In today's economy, is it better to buy a home or invest the money?

Jun 22

For decades, there has been an age-old debate about whether buying a home or investing your money is the better financial decision. Amid today’s economic uncertainty, I am seeing more people who are choosing not to buy a home but are not sure if investing is a smart option. Let’s take a look to see which might be the better fit for your financial goals.

What is good about buying a home?

Your payment stays about the same. If you have a fixed-rate mortgage, your house payment won't change much from year to year.
Your home may be worth more later. Homes often go up in value over time, so you may be able to sell it for more than you paid.
You may save on taxes. Some homeowners can get tax breaks by writing off the interest and insurance as tax deductions.
You build ownership. Every house payment helps you own a little more of your home.

What is hard about buying a home?

It costs a lot to get started. You'll need money for the down payment and closing costs before you even move in. Look for down payment assistance programs to help offset the costs.
It costs money to keep up. You'll have to pay for repairs, maintenance, and other home expenses every year.
It's not easy to move. Selling a home takes time, so you can't just pack up and leave like you can with a rental.
Your money is tied up. The money you use for your down payment can't be used for other things, like investing.

Example: Buying a $450,000 home

Home price: $450,000
Down payment (10%): $45,000
Estimated monthly payment (including taxes and insurance): $2,800–$3,300
Estimated yearly repairs and maintenance: $4,500–$9,000

What is good about investing your money?

Your money can grow faster. Over many years, the stock market has earned about 7%–10% a year on average.
You can get to your money more easily. Unlike money tied up in a house, investments are usually easier to sell if you need cash.
You have more freedom. You can move to a new city or take a new job without worrying about selling a home.
Your money keeps working for you. As your investments earn money, those earnings can also earn money. This is called compound growth.

What is challenging about investing?

The market goes up and down. Some years you'll make money, and some years you may lose money. Over time, the market has generally grown, but there are no guarantees.
You have to stay consistent. No one makes you invest every month, so you have to build the habit yourself.
You still have to pay for a place to live. If you rent, your monthly housing payment doesn't build ownership like buying a home does.

Example: Consider the 10% down payment needed to buy a $450,000 house.

Invest $45,000
Average annual return: 8%
After 30 years, your investment could grow to more than $450,000.
If you also invest the money you save each month by renting instead of owning, your investment could grow even more.

So...Which Choice Is Better?

Unfortunately, it is not that black and white. The numbers give perspective but it is important to consider what matters most to you. Consider

Buying a home if:

You plan to stay in the same area for at least 7–10 years.
You want the stability of owning your own home.
You can comfortably afford the monthly payment.
You're okay with putting a large amount of money into your home.

Investing if:

You want the freedom to move when you choose.
You're willing to invest consistently over time.
Renting costs much less than owning where you live.
Your main goal is to grow your wealth as much as possible.

A Smart Middle Ground

You don't have to choose just one.

Here’s a nice, balanced approach:

Buy a home that comfortably fits your budget instead of the most expensive home you qualify for.
Continue investing every month for retirement and other long-term goals.

This helps you build equity in your home while also growing your investments, so you don't end up "house rich and cash poor."

In a nutshell, instead of asking,

"Which choice is better?"

Try asking,

"Which choice will put me in the strongest financial position while also giving me the lifestyle I want over the next 5 to 10 years?"

Remember: