Is Home Ownership a Good Investment?

From time to time I run into a non-homeowner who tells me they don't want to buy a home because they don't think home ownership is a good investment. In general I don't think of my home as an investment, at least not the same way I think of my stock and IRA accounts. I do however believe that home ownership is a GREAT investment!

With the exception of those few unmentionable years from about 2007 to 2011, home prices have remained stable and/or increased. If we look at averages, even averaging in the down years, overall home appreciation is still up.

The primary reason I love Real Estate as an investment is the power of leverage. I don't know of many investments where you can control an entity with as little as 3.5% down and benefit 100% on the gains of the entire value of that entity. For example, if you put 3.5% down ($7,000) on a $200,000 home, and that home appreciates 5% over the next five years, then you have increased your equity by $10,000 (not including the principle amount you pay down over those 5 years). You make $10,000 in equity but you only invested $7,000 to control an asset worth $200,000. That is a gain of almost 145% on your initial investment!

Lastly, I love Real Estate as an investment because housing is a necessary expense so why not benefit from future equity gains and possible tax relief on something you pay for anyway?