Should your Home be an Investment?

There are so many articles lately on people who are leaving their home because they are underwater. There are even more on people who might lose their home because they took out a second mortgage after the value of their home went up. All of that brings up a very important question…. Should your home be an investment?

Houses have become substitute credit cards, as profligate owners borrow their equity to finance everything from cars to vacations. Among thriftier owners, the equity they have built up in the family home has become a vital part of retirement planning — a “fourth leg” of the now-unstable “company pension/personal savings/Social Security” stool that was long the model for a financially secure old age. Unfortunately for both groups, however, houses are not very good investments. For the grasshoppers, there’s nothing quite as stupid as paying off your 2002 trip to Orlando in 2032, when you finally settle up your refinanced “cash out” 30-year mortgage. And for the ants, economic studies have demonstrated over and over that houses (1) cost more than most people make when they sell and (2) rarely match the long-term returns of stocks or other investments.

That quote came from the Wall Street Journal in March of 2007.

Here are some other startling facts from that article:

  • If you bought a house in Los Angeles in 1990 you would have had to wait 10 years for it to be worth what you paid.
  • If you bought a house in Dallas in 1986 then you would have to wait until 1998 before there was any appreciation on it.

What is your home to you? Would you stick it out for those 10 years before it was “worth” what you paid? Is that why you bought your home? Would you just walk out if you went underwater?

What about the flip side of the coin… If your house was worth a lot more than you paid would you take out a second mortgage so you can use that money on something else?

I would love to hear what you guys think! Remember, this is your primary home we are talking about. Real estate investing is a different ballgame 🙂

Picture is by Sator Arepo

Leave a Comment

CommentLuv badge
This blog uses premium CommentLuv which allows you to put your keywords with your name if you have had 3 approved comments. Use your real name and then @ your keywords (maximum of 3)

Previous post:

Next post: