Buying A Home For Own Stay – Should We Buy It Just Because We “Like” It?
In my article this month, I’d like to share some people’s investment philosophy (or lack there of it) when it comes to buying their own homes for own stay (Let’s term an Own Stay Home as “Residential Home” for ease of discussion).
More often than not, some well meaning folks will dispense the following conventional wisdom when it comes to buying a Residential Home, – “If you’re buying a house for own stay, don’t worry too much la. As long as it fits your budget and you like it – go ahead and buy it lah.”
Well, if you just buy a Residential Home purely because you “like” it, and it’s within your budget, the following real life scenarios could happen.
Scenario 1 (The Beautiful Condo facing a Cemetery)
Barry & his wife Linda (fake names of course) bought a Condo in the fairly upscale area of Damansara. Unfortunately or fortunately, their unit faces a cemetery. If it was purely for investment purposes, they would not have proceeded with the purchase. However, since they are buying for their Own Stay and liked the unit, they decided to buy it anyway. A couple of years later, our lovely couple wanted to refinance their home to unlock some of their equity. However, most banks including their own banker did not even want to refinance their unit, due to its proximity to the cemetery. Barry & Linda are now perplexed at their lack of options.
Scenario 2 (The House Facing a T-Junction)
About 2 years ago, Charles & his wife Stella (fake names of course) were very keen to buy a unit in Taman Tun Dr. Ismail. They looked high & low but just couldn’t find a unit within their budget, as most of the Double Storey Link houses were priced at more than RM 1.3 mil. Finally, they found a unit within their budget, but it faced a T-Junction. They happily bought the unit since it was for their Own Stay and they liked it. They plonked in a further RM 300K for renovation, and they got the House of their dreams.
Just recently however, Charles managed to get an attractive offer overseas, and will be bringing his young family along for an indefinite time period. They decided to sell their home at the normal market price, thinking that potential buyers would appreciate their tasteful renovation. Alas, potential buyers did not even want to pay the market price, let alone premium for their home because of its proximity to the T-Junction. Our lovely couple is now in a limbo.
Should you View Your Own Residential Home as an Investment?
The point I’m trying to impress is this – there are people that advocate that one shouldn’t look at your own residential home as an investment. After all, you will be staying there, and normal investment considerations should not apply. To be fair, there is no malice or ill intent in this “conventional wisdom” per se.
However, I do not subscribe to that notion. To me, your Residential Home should be evaluated using sound & consistent investment principles, even though you may be using it for your Own Stay. Why is that the case? Let me share my 2 cents:
(a) When you buy a Residential Home using sound Investment Principles, you may reap advantages that benefit you as an investor. Just to share, my wife and I bought our Residential Home in a fairly old but affluent area in Damansara Jaya back in 2007. We are still staying here today. However, the price has appreciated 3 fold since then, and we have tapped on our home equity to refinance our home several times. In short, my Residential Home has become a “refinancing engine” that I can draw funds from to expand my Investment Portfolio more efficiently. (Please note that refinancing should be done responsibly and to generate a higher rate of return)
(b) Your net worth gains when you buy a Residential Home using sound investment criteria & principles. For instance, buying a property at Below Market Value (BMV) or at a Margin of Safety (MOS). As such, buying a BMV Home at RM 500K versus its Bank Valuation of say RM 700K will result in an instant RM 200K gain to your Net Worth.
(c) When you buy your Residential Home using the strictest of Investment Criteria – you tend to be more stringent and selective when it comes to the proximity of “taboo” objects like Electrical Towers, Indah Water Depots, T-Junctions, Cemeteries, frontage towards Main Commercial areas, etc etc. Direct translation – you don’t just think about what you like, but you also consider what the market likes. Your thinking will dwell on what is mostly acceptable to the market in terms of a suitable abode. This brings advantages in terms of sales and liquidity. If you need to make a sudden sale of your property, you tend to fetch a better price because your Property would be in demand.
Moral of the Story? The only certainty in life is uncertainty. You may have the noblest of intentions to stay in your current home forever. But sometimes, life doesn’t quite pan out the way you want it to be. Look at what happened to Barry, Charles and their wives. In all humility, please do not just consider your own emotional affinities & budget when it comes to your Residential Home, whilst discounting sound Investment principles.
Evaluating your own residential home as an investment property may bring advantages as described above. Sometimes, conventional wisdom may bring adverse circumstances. Sometimes, it pays to be unconventional.
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