Is Your Home the Only Investment You Need?

Planning on getting wealthy? Buying your own home is one of the standard strategies recommended by many financial experts. In fact, recent studies of how people gain wealth show that folks that own their own home accrue more wealth in a lifetime than those who don't.


But it is enough? Will you be retiring comfortably on your home equity?

An article on Yahoo Finance says no. Apparently, too many of us are relying on our homes as our sole investment for our golden years, and that's a mistake.


Why? Well, we are using our home equity to finance our current lifestyle! The tidal wave of home refinancing and decline in equity say that not only are our homes not building wealth for us, we aren't saving anywhere else either. With foreclosures up and problems galore in the lending market, we aren't even necessarily keeping the house we bought.

However, let's say that you are carefully paying off your mortgage, and living within your means. Your homes still isn't necessarily the best investment of your money. While homes are generally going to make money over your initial price if you stay in them long enough, the amount you pay for them (once you add up interest and other costs) far exceeds what you will get out of them.

The answer? Buy your house because you love it. Pay off the mortgage as quickly as possible, in order to save thousands (if not hundreds of thousands) in interest and other charges. And finally, be sure to have other savings and investments, so that you can enjoy your retirement years.

Michael Chantrel
7 comments
Posted by Scott on June 25,2007 at 6:07 PM

The WealthyGeek quoted financial planners who say mortgage money is about the cheapest money you can borrow.  Agreed!  It's even better to borrow against your home if you're not paying back your primary mortgage, but instead leveraging the equity to acquire appreciating assets that will enhance your wealth and quality of life in retirement, if not now.  There are new lending programs that leverage cash flow to create equity in a property faster, allow for full interest deductions (be sure to confirm your situation with your CPA), and require no changes in spending behavior.  Then, the equity that is generated can be applied to wealth building investments, eg, real estate, business acquisition, or in tax-advantaged opportunities.  Indeed, you don't have to pay off the house if you don't want to, but it's good to know how to generate equity that can be leveraged aggressively and SAFELY to accelerate wealth building.

Posted by Marsha on April 28,2007 at 8:25 AM

I use this software program for homeowners to accelerate the payoff of my mortgage.  It is saving me thousands, and paying off in half the time.

Posted by The Bruce Goose on March 16,2007 at 4:53 PM
I live in Canada. Are you sure the housing market here won't follow the American trend. I'm a renter who finds the current market ridiculously overpriced. Are you saying there's no relief in sight?? Dang!
Posted by Michael on March 16,2007 at 11:35 AM
If you are in the market for buying a home, and you live in the US, I'd say wait to buy. House prices are dropping, and you may be able to get a great deal if you can wait. It's no longer a matter of trying to catch the market as it pulls away from you -- at least not in most areas.

If you live in Canada, it's a whole other ballgame. The market there is still singing along, and the prices are still going up overall. If you want to buy, now is as good a time as any, given that prices show no signs of dropping -- especially in the white hot Alberta markets.
Posted by WealthyGeek on March 16,2007 at 8:42 AM
Good article. Homeownership is not necessarily the path to becoming 'wealthy'; but it can be the path to coming (slightly) less uncomfortable financially, at least in the long term. I'm wondering, though, about the strategy of paying off your house as quickly as you can. Even the most astute financial planners disagree on this point. Some will tell you not to bother, because a home mortgage is just about the cheapest money you can borrow. Other will tell you that you *should* pay it off as fast as possible, provided you're disciplined enough to invest wisely the money you save yourself in interest payments.
Posted by Barney on March 16,2007 at 8:37 AM
In an ideal world every dollar borrowed should be for appreciating assets only. Unfortunately, we don't live in an ideal world. If I hear one more financial planner preach about "living within your means" as the solution to all the world's problems I'm going to be sick.

The real reason they want you to live within your means: so you'll have more money to buy their mutual funds with high management fees. The rich get richer while the rest of us dream of being the ones giving it to the average guy.
Posted by WobblyJelly on March 16,2007 at 8:21 AM
I'm wanting to buy my first home, but I find all this news on the housing market a bit scary. Should I wait for things to settle before buying and how long would that be?
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