Playbooks / Property
The home you live in
The rule
The sentence people say is that their home is their biggest investment. It is usually their biggest asset and it is rarely an investment, and the difference changes what you should do with the rest of your money.
Why it is not an investment
An investment produces cash or can be sold for cash you get to keep. A home does neither.
It produces no rent, because you are the tenant. It costs money every year in service charges, maintenance and insurance. And when you sell it, you have to live somewhere, so the proceeds are largely committed before they arrive. Selling into a rising market means buying into the same rising market.
What it does produce is imputed rent: the rent you no longer pay. That is real and it belongs in the rent versus buy calculation. But it is consumption, not income, and it never appears in a bank account.
What it does to a balance sheet
Three distortions, all of them common.
It hides concentration. A person with a mortgaged home and one rental in the same city has most of their net worth in one property market, financed with leverage. Counted properly that is a concentration problem. Counted as "my home plus one investment" it does not look like one.
It absorbs the emergency fund. Deposits and acquisition costs are drawn from liquid savings, and the result is an owner with a large asset and no cash. That is the situation the emergency liquidity framework exists to prevent, and the home purchase is the most common way people arrive at it.
It flatters the return. House price appreciation gets compared against savings account interest, which ignores the years of service charges, maintenance, interest and transaction costs. Run the same transaction cost drag arithmetic on your own home and the number is usually sobering.
The expatriate version
Buying a home in a country where your right to remain depends on employment adds a risk that residents do not carry. If the job ends, the timeline for leaving may be shorter than the timeline for selling a property well, and those two clocks running against each other is how people sell badly.
That is not an argument against buying. It is an argument for the emergency liquidity reserve being genuinely larger here, and for the purchase making sense at a horizon long enough to absorb a bad exit.
How to count it properly
Keep it on the balance sheet at market value less selling costs, and note beside it that it is not available. Exclude it from the assets funding retirement unless you have a specific, dated plan to downsize or move to a cheaper country, in which case count only the difference.
Then make every other allocation decision on what is left. That number is smaller than the headline net worth and it is the only part that is actually doing any work.
The arithmetic
Where it breaks
- Imputed rent is genuinely valuable and dismissing it entirely understates the case for owning. The point is that it is consumption rather than income, not that it is worthless.
- In markets with strong long run appreciation, a home has built real wealth for many people, and the framework should not be read as an argument against buying one.
- Security of tenure has a value no spreadsheet captures, particularly for families with children in school.
- A mortgage is a forced savings mechanism, and for people who would not otherwise save, the discipline has produced better outcomes than the arithmetic alone suggests.
- It ignores the option to let the home and move, which converts it into an income asset and is available to some owners and not others.
- Where residency depends on property ownership, the asset is buying something other than a return and should be valued accordingly.
When to use it
When calculating net worth for any planning purpose, and before assuming the home forms part of a retirement plan. Also before buying a second property, when the concentration question becomes live.
The Rent versus Buy does this arithmetic for you, in your currency, in about thirty seconds.
Open the calculatorSources
- Dubai Land Department, fees and charges
- Bank for International Settlements, residential property price statistics
Last reviewed . Commercial relationship disclosure: the author works in Dubai real estate brokerage. See the disclosure standards. Disclosure standards.