There is a lot of talk about homes being an “investment.” While this is (or can be) true, it is not as assured as one would like to think.
The reality is that the house is really only as valuable as the land that it sits on, and that is relative to the myriad of social and economic factors in place at the time the land is purchased.
Homes can either increase or decrease the value of that land.
While the land may have “X” value when purchased, it can be either negatively or positively impacted by what happens around it as well as what happens on it. For example if a prison or an airport gets put next door, the value might go down—-but then again for the right buyer it might go up. On the other hand if oil or gold is discovered the value would most likely go up—but you might not want to live there.
What is the value of the house that doesn’t exist yet on a piece of property?
Sounds like a ridiculous question I know, but I am just trying to get across the ideas that the house starts out at “zero” value—-or simply the value of the land. Maggie Microsoft comes along and builds a McMansion and the value of the house is X plus the value of the land—-let’s say 2X. Now time goes by and Maggie sells the house to Margaret for 3X—-netting a nifty profit.
The question is: “Can the house always appreciate in value?”
I would argue that not only is the answer, “No,” but that “eventually” the house returns to no value—-it is all a matter of who’s watch it happens under.
We all keep our fingers crossed that it doesn’t happen under our watch. However, every home purchase is a calculated risk, and of course we have to live somewhere. With renting we have no chance of winning or loosing this particular lottery.
Charles Buell, Real Estate Inspections in Seattle
If you enjoyed this post, and would like to get notices of new posts to my blog, please subscribe via email in the little box to the right. I promise NO spamming of your email