current residence at a profit means having to use the money received to pay for the next property. Generally, and equivalent unit in terms of location, size, facilities and condition would command a similar or higher price that you sold your previous home for. This therefore negates any profits made.

With your home comes an emotional bond. Familiarity of the surroundings, memories of your youth all carry a sentimental value. These emotional bonds when considered will yield a sub-optimal investment decision. An investor needs to have no emotional attachment to the assets he owns in order to make sound buy or sell calls.

Therefore, the considerations of buying a home are not going to be the same as the criteria of buying an investment property. Don’t mix these up. Always have a clear objective for your property purchase.

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