Your House: A Place To Live Or An Investment?
The debate rages on. Should you view your house as a key to riches or a loss leader required to run a household? In an article from Motley Fool, author Robert Aronen calls your home the worst investment ever!
I had to check out his reasoning.
One of his key points is that a house produces negative cash flow. Many investments can actually put money in your pocket right from the get-go: think dividends from your favourite stock. Now, he's not slamming property as an investment from the rental perspective; he's talking about you buying your primary residence. Obviously, if you invest in rental property, you can often get more for your investment than the cost of the mortgage loan, and this can mean a positive cash flow for you.
Aronen also argues that the costs associated with maintaining your asset -- your home -- are too high as an investment. In fact, once you add up the costs of the mortgage, property taxes, private mortgage insurance (if you don't have 20% down) and such, the maintenance of your home can easily exceed 3% of your home's value. If you had the same expense ratio on a mutual fund, you'd be paying too much.
The other frequently quoted argument for home ownership is that it is a "safe" investment with historically good returns. Aronen argues that this is not true, and that once you control for inflation and subtract the costs of home ownership, your actual return is pretty small.
Has he convinced me? Nope. You aren't guaranteed any return on any stock and I've certainly lost my shirt on a few. In fact, I didn't just lose my appreciated value; I lost my original seed money too! My home, while not a "high return" investment, has never lost me everything I've put into it.
There's another thing: I also enjoy seeing my kids grow up in the home that I'm paying for, and I don't think the best stock could replace that feeling. And the satisfaction I get from paying off that mortgage is worth its weight in gold. Are these "logical" reasons? Perhaps not. But I won't be trading in my home for a rental unit any time soon.