Realtors often like to refer to homeownership as an investment, especially when contrasted to renting.
And that pitch is very successful. The average American buys three homes in their lifetime.
Granted, over time, your home should appreciate. A fun thing to do is find your childhood home on Zillow and see what it’s worth now.
So while home values do rise over time, are they really “investments?”
Consider the things a home requires that stock and bond portfolios do not:
- Property tax
- Maintenance
- Utilities
- Insurance
- Interest (if you have a mortgage)
If you live in a home for ten years, it’s very doubtful you made any real money when you factor in these costs.
In those times when someone “makes a killing” on the sale of their home, they often go out and buy something even more expensive, essentially canceling out the gain.
So is renting better? Not necessarily. You will incur costs there as well, but probably not as much.
Homeownership is about lifestyle, not investing. And sometimes, the pursuit for something bigger and better can leave one feeling financially strapped. The term for that is “house poor.”
If a house is an investment, for most people, it’s not a very good one. If you desire to grow your net worth, an expensive home may not be the path to getting you there.
Another thing to note: your home equity is not liquid unless you borrow against it, which will lower your net worth even further.
Just a little something to keep in mind next time a realtor tells you he has 5 buyers wanting to purchase your home.
Decisions like homeownership can be a major factor in one’s finances and a key part of our clients’ planning process.
If you are concerned your home is impairing your net worth, schedule a 15-minute call to learn the steps in determining if it will help or hinder you. Call 513-563-PLAN (7526) or click here to schedule a time.
Regards,
Nikki Earley, CFP®
