DESIGNER TALK: Investing in Your Home vs. the Stock Market
In response to a client debating whether to remodel their home or put those funds in the stock market, Mosby Building Arts designer Jake Spurgeon, AKBD, shared these great points.
Home ownership remains the American dream. For generations, parents have raised children to leave the nest as adults, and with hopes of a safe and secure future for them they pass on this advice: “Buy a home.”
We naturally want what’s best for our children, for them to do better than the previous generation. So why do we continually advise they invest in buying a home rather than investing in the stock market? Let’s examine the reasons why purchasing a home may be a better investment than Wall Street.
We instinctively crave stability and security for our families and ourselves. When you consider the fact that property home values typically increase in value from 1 to 3 percent every year vs. the fickleness of the stock market, you see a pattern of reliable stability. The stock market is a roller coaster – with one instance of a social media firestorm, a company’s stock can plummet and take the value of your portfolio with it. Whereas your home value historically is a safer investment. It is a stable investment and creates a consistent growth pattern as the surrounding neighborhood and community improve. The stock market can crash but you still have that roof over your head.
EASE OF INVESTMENT
There is no other investment opportunity that exists where you can borrow most of the money to buy an asset. Stock market investment requires typically large amounts of cash to make more money. It’s like gambling, which is what you are essentially doing when investing in the stock market. In comparison, buying a home requires little to no money upfront. Banks and home sellers typically can front most of the funds needed for purchase in the form of a mortgage.
A home purchase can also produce cash (mortgage loans) which can be used to pay on other debt if needed. You can borrow against a home to help send kids to college or buy a new car! Your stock portfolio does not do this for you.
Real estate creates cash flow for families and individuals. Also, consider Warren Buffet’s thoughts on real estate owning and investing. Buffet is arguably the world’s greatest investor and stock picker of all time. In a 2014 article in Fortune magazine, he writes: “Annual distributions now exceed 35% of our initial equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property.” In this example, Warren is referring to rental/asset property, but it shows you how great a return real estate can have vs. the stock market.
PEACE OF MIND ROI
It is important to bring up the intangible gain investing in a home brings that the stock market can never: peace of mind. Home is a space that is truly yours, where you and your family can gather and celebrate, where you rest your head every night and wake every morning, where you relax. Remodeling and improving your home has a direct Return on Investment (ROI) to your property value and your daily life – two birds with one stone!
I could invest a hefty sum of money into the stock market and hope for an eventual profit. But if I instead put that money into creating the kitchen I’ve always longed for, it’s a faster payoff in happiness and peace of mind. Plus, that remodeled kitchen will be of interest to a future buyer – win/win.
If you’d like help remodeling your St. Louis home in a way that delights you while increasing its value, give me a call at 314.909.1800 or contact me here.