This is a loaded question, obviously, because I just revisited the subject of buying your first home (of which I am now an avid fan) a week or so ago; Rick suggested:
Since equities also have a good long term investment record, why not scale back on the primary residence somewhat and invest in both real estate and equities?
At the time, I responded by saying: “The effect of the 20% Equity Rule and 25% Income Rule is to ensure that you are always investing AT LEAST 75% of your networth elsewhere (could be business, RE, equities, etc., etc.).”
Of course, that doesn’t address the question, as I have also said that these rules are up for grabs – meaning, you can just ignore them – when considering buying your first home.
Now, I am clearly a fan of buying your first home – you just need to go back to one of my very first posts to see that – but, it wasn’t always that way …
… I started by believing that there were other investments out there that performed better than your first home.
And, that still holds true; after all, as my Grandfather once told my Grannie when they had the same decision to make soon after immigrating to Australia:
You can’t always buy a business from your home … but, you can always buy a home from [the profits produced by] your business.
This still holds true … as does the 20% Equity Rule. In other words, if you are absolutely committed to using the funds to start a business, or are ABSOLUTELY committed to ALWAYS investing at least 75% of your Net Worth, then by all means keep renting.
It’s just that 99% of people will – sooner or later – fall off the investing wagon. It’s human nature.
Then they’ll end up with no investments, little net worth, and no home. Buying your first home, and using that as a springboard into other investments, is a great way to go; just remember what I said, way back in the beginning of 2008:
If you are ready, willing and able to buy your first house, or you are thinking of trading up (or, down) …. here’s my advice:
Put aside the emotional decisions and just consider the financial impact, and that is: your house is the ONLY way that most people will ever get off the launching pad to financial success …
Why? Because, you are building up equity over time (even a flat or falling real estate market eventually climbs back up again) …
… but – and here is the key – ONLY if you are prepared to put the equity in your house to work for you … that means, borrowing against the equity in your house to INVEST.