While most families probably do think of their house as an investment, for most of them the answer is “no.” Their primary residence or second home is most likely an asset, not an investment. The definition of an investment is typically a monetary asset purchased with the goal of having the asset provide income in the future, appreciate and/or be sold at a higher price.
To illustrate, let me ask you a few questions:
1. Does your home provide income for you now or is it expected to in the future? Do you rent out a room or guesthouse? Does your land produce income?
2. Do you plan to sell your primary residence, for an appreciated value, and use the equity for retirement income?
3. Do you rent out your second home to offset the annual costs?
These are a few examples, whereby if you answered “yes,” then your home may fall into the investment category. Typically, this isn’t the norm for most American families because the purpose of their home is to provide a roof over their head or pleasure and relaxation in the case of a second home. In conclusion, a primary residence or second home is an asset on your balance sheet and vital part of your financial plan, but not always an investment.
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