Know Your Why and Your When
“Risk comes from not knowing what you are doing.” — Warren Buffett
Why do you want to buy a house? Is it primarily an investment or do you intend to actually live there?
Owning and living in your own home imparts a profound sense of security. Your home becomes your sanctuary and castle, a place where you can feel safe.
Nonetheless, from an investment standpoint, it may not be a logical choice. When a house serves as your residence, it doesn’t generate income. As Robert G. Allen once said, “In todays uncertain economy, the safest solution to be wealthy, be in total control and enjoy freedom for you and your family is to have multiple streams of income”, which is what you cut by foregoing this passive income source.
When looking to invest in real estate, the time horizon is the second most important thing to consider. If you are looking for a short to medium-term return, real estate is probably not for you. Indeed, it can take months or even years for a real estate investment to become cash flow positive. Moreover, capital appreciation follows a non-linear trajectory and requires patience.
“If you buy for a short period of time, when you factor in all costs, you will almost certainly lose money.” — Ramit Sethi, How to get rich