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Sunday, 24 July 2011

Home for Living and not for profit taking (6)

Read? Home for Living and not for profit taking (5)

Reading is easy and writing is hard. To keep writing more to defend a particular view is even harder. When it becomes necessary to defend it further, I will have no choice but to do it.


I will have no issue when peoples start debating Property vs. Stocks investing. Each side will share their own investing experiences and performance results. Each side will try to convince each other that one of them is more right than the other and I have no problem in accepting either conclusion. But, when some people start to compare their HOME vs. Stock investing, then I will have strong view. That is the reason why I have been writing several blog posts on "Home for Living and Not for Profit Taking."

Stocks are for investing or speculating. There is no doubt about it. If you have two or more houses; one of the houses will become your home and the rest of them can be for investing or speculating. But, if you only have one house and that is your home. Home is for living and not for investing or speculating for profit.

Why do we buy a house?

We will want to buy a house when we plan to get married and start a family. Some married couples may choose to remain as DINK (Dual Income No Kids) while some other married couples may SINK (Single Income aNd Kids) and most family will have kids.

Most of us when we married we will want to buy a HOME to begin a different phase of our life. A family life either with kids or without kids. A home is for living with our family. Unlike singles, they can choose to live in their existing home (in fact, it is their parents' home but one day can became theirs too). Singles can choose to buy a home for living and then have absolute freedom to do what they like within their home. Their parents cannot stop them.

Single can also choose to buy a house as second home to live and at the same time it can be a house (property) for investing or speculating. He/She can later sell his/her house for profit and return to his/her home (parents' home).

Home has Utility Value

Home has utility value. We utilize it for our living as a creature of comfort. Stocks don't have any utility value and we don't utilize our stocks for our living at all. Because home is a utility when we sell our home we have to replace it either by renting, buying a second home or moving back to stay with parents. But, when we sell our stocks, it is not necessary to replace them as stocks have no utility value.

Even if you sell your first home and replace with it a second home to live. The utility value of the two home  can never be the same. One of the them will have higher utility value.

Let get back to the case study of my ex-neighbour as it is easier to understand the utility value using real life example.

His first home sold will have higher utility value since it is just one bus stop away from the MRT station and his second home bought is a few bus stop farther away from it. In the past, he and his family members can comfortably walk to MRT station from their home within 5 minutes. But now, he and his family will have to walk so much farther distance to the MRT station or incur additional transport cost to take bus to the MRT station. So there is some hidden cost in his second home.

Profit taking from stocks are pure monetary gains and there is no hidden costs associated with it. Profit taking from home will have monetary gains as stocks; but it is never pure monetary gains like stocks. Your monetary gains in your sold home may come in the way of lower utility value in your second home with hidden costs often are unaccountable.

Do you still want to compare HOME vs. Stock Investing in term of monetary gains?

Think again. Home for Living and Not for Profit Taking.

12 comments:

  1. Yes, agree absolutely. A house/flat is for shelter and living and unless no choice, one should not downgrade to get cash.
    Looking from another angle, if u bought to upgrade to a better grade house, don't be in a haste to sell off your old house. You have a choice to rent the old house till it becomes a multi-bagger and it will be much bigger profit than one can ever dream of.

    ReplyDelete
  2. When people downgrade from a bigger flat to a smaller flat, each one of them may have their own reason, not necessary for $$$ all the time.

    ReplyDelete
  3. i don't agree, home is a commodity to me. and i have no problem renting a place to stay.

    in fact renting a place i could move around and have different enviroment which i and my family like to do (as long as i don't carry to many staff)

    ReplyDelete
  4. Surprisingly. You are among the few Singaporeans who have family and kids but are renters.

    ReplyDelete
  5. Like what uncle 8888 says, home has a utility purpose and this use should be taken as an advantage when buying a property.
    With 2 properties, one is for living and one for realising profits.
    With 1 property, perhaps our kids will realise the profits.
    With no property to our name, our kids may find they have hardly any backup should our medical bill during our final days skyrocket.

    ReplyDelete
  6. Fully agreed with financialray. A fully paid home in our name can be the last line of defence in our final days for medical bills. after exhausting most of our other assets.

    As financially responsible parents we shouldn't unnecessary sandwich our next generation.

    ReplyDelete
  7. Yes, we all should not burdened our children financially at our old age.
    In fact they may need our financial help to start a family in these very competitive society of ours.
    Their times are really more difficult than ours.

    In case, you burden them even on your last days,
    have you all signed your "AMD"?
    My wife has signed.
    I am always in the process of signing due to my nature of inertia. Bad.

    ReplyDelete
  8. AMD=Advance Medical Directive.
    I think almost all neurologists have signed because they see this type of patients the most and they don't want to carry on living like them, like a "plant". No, i am wrong, even some plants and trees have natural surviving tactics.

    ReplyDelete
  9. don't mistaken, your post is a good one.

    i have 2 house currently, one is rented out. but i have no problem of selling them and rent a place to stay. all depends on the situation.

    ReplyDelete
  10. Hi coconut you are very special-you don't mind to maximise all your capital/assets for a better return if the situation allows it.

    It is very "tempting" to me.
    But what about your family's members?
    You don't mind renting a whole house or renting a room?
    If renting a room then it's not a viable proposition to me.
    If renting a whole house, you can only rent private property.
    Again, it may not be a viable proposition due to high renting cost.

    Have you done it before?
    If so, care to share how you do it.
    i always think maximise all your capital/assets for better return is a special form of investment.
    What is this the risk to return for this way of investing?
    It looks like risk is very high, isn't it?

    ReplyDelete
  11. hi temperament, hope i'm not here to mislead cw8888 readers. thats only my personal opinion. (in fact i'm currently selling my rented apt and considering selling my resident apt.)

    cos i'm a full time trader, not a good investor, i'm here also to learn from the good one.

    yes i treat houses just like stocks, no attachment. yes i done it twice renting a whole hdb flat from a friend many years back. my wife don't like to move haha but i guess they have no choice. ofcos, renting is not a long term solution but if i can confidently get a return higher than say 10%, then it is definately worth doing so. for a trader, capital (cash) means fire power.

    as long as you know what you are doing, and know the draw back, it is not high risk as compare to trading.

    even for investing, rather than having your million sitting on your house, you have a return of 100k (10%) which can pay your rent and your living expenses.

    maximise all your capital/assets for better return is the best choice if you know how to do it. but seriously, for those who cannot take risk, follow cw8888 advise is a better choice.

    ReplyDelete

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