Jan 14 2008

A house is where you live–not an investment

I recently picked up a book with an arrogant title: “Everything You Know about Money is Wrong,” by Karen Ramsey.

Oh really? Hmm.

Turns out, not everything I know is wrong, but I did gain some perspective on a few things.

One I want to mention is about houses.

See her Myth # 6: “I should buy a home because it’s a great investment.”

You know how sometimes, people will say they’re buying a home because it’s an investment? They’re buying, rather than renting, so they can build equity.

If they pay for it in full or take out a mortgage on it, eventually they won’t have to make payments. That’s a great thing.

But ya know what?

If you’re living in the house you plan to live in for the rest of your life, you shouldn’t view it as an investment.

You could be living in a multi-million dollar house, and pay just a fraction of that, but for as long as you’re living there, it is simply a place where you, well, live.

Don’t think of it as an investment until you sell it.  The property may be growing in real estate value, but it doesn’t mean anything until it’s liquidated.

The author writes, “…unless you plan on ultimately selling it [your house] and then downsizing to a smaller, less expensive house–and living off the proceeds of the gain it is not an investment. It’s just a roof over your head.”

In the chapter, Ramsey goes on to make a great case for living in a smaller, more affordable house, than a larger, more expensive one. She debunks a lot of myths and it’s really interesting.

I haven’t thought of it that way before. What do you think? 



10 Responses to “A house is where you live–not an investment”

  1. I’m not so sure about that. I mean, yes, you’re not making money off of it, but if you plan to live in it forever, then you will save money when you pay it off and have no house payment. If you move from it into a bigger house, all of the equity from the first home is money that you have “saved” for the purchase of the second. It’s not an investment in the same way that stocks are, but it still is one.

  2. I agree that it isn’t an investment. Technically, if you keep the house up, it is. But when I purchase a home someday, it won’t be as an investment, but so that I can *own* it — I’ll be able to paint it, nail things to the wall, make it my own, remodel it, etc. If I sell it, I hope to do so for more than I paid for it — but that’s just inflation and how the market works. I would feel that it was less of a home if I was only trying to make money off of it. There’s more to life and living in a house than that. You are saving money once you pay off your mortgage, but that depends on the cost of living where you live. It isn’t the same everywhere. I’ve heard that it is actually bad for the market that so many people view homes as investments, because it drives the prices up, making it difficult for people to afford a home purchase.

  3. I think of houses as emotional investments. They’re only monetary in that odds are you’ll be able to use that money to buy another house later, so it’s not lost. But it’ll still go to cost of living.

  4. My dad is a Ramsey disciple, so I’ve heard this before, and I think it’s true. Your house is your HOME. But you can be smart about the way that you care for it–such as making improvements or additions that will ADD to the value of your home. Some homeowners don’t seem to think about the fact that one day they may have to/want to resell their house and you end up with some pretty strange, non-functional living spaces on the market (unfortunately, I’ve seen many …).

  5. Very good point – as long as you fall into that category of living there until you die. True for some people but far from all.

    Also even for those people it is not a complete view of the financial situation. A reverse mortgage will allow you to sell the house and get paid for the rest of the time you live there. So you can build up equity over 20,30,40 years and then take a reverse mortgage and get payments every month (based on your investing in your house). Additionally, you lock in a large part of your housing cost (you still have maintenance and taxes but you do not have every increasing rent. Now ever increasing rent is not a certainty but for many it is very likely rent will go up on average over the long term.

    My blog posts on real estate and investing.

  6. I have read this article and as a West Toronto Realtor I cannot agree with you. I have many clients, who are buying houses like a long term investments. Of course, there are people, who can raise enought capital and beside their house, they own other houses, that are usually rented.

    In article you wrote: “If you’re living in the house you plan to live in for the rest of your life, you shouldn’t view it as an investment.” I cannot agree with this, because even if you want to live in your house for the rest of your live, it´s still (probably) the biggest investment, you have ever made and you should see it that way.

  7. Thanks for your comment.

    I still disagree with you though.

    You can be “house rich” and have a really nice, expensive house that will be worth a lot of money when you sell it, but while you’re living there, you can’t access that money.

    When I buy a house, it will not be my biggest investment as far as dollar value, by any means.

  8. I have really never thought of my house as an investment (my Dad is a finance geek so he does say ‘keep it up in case you decide to sell, blah, blah, blah) but know that if I don’t take care of it, it will not treat me well. We have to put on a roof this summer and new windows in as well so although it could be an investment I like to think of it as home. My husband tells me we will never, ever move so there is a chance that my daughters will be inheriting :).

  1. 2 Trackback(s)

  2. House not an investment? | P2P
  3. Your Home as an Investment at Curious Cat Investing and Economics Blog

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

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