The point is, that given the amount of money that gets spent on a home, it would be foolish not to think of it as an investment and crunch the numbers accordingly (preferably without the “help” of agents and others with a vested interest in your decision). Sometimes it will make sense to buy (a good investment) and other times it will better to rent (a bad investment). Whether a home is a good or bad investment will depend on the numbers for all the items you mention above. To use our current home as an example, even after the recent decline in values, we are still comfortably ahead even after transaction expenses, maintenance etc are taken into account – and with the interest rate on our 20 year mortgage at 2.2% (I live in Hong Kong), the government having given a partial waiver of rates (property taxes), the monthly outgoings are below the current rental levels. (About 55% of the monthly outgoings are going to principal reduction.)

If I had brought a more expensive place at the top of the market my investment would have had a very different outcome.

Lastly, just for the record, there have been times when I have concluded that it is better to rent than to own.

Folks your primary residence is not an investment if anything it’s a liability.

Let’s say you buy your house for $400,000 and then you sell your house for $600,000 10 years later. You’ll actually pat yourself on the back and be proud that you made this great investment over the last 10 years. You’re house went up over $200,000 what you paid for it. Nice a profit!!!! of $200,000

Now you can think that or you can read on…….. some of you are better off stopping here. For the others that are more in tune should read on…..

Now lets say for instance that when you purchased it. You put down down $80,000 and took out a mortgage for $320,000.
Over 10 years at a rate of6% you made a monthly payment of just mortgage of $1900 a month.
That means over 10 years (120 payments) you paid $230,000 in payments
and you have a balance of $268,000 left on your house. (1)
Now did you pay taxes on that house: Lets say on average you paid $3500 a year over 10 years.
That means over 10 years you paid $35,000 in payments to your taxes (2)

Home Owners Insurance?? $600 a year average? ($6000 in payments)

Now did you have the cut the grass?
Did you do landscaping at the house to keep it clean?
Did you add any additions to the house?
Did you buy carpeting?
Did you upgrade appliances? the kitchen?
Did you paint??
How about the water heater?
Did you redo the basement?
The roof??
The siding on the house??
Or did you leave the house in the exact same condition from when you bought it and it magically went up because of your foresight you had 10 years earlier

Yeah, lets add in these costs too…… because after all you kept up with your investment didn’t you?
I’ll let you come up with a price for this: (4)

Now lets do the math.
1. $230,000 in payments +
2. $35,000 in taxes +
3. $6,000 in home owners insurance
——————
$271,000 in payments that you made over the 10 years.

Now you are left with
$600,000 house – $268,00 mortgage – $maintenance = $332,000 of equity

$600,000 sales price comes with a 6% realtor commission right? $36,000 off the top of that investment… (huh, what’s that?? why???)

$332,000 –
-$36,000
- $271,000 in payments
—————————–
$ = $25,000 profit
– (maintenance+repairs+additions) of 10 years.

not bad for an $80,000 investment.

Now…… that to me is an investment!!!!

And of course your home purchase that you buy today will always go up in value because thats what everyone says… even my realtor who started working in the business 6 months ago and my mortgage guy who is looking out for me

Well…… I bought my house for $400,000 and sold it for $600,000 who’s better than me?!?!

Now over 10 years I’m in the positive for $25,000 – (maintenance for 10 years)

Ohh yeah…… now where am I gonna live?
Should i buy another house?

Think Mcfly…. think…..

Ok I’m tired…

The fact that it may be a good or bad investment does not alter the fact that it is an investment. People can make or lose a lot of money on their investment in the home. (Given what has happened to property prices since we brought I am so glad we did.)

The fact that other investments may perform better does not mean that your home is not an investment. (And it certainly should be included in your net worth calculation:

http://aprivateportfolio.blogspot.com/2007/04/your-home-as-retirement-asset-2.html

The fact that other properties may have gone up or down is, of course, irrelevant to the question.

Greg