A question that is common among prospective homebuyers to ask is, “Should I buy a home, or should I invest?” Typically, they are referring to investing in the stock market, and wondering if it would be more rewarding to buy a home immediately, or to wait. To help you think through this scenario, let’s take a look at the benefits of each type of investment.
Benefits of Buying a Home
- Practical value: A home gives you a place to live. It also is your domain to use as you see fit, giving you privacy and autonomy. Owning stocks does not provide that.
- Homes tend to go up in value: While the housing market has its ups and downs, over the long term, a home investment usually increases in value.
- You can hedge against inflation: Rent increases along with inflation. But you do not have to worry about your mortgage payments going up, if you have a fixed interest rate.
- There are sometimes tax benefits: You may qualify for certain tax deductions as a homeowner.
Benefits of Investing in Stocks (or Other Common Assets)
- Less work involved: Although there is some work involved in investing in stocks, it is much less than that involved choosing real estate, buying it, and then maintaining it, repairing it and improving it over the long term.
- Greater liquidity: Real estate is not the most liquid asset, but stocks are pretty liquid. You can sell them rapidly if you see the need (indeed, day traders do this frequently).
- Lower transaction costs: The transaction costs involved with purchasing real estate (i.e. closing costs) are typically high. The transaction costs involved with buying and selling stocks are comparatively modest.
- Greater diversification: Most people cannot afford to buy diverse real estate properties, but can afford diverse stocks.
- Tax benefits: You can use tax-advantaged accounts when you invest on stocks. On the other hand, you may also be subject to capital gains taxes.
As buying a home or other real estate and investing in stocks have their pros and cons, ultimately you will need to weigh both with respect to your individual scenario. You will have to consider the potential impacts on your finances, along the work involved in maintaining a home as well as the other forms of value it can bring into your life.
For many people, the value in owning a home goes far beyond financial benefits. Nothing can replace the sense of safety and stability that comes with being a homeowner. Every day, your home will bring you joy and contribute to a sense of meaningfulness. Your stock portfolio will not provide you with nearly that level of ongoing satisfaction.
If you do decide this is the right time to become a homeowner, please give us a call at (614) 505-0620. We are based in Columbus, and can help you buy a home anywhere in OH.
