For many people, the house they own and live in is their biggest asset. But should we look at it as our home or an investment?
You will find people who have made massive gains through the property boom times will describe the purchase of their home as an investment, but those who bought at the height of the market and are sitting in negative equity will not. This is unlike, for example stocks and shares, where you have made an investment whether or not you have made a profit from it. We choose to call it what we want depending on circumstances.
Likewise, I think you are more likely to describe your house as an investment if say you are a single person who has bought then moved on to something bigger, than if you are a couple who has lived in the property for many years to raise their family.
There is nothing wrong with looking at a property purchase as purely a financial transaction, it is down to the individual. It depends who you are and what your plans are. Maybe it is best if you can try and look at it from both angles.
I personally believe you should listen to your heart first and foremost. You are going to be spending a lot of time there, so you need to feel safe and happy. But then when you have found a house you like, ask yourself some financial questions too: How long are you going to stay there? Do you need to be able to get a good resale value in order to move on? What are the prospects for properties in that area in the future? Is there anything that may make this property difficult to sell in the future?
I think the last one is the most important question of all. Just because you really like something, doesn’t mean other people will. A common compromise is when you find a property has a major defect during the survey process. By this time you have already started mentally decorating the rooms and buying furniture, as well as having paid out for the survey. It is easy at this point to carry on because you think you are already in too deep, your heart is set and you may be letting other people down. But don’t let any of that bother you. If it is something that cannot be resolved easily, it may cause you problems in the future. Until you have exchanged contracts you are not obliged to buy the property and you can pull out of the transaction. If you don’t, you may find that although you have compromised, others won’t and if it is your plan to move in the future, you may become a prisoner of a property you can’t sell.
Another compromise, is overpaying for a property. This is more difficult to assess because there is no definite answer to what a house is worth. It is worth what somebody is willing to pay for it, and it may be that you are willing to pay more than anybody else is because it ticks all of your boxes. The big thing here is to then ask yourself how long you are going to be there. If it may only be a short stay, then overpaying may not be a good idea, but if you have found somewhere perfect that you will remain at for a long time, then the money isn’t as important.
Overall I believe your house is your home. But you do need to consider the bigger picture too and think about it within the overall context of your wider financial planning.
Jason Hinde DipPFS
22nd June 2015
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