Is a house a home or an investment?

Recently I reviewed the latest data on the rate of return for money spent on remodeling projects and began to wonder when we started to think of our homes as investments?  Growing up in the 60’s I don’t remember my parents talking about the current market value of our house.  In fact, if they did it was because property taxes were increasing.  They never planned to sell, so current market value wasn’t something they contemplated. 

As home values steadily increased from the 60’s through the 90’s and people were able to sell their homes making incredible profits, our attitudes began to change.  Houses no longer were homes but investments.  People no longer lived in the same house for a lifetime; they moved to bigger and better.  Investing in housing was a sure way to beat inflation and safer than the stock market.  Then when you were ready to retire you could downsize and have a nice little nest egg. 

Don’t get me wrong the value of houses is important and most of our wealth has been tied to our homes.  But when things get turned upside down it is a good time to rethink our views and ask some good questions.  Should we primarily consider our houses as homes or investments?  Am I making this housing decision based on its potential economic return or how it will impact my current quality of life?  Is this housing decision temporary or could I see myself living this way for the rest of my life? 

I recently designed a remodeling project for a family that had been holding off because of uncertainties in the economy.  The downturn in the economy hadn’t made an impact on them, but was this a good housing decision?  They weren’t sure they would be able to recover the money they put into their home.  As their children grew, they waited.  Now they wish they would have done the work earlier so they could have enjoyed the changes in their home.

I also talked with a growing family who would like to sell their home and move to a larger house, but the market is preventing that.  They like their location, but need more space and have decided to add on so they can live the way the want to now rather than wait for the market to improve.

Are these smart decisions?  The fact is that statistically most remodeling projects don’t pay off financially.  However, if you view your house primarily as a home and secondarily as an investment, you can choose to build wisely, balancing your family’s needs with your financial goals.  Working with a qualified architect can help you maximize your remodeling dollar.

But if you are primarily looking at your house as an investment, might I suggest buying gold and burying it in the basement!