Is Your Home an Investment? Who Cares?

I read a few articles questioning if your home is an investment or not- but who really cares what you call it?  If you lose a ton of money when you sell your home did it really matter if you called it an investment or not?  Are people really looking for a justification for spending more money on a home?   If a home is an investment then I can spend more on it without any guilt.

My thought is that you should put as little money into your house as you can while still having a place you will be happy to live in because there are better investments out there.   Here are my reasons to invest in something other than your house:

#1 Your primary residence is more than just an investment it is also a place to live and the two uses are sometimes at odds with each other.   For example you may want to live somewhere close to where you work, but the most likely properties to appreciate in value may be far away.

#2  If you buy a more expensive house you will be more tempted to spend more to keep up with the Jones.

#3 Your living expenses may increase if you invest in a larger house- property taxes, utilities, etc.  Buying more stocks or bonds won’t affect your monthly expenses.

#3 Your home is not diversified- it is one home in one location.    It’s putting all your eggs in one basket- a basket that could get flooded, or burn down, or infested with termites.  Instead you could buy a share in a REIT (Real estate investment trust – which is a company that owns many investment properties) or a fund of REITs like VNQ giving you instant diversification.

#4 Your home equity is not very liquid – if you need to tap your home’s value you need to sell or take out a loan.  There are many investment classes that are much more liquid, allowing you to sell as much of your investment as you like within one business day.

#5 The costs to buy or sell a home (and get financing for it) are huge.  Most other investments have far lower costs, and many have no costs.

#6 You can’t easily buy $50 or $100 of a house… but you can do this with other investment types.  Want a REIT index fund then VNQ is currently $52, how about virtually all of the stock market? VTI is about $60, or Total Bond Market ETF BND is about $84.

Do you have any other reasons for or against investing in your home?   If so leave a comment.

2 Responses to “Is Your Home an Investment? Who Cares?”

  1. Christy says:

    I enjoy your thoughts on this. My husband and I moved into our new house in Sept 2011. We bought the property with a tear down house at the peak of the market in 2007. At this point I think it would need to appriciate 50% to be worth what we’ve put into it / owe on it.

    But for us, it is a place to live. We’re on over half an acre and have a stream running through the back yard, yet, it’s less then 10 miles to where he works and an airport and we can walk to resturants and grocery stores easily. All told, I’m almost ready to know how upside down we are in the house. (I’ve avoided this number lest I become depressed in the investment.)

  2. Rick Francis says:

    @Christy
    Thanks for commenting- Being 50% under water on your home is very scary. I can understand that it would depress you but how can you improve your situation without facing reality? It strikes me that if you face it now you will be better off as you will have more time to take action. I would start by researching the options and implications. This is a big enough question that I think it deserves an entire post instead of an insanely long reply. I’ve got a page or so written up with my thought I should be posting soon.

    -Rick

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