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9:58 am - Friday September 30, 2016

Why Buying a Home is More Important than You Think

| Home Finance and Mortgage | Rating: 4.5
by Numan

Rent vs. buy comparisons are abundant. I’ve wrote quite a bit on the matter trying to illuminate the less obvious parts of it. In this post I’ll concentrate on a few fundamental financial advantages of home ownership which are too often painfully overlooked.

Buying a home is indeed a great undertaking which requires maturity and an ability to commit (not to mention available funds). However, it also presents several significant financial advantages to the home owner.

#1 Your home is a solid long term investment

In financial planning a portfolio consists of the household’s entire asset allocation, including real estate investments. Buying a home is, in essence, investing in a relatively solid asset for the long term.

Furthermore, as your home is usually your primary asset it automatically creates a significant allocation of solid investments.

#2 Your home hedges your financial risk

As a result your home helps you hedge your financial risk. Even if your investment portfolio is invested in very risky financial assets your entire financial portfolio gets its risk balanced whether you like it or not.

This kind of hedging will prove very useful in difficult times when risky investments tend to drop sharply together. In financial theory (and practice) there is no way to diversify the market risk which might hit all the financial markets (we got a pretty good demonstration lately).

#3 Your home is a great tool for disciplined saving

Being able to save money while renting takes strong character and self discipline. I’ve tried and failed. When you rent you automatically live in a higher standard of living than the one you can actually afford.

Taking on a mortgage is forcing yourself to save. Economically, renting a home can sometimes prove more profitable. But the question remains. Can you rent and save enough to buy the property at the end? (as a good financial comparison of rent vs. buy should be).

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