January 16, 2015

A personal home is a poor investment at best and a nightmare at worst. Why?

4 thoughts on “January 16, 2015”

  1. Garrett Haag says:

    The reason a personal home is a bad investment is because of the high costs that go along with home ownership. Your house might go up at best 3% a year and that has no promises. While you can easily spend up to 10% of a houses value in a year with property taxes, improvements and other hidden costs. You can make better returns by owning stocks and REIT indexs. You dont have to worry about the extra costs of the index funds, you know what the index funds cost before you get in to them, and you don’t have to fix a foundation of an index fund. The money you spend on the house as an investment is better off used to make a investment that creates income, a house produces no income. If you want to live someplace for a very long time go and buy a home knowing you will lose money on it in the long run after cost. Renting can be the best option for many people who do not think they will stay in the area.

  2. Brennan Haag says:

    A personal home is a bad investment because you will almost always loose money on it. It cost a lot to maintain a house and repairs are expensive. It could be a nightmare because you could be completely ruined if you buy a house that needs tens of thousands of dollars worth of work or you could loose you house in an accident that insurance won’t cover.

  3. Mike Dunlop says:

    First and foremost, when you look for good investments, you should first consider those that provide income. Since home ownership does not provide income, it immediately falls out of the list of attractive investments. Conventional wisdom says that home ownership is a good thing. You will hear things like your home value will appreciate” or “interest rates have never been lower.” What you do not hear are all of the costs and stresses that owning a home also brings with it.

    Here are some of the costs that you must consider when owning a home instead of renting:

    1) property taxes, usually 1-2% annually based on the value of the house.

    2) maintenance and improvements, can easily exceed 2% annually of the value of your house.

    3) insurance(home owners, flood, and others).

    4) all the extra “stuff”you need to own a home such as lawn mowers, snow throwers, additional furniture, etc.

    Consider the interest on the loan as well. Most people cannot afford to pay cash for a home. If you borrow $250,000 for 30 years at 4% interest! you will pay approximately $172,000 in interest over the course of the loan. That is 42% of the amount you borrowed!

    There are many intangibles that come with home ownership as well that can be a negative factor. The stresses of completing maintenance and upkeep of your house can cause many arguments among couples.

    Relocation can also cause many issues with home ownership. A house is a large investment and therefore not very liquid. If you relocate due to your work, you may be stuck with trying to sell your house after you have moved. I personally have experienced this when I moved in 2008. Our old house lost value and we owed more than its value and it took almost a year to sell after we moved, causing us the stress of making 2 house payments for a year.

    There are intangible benefits that are relieved from home ownership, but people must understand that they will typically not make money from investing in a home.

  4. Mike Finley says:

    The answers you see above provide a clear and honest assessment regarding home ownership. Well done, gentlemen. Buy a home when you can afford it (down payment is enough to avoid PMI and monthly payment is below 30% of one’s gross income).

    Don’t buy a home as an investment. Stick with no-load index mutual funds for that. Buy a home as a place to live in for a decade or more. If you have an unhealthy relationship, dicey job situation, or expect to move in a few years, in most cases you are better off renting. A home is a place to raise a family, not increase your wealth. It’s that simple.

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