Ask the Experts

Prime Properties

I’m going to graduate next year. That’s starting to feel really soon for me! Lately, I’ve been thinking a lot about the responsibilities I’ll have as a “real” adult, and I’ve especially been thinking about my living situation. I want to save up and buy a home, but I have a hard time understanding what makes a house valuable. I see really large, nice-looking homes dismissed as “McMansions,” old and poorly maintained homes described optimistically as “fixer-uppers,” and everything in between. Let’s say I wanted to get a house that would really work as an investment and, in the long run, make me money: what would I look for?

There are a lot of very good reasons to consider buying a home instead of renting. The conventional wisdom is pretty straightforward: when you buy a home and pay into a mortgage, your money is going towards an asset that you can then resell or simply enjoy after its fully paid off; rent payments, on the other hand, merely give you a month of living space at a time and do not form any sort of long-term investment.

But let’s be clear: buying a home is considered better because you end up making an investment, and an investment is better than nothing. It’s not necessarily that you should expect to make money on your home–while the real estate market is currently pretty good, it’s worth remembering that some of today’s growth is better viewed as recovery: home prices won’t fully recover from the 2007/2008 housing market crash and recession until 2025, experts predict. In other words, you should probably not view your home as a surefire way to make money! Some pros go so far as to say a house isn’t an investment at all.

Why? Real estate is highly illiquid, for one thing: it’s hard to sell quickly if you need cash. And there are other reasons, too: the size of the investment (you can diversify your stock holdings easily, but it’s not easy to buy lots of homes!), the importance of the property in ways other than its value (are you going to move just so you can cash out a small gain?), and more. Buying a home gives you value that renting would not, but if you lose a small amount or break even when you eventually sell your home, that shouldn’t be a financial disaster for you–if it is, perhaps you’ve placed too much of your net work in your home.

With that caveat, we can say that there is (of course) nothing wrong with trying to get the most value possible out of your home. So what makes a home valuable? The oldest and perhaps best answer, says Cleveland, Australia realtor Ryan McCann, is location. Into this broad category go things as diverse as good school districts and proximity to natural wonders–or big cities, good employment opportunities, or even low taxes. Some of these factors are fluid, of course, which is why predicting the real estate market isn’t always easy. Neighborhoods, cities, and even whole regions can change over time.

But not everything about your property’s value is beyond your control. Maintaining your home is a key part of preserving its value, experts say. That means everything from big exterior projects, like the improvement projects that can transform the fixer-uppers and make “house flipping” possible to the perfect interior touches–new appliances, routine re-paintings, and touches like plantation shutters can all boost the value of a home, say the pros at Melbourne, Australia’s The Blinds Place.

In short, there’s no grand secret to identifying a home that will grow in value, but you can do your best to pick a home in a great location and invest in repairs and maintenance.

“We should attempt to bring nature, houses, and human beings together in a higher unity.” — Ludwig Mies van der Rohe

Marcus Williams is a Senior Financial Consultant in Financial Services and Advisory at EY.