Types of Real Estate Ownership (Part 3: Personal Real Estate)
Today is the final installment in a three-part look at types of real estate ownership. We’ve looked at speculative real estate, and we’ve looked at investment real estate. Today’s focus will be on personal real estate.
Personal real estate is not an investment
One of the biggest misconceptions is that personal real estate is an investment. When I read the famous best-seller Rich Dad, Poor Dad, I was floored by the idea that buying a home to live in is not real estate investment. Isn’t that what we’ve always been taught? That owning a home is an investment? Well, as our guide to the types of real estate ownership, Logan Flatt, CFA points out on PowerWealth.com, personal real estate is actually nothing more than a purchase:
In fact, it is hard to make money with personal real estate. To make it your home, you must take cash out of your pocket each month to finance it, insure it, maintain it, fix it, furnish it, and pay property taxes on it. Unlike investment real estate, your home generates no income to offset these out-of-pocket expenses. So, while you likely derive much pleasure from owning your home, you lose money on it every month. Don’t fool yourself – your home is not an investment. It is simply a purchase.
But, even so, there is a silver lining. After all, personal real estate is still better than renting. Flatt explains that having a home mortgage has distinct advantages over renting for an extended period of time:
- Tax deductions for mortgage interest and for local property taxes
- Ability to turn it into some sort of income if you relocate — you can rent it out, turning into a true real estate investment
- Recoup some of what you paid in when you sell
So remember, while owning personal real estate has advantages, the fact of the matter is that it is actually a rather large purchase, not true real estate investment.
Tags: home mortgage, mortgage interest, types of real estate ownership, real estate ownership,
personal real estate, real estate investment, personal real estate investment
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