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If you are uncertain whether to buy your own home, think of doing so as a great investment.

Many people look on home ownership as a taking on huge risky debt, but for many if not most people it is typically their biggest and best performing investment – dwarfing returns made from self-employment, savings, investments or pensions.

Furthermore, by investing in your home, you get the benefit of gearing or leverage.

You simply raise the deposit and are free to borrow the rest of the purchase price by taking out a mortgage.

The price at which you can buy is dependent not just on the amount of your deposit, which is relatively small, but also on the amount that you can borrow – which is typically three to five times your income or salary.

When prices increase,  you get the full benefit of growth, not just the share attributable to your deposit (your contribution to the purchase price).

Historically bricks and mortar are a great investment; it is widely believed house prices double every 10 years on average. In some parts of the country the 10 yearly increase has been even more spectacular – depending on when you purchased in the market cycle. 

There are many parts of the country where house prices are 6 to 8 times higher than they were 20 years ago.   

1. Homes are an investment

There is a debate around the nature of an owner-occupied home. For some purists it is debt since the owner pays the mortgage like any other household liability. 

For others it is an investment in the general sense of the term due to the long term tendency for the asset value of real estate to constantly increase over time in pretty much the same way as stocks, shares and commodities.

For others it is a hybrid, part debt part investment.

However you describe a home, the fundamental point is that it increases in value in the long term and in that sense it is an investment as a matter of fact. 

While homes over the long term – 20 years plus – usually provide great value uplift, it is only fair to point out that the amount of value does depend on when a home is bought in the property cycle of its location.

So, for instance, in some parts of the country, property prices are just about where they were in 2007 after the property crash in 2008. However in those same areas, buyers buying in 2009-10 are likely to be sitting on substantial double digit growth in the value of their homes.

It is not just a case of having bought long ago; it is when and where you bought long ago.

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2. Some homes grow in value better than others

If you are looking to identify a home which will perform best as an investment, concentrate on homes falling into one or more of the following categories: 

  • Below market value when purchased
  • Have the strong potential to add value upon being remodelled, refurbished or upgraded
  • Desirable period property in short supply
  • Situated in a location with a history of strong house price growth.

However, do remember that the overriding characteristic of a home is that it is your abode – a comfortable affordable residence for you and your family.

Most people will want to choose their home on the basis of its strength as a home rather than an investment. 

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3. Look at your home as a long term investment

As an investment, you should see your home as a long term investment. The typical mortgage is 25-30 years in length and it is over such a long period that you should expect your home to show stellar growth in value.

If you only own your home for a few years – by choice or necessity – your capital gains are not likely to be spectacular.

A key thing is make sure that you buy somewhere you can afford and can continue to afford if market conditions or your personal circumstances change for the worse.

You must know how to deal with mortgage debt and how to keep a roof over your head.


4. Pay off your mortgage

You can enhance your home as an investment by taking steps to pay off your mortgage by the end of the term, leaving you with a mortgage-free property, a high value asset free of the restrictions of a mortgage.

You can achieve that by purchasing with the aid of a repayment mortgage.

You can achieve the same goal with an interest only mortgage if you put a “repayment vehicle” in place – such as a profit from a business, savings, investments or a pension – which can be used to clear the mortgage debt at the end of the mortgage term.

5. Conclusion

As it gets harder and harder for regular folk to keep the hard-earned fruits of their labour, it is more important than ever for you to appreciate the value of owning your home – the quantity and quality of real wealth to which it gives you access.

The value of the home you can buy is limited only by the deposit you can provide, the size of mortgage you qualify for and the monthly mortgage payments you can afford. 

As things stand, you are not charged capital gains tax or any other tax when you sell your home for a profit, no matter how great the profit.

If you leave your home to your spouse or civil partner there will be no inheritance tax.   

There are tax efficient ways to leave your home to other persons of your choice without payment of inheritance tax, and if inheritance tax does apply it may only apply to the value of your estate above £450,000.

Home ownership is an egalitarian, profitable, tax-efficient investment for home owners up and down the country. Can you think of a single good reason why anyone would not want to join the party?

How do you see your home – as a home as an investment or both? Please leave your comments below.

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Dalton Barrett
Rebel Property Coach

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