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Is your home an investment or just another place to live?  Many homeowners say that it’s an investment because it helps them sleep at night after sipping the Kool-Aid during the housing boom.   Well, I’m here to get in your face just a bit and tell you that your home is a crappy investment.  Furthermore, it’s an investment that you’ll never truly own as long as not paying property taxes means that your home can be yanked from you and sold on the court house steps.  This further makes the concept of home ownership ie the American Dream, flawed at best.

Buying A Home Is Always A Good Investment

Historically we know this to be true, but since I forgot my crystal ball today, the verdict is out on whether or not this will remain true in the years to come.  It is doubtful as to whether or not real estate will return to the highs of 2005 which saw double digit appreciation each year.  If we do, then it means we’re probably headed for another recession as the market quite simply cannot handle another bubble.  That is the reality moving forward.

Right now, the current market is either at or near the bottom with no upswing in clear sight.  Prices will continue to go down or stay flat for the next 3-5 years, especially with so much uncertainty around how the government will get involved with trying to fix the mess that is the US housing market.

Keep in mind that life happens as we’re waiting for the housing market to rebound.  Many people move for new jobs, to be closer to family or other reasons which warrant the need to vacate the home they bought.  This means they will need to either rent the home at a loss depending on the financials or short sale the home.  There goes waiting out 30 years to realize any significant appreciation or profit during or near retirement.

Exhibit A

Homeowners who boast about making tons of money on their new investment, I submit to you exhibit A.  As always, the discussion only centers around purchase price and the eventual sale price.  As if the current market conditions aren’t enough, the chart above, is a sobering reality.  In that scenario, the home owner will need to net at least $1,073,000 on the sale, an appreciation of over $700,000.  Still think you’ll be minting money with your new “investment”?

An investment has to make, not lose or cost you money when all is said and done.  If you’re truly focused on making money as a homeowner then focus on making your “investment” produce income and not expenses.

You’re Forgetting The Tax Benefits

Am I?  Let’s take a look at that.  Scroll up and take a look at the list of expenses associated with owning a home.  Then based on your tax situation, calculate the actual monetary value of the tax deduction vs the expenses and see whether or not it makes a difference on your tax return.  For most, it does not.  The expenses of owning a home significantly outweighs whatever benefit the deduction provides.

But If I Rent, I’ll Be Throwing Money Away

With a mortgage comes property taxes, HOA fees, home insurance and other mandatory costs which make buying a home a veritable money pit.  Keep in mind that the amortization table I.E. your schedule of mortgage payments makes it so that during the early years, there really is no difference between renting and buying.

It Takes 18.5 Years To Pay More Principal Than Interest With An Amortizing Mortgage

Still think renters are throwing money away?

Furthermore, most people move every 7 years, and if you decide to move within 7 years then you’ve sunken a substantial down payment, closing costs, taxes, maintenance and repair fees, not to mention the huge amount of interest you pay upfront during that time.  Renters can also usually rent for as long as the landlord will allow or needs a renter in the home.  If a renter loses a home, there’s the option to get a cheaper rental until things get better.  When you own a home, even if your financial situation changes, you must continue to pay the mortgage payment as agreed upon during closing.

I already see the naive/newbie/wannabe landlords telling me that whatever the mortgage ends up being on the home, then the renters will just have to pay it in order to cover the mortgage which validates buying a home.  In what world?   Just because your mortgage is $4000, this then doesn’t mean that your rental market can support that amount.  In many markets, the rent is lower than the mortgage and the landlords eat the balance between the rent and the mortgage to make up the difference.  This fact would behoove would be homeowners to carefully select a home with a price and mortgage where the market rents in that area are higher than the mortgage.

For example, if you’re paying $2500 per month on a home for the mortgage then you better hope that the market rent supports at least $2800 to make money on the rental should you ever need to vacate the home.

Then comes the argument that renters can’t paint.  Again, this is not true.  Most of the time all you have to do is ask or bargain with your landlord.  In some cases, the landlord will pay for painting the room in exchange for an extra year on the lease.  Whatever you choose to work out is up to you, however, this isn’t a hard and fast rule.

Well, Paying My Mortgage Is Forced Savings

If you want to save money, open a savings account.  The argument here is that as you pay down your mortgage you build equity which builds “savings” as you pay down your mortgage.  There’s one problem with that assertion.  A “savings account” allows you access at any time and you earn interest on the money in that account.  For the purposes of this discussion, the forced savings theory is just that, an expensive theory called equity.  When you’re ready to access the equity in your home, one can only do so via Home Equity Line Of Credit (HELOC), refinancing or selling the home.  With the exception of selling,  this ends up costing you money, a lot more money in the long run.

And that my friends is why your home is a crappy investment.  To believe otherwise is to soothe yourself to help you sleep at night.  When you wake up, the only difference is that you’ve exchanged your landlord for the bank and once you’re finished with the bank you’re now at the mercy of the state as you must continue to pay property taxes.    Say hi to your Realtor for me.