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Your Home: Place To Live or Investment?

by Derek Sisterhen on July 27, 2010

This is a post from the newest member of the Lukas Coaching/Past Due Radio team, Jaime Thompson. Jaime is a Financial Coach with great insight on answering the question, “What next?” so that our money isn’t wasted.

I recently had a conversation with a friend who mentioned what a great investment his house had been after he sold it. Then I asked him how much money he paid in interest, real estate taxes, insurance, repairs, and maintenance over the past ten years. And more recently what his realtor fees, closing costs, and moving costs were.

As those numbers mounted up, he realized he didn’t make nearly as much profit as he thought. In fact he didn’t make a cash profit at all. He rolled the money he received from the sale into a new mortgage. Yes, his net worth has increased, but as long as that money is in the house he lives in, I wouldn’t consider it a great investment. After all, he hasn’t put a dime in his pocket.

Don’t get me wrong I’m not against home ownership. I am a homeowner myself. But do we have a realistic view of what home ownership is and has to offer? What’s the difference between buying a mutual fund versus buying a house? If you need immediate cash, could you sell your home quickly? Where would you live? How diversified is the neighborhood, town, and local economy you live in? Do you have $10,000 or more to pay your real estate transaction costs (i.e. realtor fees and closing costs)?

That’s not to say real estate can’t be profitable, but if you’re looking at it as your retirement nest egg, a way to finance college, or to pay for some other expensive life goal, you might need to take a step back and reevaluate. The current economy has taught us just how volatile the real estate market is. Remember your home is where you seek shelter, create memories, and enjoy life. Make your house your home and if you end up ahead when you sell, lucky you.

  • Leesa

    You are right on target Jaime. An asset is something that creates money but that being said I feel owning a home is like an emergency fund. It is a security blanket, especially when it is paid for. Thomas Stanley says that the type of home we buy in relation to our income is a true indicator of our potential for creating wealth.

    Congratulations on your new position at Lukas Coaching. I look forward to hearing more from you.

    Leesa Ferrell

  • Jaime

    Thanks for the welcome and your comment Leesa! I can understand the feeling of security home ownership can provide especially if you aren't overwhelmed by a mortgage. I'm fortunate mine is so filled with love and happiness it's a comfort to be in.


  • Peter

    Please don't hold back; why not really discuss the virtues of homeownership vs renting vs investing in a mutual fund or annuity. I stay in an apartment and I was amazed to learrn that the avg. salary for people living in an apt. is $55,000.00. These are people who could easily afford a home.

    Now with todays economy and foreclosures and short sales, there are a lot of wonderful houses that can be leased dirt cheap! So why not have your cake and eat it too. Live in your dream home and invest the difference in your retirement.

    So instead of the American Dream being a chicken in every pot and a car in every garage: let's make it 'worry free retirement.'

  • Deacon Bradley

    Well said Jamie. I'm a firm believer that your house should not really be viewed as an investment at all (unless you consider a place to sleep an investment, which totally counts!). Like Leesa pointed out, a house is actually a liability if it's your primary residence.

    Somewhere along the way Americans began to believe that home-equity = wealth and as you pointed out it's simply not true.

  • Jaime

    Peter, the renting vs owning break down is definitely something I hope to address in the upcoming weeks. You'll come to find I'm very passionate about the choices people make with regards to real estate. I'm glad you've found the right balance for you between living expenses and saving for retirement.

    Deacon, thanks for your insight.

  • Derek Sisterhen

    Great point, Peter! I actually just heard on the radio today that more and more people are turning to renting. Which, when you think of the macroeconomic impact, is a HUGE swing from just a few years ago (when everyone and their brother we're scrambling to buy houses).

    The stats tell us that most people stay in a home for about 7 years before moving. With that kind of turnover, it becomes very difficult for people to realize the financial gain from home ownership. Every situation is different, but I typically tell people that it takes staying put for an extended period of time before the house becomes an actual “investment”.

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