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Your Home is Not an Investment

edited November 2020 in Other Investing
I am in the final stages of selling a home that I have lived in for almost 35 years. Purchase price was $67K. Hoping to close at $277K, but those numbers are not the whole story.

Home improvements (landscaping, additions, remodels, and replacement of original components have cost close to $100K plus interest over those years. Recent costs (getting the home ready for sale) were close to $25K. Property taxes collected by my town over 35 years were close to $150K. Insurance costs close to $30K. Mortgage interest (financed and refinance the property) costs totaled $100K.

Had I rented instead of owned, my housing costs (average $1.2K / month over 35 years) would have been about $500K. So maybe...just maybe... "owning" (the bank owed the home most of the 35 years) my property was a break even proposition financially.

Had I put $10K into VFINX 35 years ago (a portion of the 20% down payment on the $67K sale price I had to come up with) that investment would be worth $436K. If I had invested in the entire 20% ($14,400) it would have grown to $628K.


Here's a conversation on the topic (at the 5 minute mark):
For most people, your house is your biggest asset and also your biggest liability. So it’s understandable to think about the financial implications of the most significant purchase you’re ever going to make. But a home is about more than what you buy it for and what you think it will be worth in ten years.


  • edited October 2020

    Advantages of Buying a House: (Number 1 is the most important)
    1. A house is like a forced savings plan for people who normally aren’t in the habit of saving or investing.
    2. It uses “leverage” i.e. other people’s money to get more than you could afford by yourself so when home prices do go up you benefit much more. House leverage is much greater than it used to be with Government programs allowing you to borrow 95% of the value of the house. So if you put 5% down and the house goes up 5% you have doubled your money. Where if you had to put 100% down you would have only made 5%.
    3. You can build “sweat equity” by improving the house through your own labor (untaxed).
    4. Since you are paying it off over time you are using “cheaper dollars” due to inflation to pay off the mortgage.
    5. Houses are real assets (not paper) so their value tends to keep up with inflation.

    Disadvantages of Buying a House:

    1. Incidental costs can add up- Taxes, Insurance, Maintenance, HOA fees, etc.
    2. Leverage can work against you when house prices go down as they did in 2008 the devastation is much worse than if you owned the house outright.
    3. In times of deflation, you are paying your mortgage with “more expensive dollars” and the value of your house in dollars may be going down.
    4. Houses are not “liquid” it may take time to sell if you need to move.
    5. You lose a significant chunk of value (10-20%) when you sell due to transaction costs i.e. Real Estate agent commissions, inspections, government agency fees etc.


    FD: the above is the main reason I never bought RE as an investment. All our investments are in the market. I studied and practiced RE (I was a real estate appraiser) and came to a conclusion it is not for me. Too many complications(liquidity, tenants, moving parts) compared to mutual funds.
  • edited October 2020
    Thanks for the rundown @bee. I’ve rented and owned. Prefer the latter - but not by a whole lot. One reason: If I decide to pound a nail in the wall to hang a photo (or rip a wall out for that matter) there’s no nasty landlord to deal with.

    I don’t doubt your numbers. Of course, you’ve been able to borrow against the home at very low interest rates for many years now, investing that $$ for higher return. Might alter the equation a bit. A lot of our affinity for houses as investments probably stems from the 70s and 80’s when high inflation was driving prices. For some, houses seemed like gold mines. Not so much the case today.

    Somebody defined a boat as “a hole in the water you pour money into.” A house ain’t that bad, But the upkeep is expensive and ongoing. The more you can do yourself (repairs, wiring, painting, etc.) the lower the overall cost. But, as I’m learning, the more one advances in age the less likely he / she is to do such work. So, owning a home is becoming more expensive with age.
  • My wife has to have a dog. Hard to have those in an apartment building. So, we had to find flats that allowed a dog. Which usually meant dealing with family owner issues. And when things happened . . . Oh you need to move out, Aunt Sally passed away, my son is moving in, so on, and so forth. So we were moving about every 18 months. Which is a real pain in the neck in San Francisco.

    Which is the main reason we bought a house. That, and having kids. And wanting to paint it whatever we wanted to. Or mark their birthday heights on the door jam in the kitchen. So, in 1986 we lucked into the last three bedroom house in Marin county under 300K. It was in decent shape. So I cashed in some IRA's to raise enough to qualify for mortgage insurance.

    All in all, I don't know if we made a lot of money. We had somewhat more peace of mind. Fewer back aches from moving. Seldom had anything new in the first house, except a roof. Did spend a stupid amount of money getting the house ready for sale. Which probably provided more benefit to the realtor than it did to us.

    The sale of that house paid for our new house in Tempe. And new double pane windows, and a new heat pump, and a new kitchen, and a new bathroom. I am currently redoing the back "master bath". Or is it "en suite?" Need to save some of the leftovers for a new roof, and a new heat pump.

    This is a 1971 ranch, so nothing to get excited about. But no ship-lap. No barn doors. No open floor plan. No stupid signs reminding us how to live.
  • I was a professional student for most of the time, even into my 40s. That made the choice easy: no income. No house. The way I'm hard-wired, SIMPLICITY is a key priority. I lived in the family home for a few years after retirement. Mortgage was long ago paid. The crime (01108, I don't recommend it) drove me away sooner than we'd planned to leave. Lucky to have in-law cousins here. Mom (back East) is in a fancy stand-alone condo by a golf course. My step-father played. He's gone now, though. ...Great place, new. Open floor plan. But the condom (sic) assoc. monthly fees are absurd. ..... Anyone who BUYS in Hawaii these days is either stupid or foolish. EVERY politician running for election states that homelessness is a huge problem that must be addressed. AFFORDABLE housing is gone, just gone. That's true for renters, too. To buy a house here now would be to strap an albatross around your neck. Unless you're just filthy rich and don't care, and you can afford a waterfront home. On Oahu, lots are tiny. It's heaven, but it's crowded.
  • Bloomberg covers the topic here:
    Home buying isn’t for everyone. While there are financial benefits to owning property — the value could increase, and mortgage interest can be tax-deductible — you lose the flexibility that comes with renting. And property taxes, maintenance, insurance and unplanned expenses mean there is much more to consider than just whether or not a mortgage payment is cheaper than rent.

    Bloomberg spoke with people across the world about what went into their decision to buy — or wait.
  • "And property taxes, maintenance, insurance and unplanned expenses mean there is much more to consider than just whether or not a mortgage payment is cheaper than rent."

    Does anyone seriously believe that renters are not also paying for all of these expenses?
  • beebee
    edited October 2020
    The legal rights and responsibilities of the renter verses the owner are also often quite different. @Old_Joe there are many subsidized housing situations for renter that disconnects the true cost of housing for the owner (landlord / housing authority) and the tenant (renter).
  • Had I rented instead of owned, my housing costs (average $1K / month over 35 years) would have been about $350K. So maybe...just maybe... "owning" (the bank owed the home most of the 35 years) my property was a break even proposition financially.
    The realtors tell the buyers the opposite. We own a simple home in a good neighborhood and schools for our kids. Not the type who wants a palace.

    What is your next adventure after selling the house?
  • @Sven
    What is your next adventure after selling the house?
    I bought a condo in FL (Palm Beach County) a few years back. Paid $35K in 2012 which was a good time to buy. It does have an HOA (that includes Cable, water, maintenance, building insurance, pools, tennis, guard house), but taxes are 1/10th of what I was paying for the house. I own the condo free and clear.

    I have lowered my living expenses in half while multiplying almost every other aspect of my living conditions (especially nicer weather). Hot Humid Summers can last many months in South Florida so I plan on traveling during those months once travel normalizes.
  • Most excellent! The key is to keep the expense down during retirement. The wild card is medical expense. My wife and I will cross that point in the near future.
  • This thread is really interesting and is the sort of thing that makes MFO a worthwhile place to visit.
  • Yes. Your home is not an investment. I will even go further. It is not part of your "net worth". I think this idea was brought out by people who decided either getting a home equity loan is part of investment strategy and/or getting a reverse mortgage is part of retirement strategy.

    If you think your home is an asset, sell and move.
  • >> It is not part of your "net worth".

    have kids?
  • >> It is not part of your "net worth".

    have kids?

    yeah, but neither I nor them can eat the house. If you sink all our assets in house and then lose job, what then?
  • Then when you buy a home it's wise not to sink all of your assets into it, right? If you lose your job when renting and have no reserves then you are completely at the mercy of someone else. Under no circumstance would my wife or I have put ourselves in that position. However, we certainly agree that the home should not be considered any part of "net worth".

    Then again, no kids, so every situation is a bit different.
  • >> It is not part of your "net worth".

    have kids?

    yeah, but neither I nor them can eat the house. If you sink all our assets in house and then lose job, what then?
    they can eat it after you're dead

    who's talking about sinking all assets into one's house?
  • We are free and clear of our mortgage for the first time since we bought a house. Some will recall another thread on the question of paying the mortgage off. “Fait et dit,” or said and done. For some reason the French expression appears to have the order backwards.
  • Combining the thoughts in the last two posts, and with apologies to Dr. Seuss (Horton Hatches the Egg):

    You said what you did and you did what you said,
    You can't tap home wealth 'till you're gone and dead.

  • who's talking about sinking all assets into one's house?

    I actually know people who do. And they also see those ads on TV and buy rental properties. I know people at work who instead of doing work are "managing" their 12 rental properties they cannot afford.

    Now their renters are not paying.

    To each his/her own. My only point is especially in places where real estate is expensive it is often the largest or only real asset people have. The notion of course is home prices will always only go up. We talk about diversification benefits, but when it comes to home, that's kinda ignored since there are different ways of monetizing this asset.

    I know people borrowing from their 401ks and buying real estate for rental income.
  • not talking RE investing, just the notion of keeping on applying any leftover income / savings into one's house, earnings period after earnings period
  • Sometimes a certain amount of luck is necessary with respect to real estate timing. We got an early start to financial stability with the purchase, with another young couple, of a four unit apartment house at a good location in SF. What an experience! A whole lot of really hard physical work for the four of us, and certainly not for the faint of heart.

    But the timing worked out, and after three or four years we sold into a steeply rising real estate market. That early profit provided the start of our financial success.
  • Your home may not be a great investment but it is certainly a decent investment, comparable to safer investments in returns. Some people get lucky and buy homes at a great price or in neighborhoods that spike in value, but that’s often not the case.

    We bought our home with a 15-year mortgage and paid it off about five years before retirement. Having our mortgage paid off made a huge difference in being able to retire when we did because our living expenses were so much lower. It also enabled us to ramp up our retirement savings the last few years of working.

    Owning a home has many intangible values, if your neighborhood is desirable and you enjoy working in the yard or doing home improvements. For example, we live next a large city nature preserve where we can hike and walk the dog. On the downside, you never really pay off a home because of ongoing maintenance and repairs.
  • Welcome to Florida, Bee! We've been living in SW Fl full-time for 11 years. We started out as snowbirds, but that lasted one year before we moved here permanently. We actually like the summers down here...except for hurricanes...because it's a lot less crowded and the golf is inexpensive.
  • On the downside, you never really pay off a home because of ongoing maintenance and repairs.
    That is part of the ownership. Don't forget property tax and house insurance. Even if you are a renter, a portion of the rent over property tax, insurance and mortgage.

    Owning a house is fine, but owning time shares is a quite a bit of different story. We get invite to time shares frequently, but we never took up their offer of fancy dinner and etc. Often we find discount to rent time shares for similar pricing to upscale hotels. At least we get to choose the time and location we want.
  • edited November 2020
    A home isn’t part of your net worth?

    I was taught years ago that it is. Of course, one must exclude any mortgage amount owed against the home. Mass Mutual seems to agree. “Net worth“ is an interesting concept. I found it quite meaningful when it was first explained to me about 30 years ago by a guy who really understood finance. Helped set me on the right path back than.

    In a nutshell: It’s better to be positively netted rather than negatively netted - as some unfortunate souls find themselves. Overall, however, it’s not something I pay a whole lot of attention to. Quality of life can be measured against many markers. The Mass Mutual link above is current (2020) and cites some interesting net-worth averages for those of us in the retirement years.
  • Hi @hank- I'm thinking that I was unclear when I said that the home should not be considered any part of "net worth". I meant that with respect to investment decisions- we sort of set the value of the SF home completely aside from any consideration involving investing. For instance, we would never consider transforming any part of our home's intrinsic cash value into some other type of financial asset in an attempt to increase our total net worth.

    Obviously though, an "outsider" evaluating our total net worth would look at things very differently. We do consider the weekend place on the Russian River as part of our net worth, because in an major emergency we could convert that property value to cash without compromising our main home. A "house" vs a "home", I suppose.

  • edited November 2020

    Thank you for that clarification. Actually, I was responding to something I thought I’d seen elsewhere in the thread. Folks shouldn’t get bogged down in definitions. Debaters in academia customarily begin with a definition of terms precisely because the same term can mean different things to different people.

    I would agree that a home is not a liquid investment. Also, as @bee mentioned, selling often entails additional costs like sales commissions, moving expenses and bringing the home up to code.
    Perhaps one should list those anticipated costs as liabilities? Additionally, unless said individual(s) ceases to exist, they’ll still require housing. Perhaps future rent payments should be listed as a liability?

    Speaking of definitions:

    Net worth, as defined by some, may / may not include the actuarial value of pension plan, projected social security income, or subsidized health care plan.

    Cash is sometimes represented in portfolio construction as being anything from FDIC insured bank accounts to ultra-short term junk bond funds.

    Total return is defined by some as: net investment return excluding whatever cash holdings they have already set aside for a bear market or in a “rainy-day” fund. Others, like myself, don’t keep a separate rainy-day fund. Hence, cash is included in computing total return.

    Return or gain as presented, may or may not include compounding.

    Alternative investments? That might be anything from selling puts, to a market neutral fund, to gold or a fund like HSGFX.
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