Why buying a house is a good investment

The residence requirement dictates that you should have lived in the home for at least two years during the five-year period leading up to the sale.

The final requirement, the look-back requirement, outlines that you didn't profit from selling another primary residence during the two-year period leading up to the most recent sale. After appreciation, the benefit of homeownership that is cited most often is tax deductions or savings. When you buy a home, you can deduct some of the expenses of owning that home from the taxes you pay to the government.

This includes mortgage interest on both your principal residence and a second home, which can amount to thousands of dollars per year. Interest on home-equity loans, or home-equity lines of credit HELOC , is also deductible if the funds are used to improve your home substantially.

The Tax Cuts and Jobs Act made substantial changes to the parts of the tax code that have to do with homeownership. Unless a future Congress amends the law, all provisions will expire after Dec. All these changes have lowered the value of owning a home—including the fact that, with the near doubling of the standard deduction another feature of the Act , fewer people will have enough deductions to file Schedule A instead of taking the standard deduction.

So the fact that you are eligible for a tax deduction does not mean that it will end up being useful to you. The severe limiting of the SALT deduction will be particularly detrimental in lowering available deductions for people who live in highly taxed states. The cost of investing in a home can be high—there's more to your expenses than the property's selling price and the interest rate on your mortgage. Experts say you should plan to stay in your house at least five years to recover those costs.

Not all homes grow in value. The housing crisis of resulted in many homeowners being underwater, which means owing more on your mortgage than your home is worth. Remember, too, that the actual structure you live in will depreciate over time. This can be a result of wear and tear on the property, or a lack of maintenance and repairs. One often-cited benefit of homeownership is the knowledge that you own your little corner of the world.

You can customize your house, remodel, paint, and decorate without the need to get permission from a landlord. Ownership comes with responsibilities, however. Maintenance and upkeep are your responsibility. If the roof is damaged, you must repair it—or have it repaired—yourself. Lawn mowing, snow removal, homeowners insurance , and liability insurance all fall on you.

Unlike stock, which can be sold within a matter of days, homes typically take much longer to unload. A home is an investment that comes with many investment benefits but also risks, which makes it an investment that is not for everyone. Weighing the investment benefits against the risks is important.

A rational comparison of pros and cons can help you decide whether to put your money into a home investment or potentially find better returns elsewhere.

Federal Reserve Bank of St. Federal Trade Commission. Federal Housing Finance Agency. Accessed Feb. House Price Index - 3Q ," Page Internal Revenue Service. The idea of making your first home an investment goes against the general notions of personal finance. In fact, it goes against how most people approach post-college life. The typical financial timeline for your average American adult might entail going from college to a first job to renting an apartment to marriage and buying a home, and so on and so forth.

Being young and independent can be pretty amazing. You can make your own rules, live where you want, buy what you want and travel whenever you want. But that can get old pretty quickly, especially if you have other goals in mind.

But it's difficult to time the market and sell your home in a way that maximizes profit. Many people will either sell too soon or wait too long to sell. Your home may not be an investment, but a house can still play an important role in building a sound financial future. And doing things like saving for a down payment is still worth the time and effort. One of the biggest advantages of owning a home is that you save money on rent every month.

When you pay rent every month, that money is lost to you forever. For many people, owning a home leads to greater financial stability. And studies have shown that homeowners often experience greater mental well-being than renters. For instance, homeowners are more likely to engage in their community and become friends with many of their neighbors. There are also certain tax benefits to owning a home.

If you itemize your deductions, you can deduct mortgage interest and property tax payments on your taxes every year. Homeowners typically have more square footage than renters, which is more conducive to raising a family. The average new apartment in the U. In comparison, the average new home in the U.

And finally, when you rent an apartment or home, you have limited options when it comes to decorating or making changes. Data firm Black Knight reports that yearly home price growth has seen a 25—year average return of 3. Before buying, you should evaluate your cash flow and monthly expenses to make sure you can afford the payments on a home, while still making smart personal finance moves like contributing to retirement accounts and maintaining an emergency savings account.

You can use a mortgage calculator or talk to a lender to figure out what you an afford. The argument is simple: You need a place to live full time anyway. Additionally, owning a home can bring long—term social benefits to homeowners, including nurtured friendships with neighbors. Also consider that monthly housing payments stay the same with a fixed—rate mortgage, even 30 years after buying a home.