Is Buying a House a Good Investment to Build Wealth?
Many people may tell you that buying a house is a good investment to build wealth—but is it, really?
Buying a house requires taking money out of your pocket for the initial purchase and an ongoing outlay of cash for property taxes, maintenance, insurance, and utilities, among others, for as long as you own the house. This article points out two additional, hidden, downsides of purchasing a house for investment purposes which you may wish to know before you decide to purchase your next investment property.
Capital Appreciation of Your House is Not Guaranteed
Houses have long been considered a good investment to build wealth due to their potential for capital appreciation; however, technically speaking, a house can only be considered an investment if you plan to sell it and a good investment if you are able to sell it for a profit. Housing markets, like stock markets, can go down as well as up.
Another consideration is that if the property you are buying is a house that you will live in, selling that property means you will have to find another home. This means you will have to use some or all the freed-up equity from the property sale to fund your next purchase (unless, of course, if you decide to rent).
As well, the carrying costs over the years of owning a house may be high compared to other investment options (such as investing in the equity market) where you are not required to put more cash into it once invested. These costs eat into any appreciation in value of your house.
Your House Does Not Generate Cash Flow on Its Own
Unless you are planning to rent out all or a part of the house that you have purchased, your house doesn’t generate any cash flow on its own. If you do want to generate cash flow in the form of rental income, this will require further time and resources.
The takeaway is that, yes, over time, a house may increase in value, but it may not appreciate enough to offset your costs over time.
Instead, if you invest the same amount in something that can generate both capital appreciation and a steady stream of cash flow, such as a diversified portfolio of dividend-paying stocks, you may end up with more wealth over the long term.
Attain Capital Appreciation and Cash Flow with Bloom Investment Counsel, Inc.
If you are interested in a time-tested investment approach to attain both capital appreciation and cash flow, Bloom Investment Counsel, Inc. may be the personal investment manager who can provide the service you have been looking for.
Bloom Investment Counsel, Inc. helps high-net-worth individuals, family offices, foundations, corporations, institutions and trusts build wealth, one customized portfolio at a time within our specialty of investing in dividend-paying stocks which provides clients the ability to generate stable, independent cash flow, if desired, while growing the initial investment.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.