Your House is a Home, Not an Investment
For the longest time, I didn’t get that. But the brutality of the housing market these last two years should be enough for home owners to have that realization sink in. Unless you’re an investor who buys, flips, rents homes for a living … when you buy a house, do so as a home not an investment.
“But Kathy!” you might argue “when we find the place to live, shouldn’t we be looking at resale value?”
Yes, BUT that shouldn’t be your only factor. Because resale value may or may not hold up in one year, five years, ten years. The neighborhood may go downhill, the economy may boom or bust, the world may end. You can’t predict what the future will hold. You can make your educated decision to buy based on the pattern of the past and what’s happening in the present, but don’t bank on the future.
Buy based on where you will be happiest raising your children, watering your flowers, taking your dog for a walk, letting your cat sharpen her claws on the privacy fence, where the kitchen is biggest for Thanksgiving meals, where you feel safe. Your house is not an investment. It is a home.
But enough of the squishy talk. Let’s look at it in black and white numbers. Generation X Finance gets low down and dirty on what a house actually costs you - when you buy AND when you sell.
All said and done, when you factor in the down payment plus 10 years worth of mortgage payments, you’ve invested over $146,000 into your home. When you subtract the outstanding mortgage balance with the sale proceeds you’re left with just a $22,684 return. That comes out to only a 15.5% cumulative return over 10 years, or just a percent or two average annual return on your total investment. And you thought savings account and CD rates were bad… Here you just had your home increase in value by 50% in ten years that only nets you a 15.5% real return.
This may be disturbing to people, but it’s reality. If after you sell your home you DO make a profit, then fantastic! Just don’t be lulled into thinking that you will automatically make money when you sell. Go into home ownership for the right reasons - shelter and enjoyment.
Photo by ellie via Flickr Creative Commons.
