As I’ve grown older, with a number of poorly timed decisions, I think a lot about this topic of Home. I’ve evolved to some sort of philosophy of first principles.
In the case of a Home, the first principle is everyone needs shelter. There are any number of options: homeless shelter, couch crashing, rental, ownership.
There are advantages and disadvantages with each option. Renting gives a lot of flexibility, but relatively less stability. Owning (I’ve come to the notion we don’t own much – rather we are stewards of assets) must recognize the total cost of ownership. Repairs, insurance, capital replacements, etc. are sometimes overlooked or ignored in the calculation of rent vs own.
Cutting to the chase, I believe the real calculus is whether one prefers flexibility or stability.
A home (in a state with real estate taxes) used to be a good investment, but not any more. Significant appreciation into the future is unlikely because homes will become unaffordable. Taxes keep rising, and can easily exceed $1,000/month. Repairs, improvements, maintenance and other costs also keep rising.
But there is nothing like having your own place, especially if you have a bit of a buffer where you have some privacy and can get some peace and quiet.
How to save money on a home? Find the sweet spot where you get community value without a huge tax bite. Buy a home in very good condition in a stable neighborhood. Have a lot where you can easily cut the lawn and trim the shrubs yourself in an afternoon, and if you want more space, have the rest be undeveloped. Do your own lawn treatments for crabgrass, clover, grubs and the like. Get your house fully treated for termites the month you move in, just as if it has never had any treatment before. Have a mortgage as low as you can manage. Be willing to spend money on maintaining the core systems, because that will save you money in the long run. And always look out for water – water is the enemy in a house, from the roof, to an internal leak, to seepage and basement backups, and lots more!
Like most things, it depends. Our home is a black hole for money. I live in the failed state of Illinois and property taxes are insane. I pay much more for property tax than I do for P and I. Even after we pay off the mortgage, the taxes will remain. I live in an affluent area, so services like landscaping and home improvements are quite expensive since vendors sense that if we live here, we can afford it. That said, we live in a beautiful neighbor hood with great amenities that is a short drive to the beach and the city. There are many 100-year old trees and brick streets. The schools are excellent. Many people move out soon after their last kid graduates; we may consider that option. I definitely have mixed feelings – I like it here, but my financial soul is horrified that I live here.
In the United States, home ownership has traditionally enjoyed some favored government benefits including the tax deductible home mortgage, deductible real estate taxes, and various energy improvement tax credits.
Comparing the cost of renting to home ownership typically shows the economic benefits favor the home owner over long periods of time. This has typically been a form of forced long term savings.
Personally my wife and I had a huge burden lifted when we paid off the mortgage of our home. It really lowered the risk of home ownership, and even when we later moved we were able to tax shelter the gain by buying a more expensive house and ultimately tax shelter the gain when we finally do sell after age 55.
Besides the freedom to renovate and restore the property. we also enjoyed the pride of home ownership. It adds a LOT of benefit to your life to be secure and stable.
I was shocked recently when i saw the movie Nomadland about the rise of the mobile RV lifestyle. I am very grateful for my blessings in owning a home.
Yes. We now grow about 50% of our produce in our own backyard – organic and in an area where we have four seasons and can grow stuff for only half the year. We can paint the walls any color we like, remodel any way we want. It is a place we enjoy and create memories in. Financially, it is at par with renting.
Some people talk about a home as a form of “forced savings.” I don’t think about it exactly that way, but it is definitely a way to hold some of your assets in a form that is not as easy to spend as cash in the bank. In my work as a financial planner, I have seen many families able to downsize late in life when cash ran low. If they hadn’t had that house to sell, their assets might have come dangerously close to zero.
We lived in the same house for 45 years, bought it for $59,000 in 1975 and sold it for $505,000 in 2018. Good financial investment? I doubt it, but it was a home where we raised four children. That was a good investment… in our family.
Well said. Owning our house outright is a benefit from a cash flow perspective and gives us more options on quitting work earlier. As a good financial investment, it’s ok. There are probably much better ways to invest than a home and I live in SoCal, an area that has higher growth than most places in the country.
For many, a house is the most valuable thing they will ever own. And yet more and more people are discovering that the value of a house can go down as well as up; with leverage (buying with borrowed money) the depths can be dizzying. It’s not an automatic savings account that guarantees cash sufficient for your retirement. It’s a place to live and where your mail is delivered. If you can easily afford a house payment (that is, on one worker’s salary) and If you can buy that house in a stable neighborhood with good schools and a reasonable commute to work and If you are already on your way to retirement with annual contributions to retirement accounts and If you have children for whom a stable home and good schools matter, Then I would as a home is an excellent investment.
My advice to anyone is to buy a house in the best neighborhood you can afford and live in it the rest of your life. That not even my advice. It is what I read in Jonathan Clements book “25 Myths You’ve Got to Avoid – If You Want to Manage Your Money Right” 3 years after I purchased my home in 1995. I still live in the same house.
A home can be a great lifestyle investment for most people. Unless it’s overpriced or the ongoing costs are too high, it can be a forcing function to save and build assets. I see it more as an “asset” than an “investment”. There are only a small number of options to unlock equity – Reverse Mortgage, downsizing, becoming landlord, etc. It’s also an asset to bequeath.
I’ve owned four houses so far and have done reasonably well, financially speaking, with all of them. I hesitate to call any of them ‘homes’ because all four were purchased with the idea of re-selling them at some point in the future. I’ve never had any emotional investment in a house–blame it on moving every couple of years as a child.
I’ve always looked for solidly built homes in good neighborhoods. I look for functionality and good floor plans. Most of the upkeep and upgrades I do myself which saves a lot of money. All four houses I’ve owned have been in areas where real estate values have typically grown at higher-than-average rates over the past twenty years.
I don’t think of a home as an investment but I love ours for its comfort and peace of mind. You’re lucky if your home’s value keeps pace with inflation, after taxes, maintenance, insurance, and real estate transaction costs. A home is a fine choice if your retirement savings is on track, you have a good emergency cash fund, and you plan to stay where you are for at least five years.
Of course it can be. People should view a house as both an investment and a form of consumption. You will spend years and maybe decades making memories with family and friends in your home. Thinking of it purely as a financial asset is likely a mistake. But we are finance people here. Expect your house to return just slightly above inflation, and that doesn’t consider taxes, upkeep with the time & style, maintenance, other fees, transaction costs, and opportunity costs.
As I’ve grown older, with a number of poorly timed decisions, I think a lot about this topic of Home. I’ve evolved to some sort of philosophy of first principles.
In the case of a Home, the first principle is everyone needs shelter. There are any number of options: homeless shelter, couch crashing, rental, ownership.
There are advantages and disadvantages with each option. Renting gives a lot of flexibility, but relatively less stability. Owning (I’ve come to the notion we don’t own much – rather we are stewards of assets) must recognize the total cost of ownership. Repairs, insurance, capital replacements, etc. are sometimes overlooked or ignored in the calculation of rent vs own.
Cutting to the chase, I believe the real calculus is whether one prefers flexibility or stability.
A home (in a state with real estate taxes) used to be a good investment, but not any more. Significant appreciation into the future is unlikely because homes will become unaffordable. Taxes keep rising, and can easily exceed $1,000/month. Repairs, improvements, maintenance and other costs also keep rising.
But there is nothing like having your own place, especially if you have a bit of a buffer where you have some privacy and can get some peace and quiet.
How to save money on a home? Find the sweet spot where you get community value without a huge tax bite. Buy a home in very good condition in a stable neighborhood. Have a lot where you can easily cut the lawn and trim the shrubs yourself in an afternoon, and if you want more space, have the rest be undeveloped. Do your own lawn treatments for crabgrass, clover, grubs and the like. Get your house fully treated for termites the month you move in, just as if it has never had any treatment before. Have a mortgage as low as you can manage. Be willing to spend money on maintaining the core systems, because that will save you money in the long run. And always look out for water – water is the enemy in a house, from the roof, to an internal leak, to seepage and basement backups, and lots more!
Like most things, it depends. Our home is a black hole for money. I live in the failed state of Illinois and property taxes are insane. I pay much more for property tax than I do for P and I. Even after we pay off the mortgage, the taxes will remain. I live in an affluent area, so services like landscaping and home improvements are quite expensive since vendors sense that if we live here, we can afford it. That said, we live in a beautiful neighbor hood with great amenities that is a short drive to the beach and the city. There are many 100-year old trees and brick streets. The schools are excellent. Many people move out soon after their last kid graduates; we may consider that option. I definitely have mixed feelings – I like it here, but my financial soul is horrified that I live here.
In the United States, home ownership has traditionally enjoyed some favored government benefits including the tax deductible home mortgage, deductible real estate taxes, and various energy improvement tax credits.
Comparing the cost of renting to home ownership typically shows the economic benefits favor the home owner over long periods of time. This has typically been
a form of forced long term savings.
Personally my wife and I had a huge burden lifted when we paid off the mortgage of our home. It really lowered the risk of home ownership, and even when we later moved we were able to tax shelter the gain by buying a more expensive house and ultimately tax shelter the gain when
we finally do sell after age 55.
Besides the freedom to renovate and restore the property. we also enjoyed the pride of home ownership. It adds a LOT of benefit to your life to be secure and stable.
I was shocked recently when i saw the movie Nomadland about the rise of the mobile RV lifestyle. I am very grateful for my blessings in owning a home.
Yes. We now grow about 50% of our produce in our own backyard – organic and in an area where we have four seasons and can grow stuff for only half the year. We can paint the walls any color we like, remodel any way we want. It is a place we enjoy and create memories in. Financially, it is at par with renting.
Some people talk about a home as a form of “forced savings.” I don’t think about it exactly that way, but it is definitely a way to hold some of your assets in a form that is not as easy to spend as cash in the bank. In my work as a financial planner, I have seen many families able to downsize late in life when cash ran low. If they hadn’t had that house to sell, their assets might have come dangerously close to zero.
Good point. I look at my paid-off house as a backdrop or an inheritance depending on how life works out in my future retirement.
We lived in the same house for 45 years, bought it for $59,000 in 1975 and sold it for $505,000 in 2018. Good financial investment? I doubt it, but it was a home where we raised four children. That was a good investment… in our family.
Well said. Owning our house outright is a benefit from a cash flow perspective and gives us more options on quitting work earlier. As a good financial investment, it’s ok. There are probably much better ways to invest than a home and I live in SoCal, an area that has higher growth than most places in the country.
For many, a house is the most valuable thing they will ever own. And yet more and more people are discovering that the value of a house can go down as well as up; with leverage (buying with borrowed money) the depths can be dizzying. It’s not an automatic savings account that guarantees cash sufficient for your retirement. It’s a place to live and where your mail is delivered.
If you can easily afford a house payment (that is, on one worker’s salary) and
If you can buy that house in a stable neighborhood with good schools and a reasonable commute to work and
If you are already on your way to retirement with annual contributions to retirement accounts and
If you have children for whom a stable home and good schools matter,
Then I would as a home is an excellent investment.
A home is not a good financial investment. It does not generate income. When you sell it you usually pay 6% to an agent.
It’s good to buy the smallest home you can live in forever in the best neighborhood, if you can… but understand that life choices can mean otherwise.
It can work in your favor if you have difficulty saving, because it forces you to build equity.
It can work for or against you if local prices increase or decline.
But mostly it’s a place to live and build memories.
My advice to anyone is to buy a house in the best neighborhood you can afford and live in it the rest of your life. That not even my advice. It is what I read in Jonathan Clements book “25 Myths You’ve Got to Avoid – If You Want to Manage Your Money Right” 3 years after I purchased my home in 1995. I still live in the same house.
A home can be a great lifestyle investment for most people. Unless it’s overpriced or the ongoing costs are too high, it can be a forcing function to save and build assets. I see it more as an “asset” than an “investment”. There are only a small number of options to unlock equity – Reverse Mortgage, downsizing, becoming landlord, etc. It’s also an asset to bequeath.
I’ve owned four houses so far and have done reasonably well, financially speaking, with all of them. I hesitate to call any of them ‘homes’ because all four were purchased with the idea of re-selling them at some point in the future. I’ve never had any emotional investment in a house–blame it on moving every couple of years as a child.
I’ve always looked for solidly built homes in good neighborhoods. I look for functionality and good floor plans. Most of the upkeep and upgrades I do myself which saves a lot of money. All four houses I’ve owned have been in areas where real estate values have typically grown at higher-than-average rates over the past twenty years.
I don’t think of a home as an investment but I love ours for its comfort and peace of mind. You’re lucky if your home’s value keeps pace with inflation, after taxes, maintenance, insurance, and real estate transaction costs. A home is a fine choice if your retirement savings is on track, you have a good emergency cash fund, and you plan to stay where you are for at least five years.
Of course it can be. People should view a house as both an investment and a form of consumption. You will spend years and maybe decades making memories with family and friends in your home. Thinking of it purely as a financial asset is likely a mistake. But we are finance people here. Expect your house to return just slightly above inflation, and that doesn’t consider taxes, upkeep with the time & style, maintenance, other fees, transaction costs, and opportunity costs.