Once a lot of people start working, a famous goal is to buy a house. It is often looked as an investment and an achievement. While it would be an achievement, it might not always be an investment.

We must realise that just because the value of something appreciates over time, doesn’t mean that it is an investment.

One of the most basic factors that makes an investment “an investment” is your ability to control the timing of your ownership. It means that you can buy it and sell it at times and under circumstances that are likely to maximize your investment return. However, you’ll purchase the house when it is needed for shelter purposes, and sell it only when it no longer serves that purpose, and it’s time to move on.

Another factor that makes an investment “an investment” is that when you sell an investment, you can use that money to satisfy your need elsewhere. However, when you sell a house, you will most likely have to use the cash from the sale to purchase the next house. After all, you will be moving from one residence to another.

Further, when you own a house, not only do you have to pay monthly EMI, but you also have to pay taxes, insurance premium, and utilities. You also have to maintain the property, which means doing repairs and maintenance as necessary. These expenses are called carrying costs. It is quite possible that even with the carrying cost you can make a profit, but will that profit beat some other winning investment is the challenge.

You can rationalize those expenses based on the fact that the house is providing you shelter. But that gets back to the original premise — a house is shelter, and not really an investment.

Another major strength of an investment is the ability to generate cash flows. Unless you are renting a part of your house, which most people will not, your house is not generating a cash flow either. You can though take a loan on the house that will give you cash, but then, it will also create liability which will affect your future cash flows and also put your shelter at risk.

Finally, when you look at a house, don’t look at it as an investment; think of it as a place to live like it is and keep investing in financial assets or real estate assets that generate income.

However, I must also add that I know few people for whom the aspirational or emotional value of a house is way more than it’s tangible value. And, in that case, it doesn’t matter how much return you could get elsewhere, what matters the most is that you own a house. In that case, go ahead and gift yourself a house!


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