Acquiring Primary Residence As An Investment

Acquiring Primary Residence As An Investment

Buyers often don’t consider buying their primary residence as an “investment”.  In the conventional sense, it isn’t because your holding cost without rent is usually a net annual expense not entirely offset by appreciation when sold in the future.   A good investment is buying for value that can generate a reasonable return to the investor.  An investment approach for buying a primary residence considers the price paid compared to market, expected time to hold the property, and growth potential.

Sometimes buyers intentionally pay higher prices than the prevailing market.  Usually, there are good reasons that resonate with the individual but not the broader market.  The property may have unique elements including community amenities that the buyer is willing to pay a premium to acquire.  Often the long-term growth potential justifies the unusually high purchase price but the premium pricing components are usually not fully recoverable.  These types of decisions are often based on non-investment value to the buyer.

It is a good strategy for buyers to consider investment factors when buying a primary residence.  This could be especially important for buyers that may not stay in the newly acquired residence for an extended period.  For example, if your plan is to switch to a new primary residence in three years, consider your total cost of acquisition and expected resale value including closing costs.  If you initially paid above market, there may not be adequate time for the value of your property to appreciate enough to recover your initial investment.  As a result, you will not have any gains to contribute to the next purchase of a primary residence or worse potentially be in a short sale position.    

An investment approach chooses houses that will appeal to the broader market, not individual preferences.  Most buyers consider investment and non-investment factors in choosing a home.  Looking for personal residences with an investment focus allows buyers without vast financial resources to incrementally graduate quicker to bigger and/or better homes over time with the compounding of returns from each sale.  It also gives them flexibility to more easily sale the property for various reasons such as relocation, downsizing, or other personal reasons without financial constraints.

Chris Ross Headshot
Phone: 425-270-8628
Dated: November 19th 2016
Views: 499
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