How many times have you heard that a home is the best investment you could ever make?
David Crook of the Wall St. Journal disagrees, and wrote an article explaining why your home is not the investment you think it is.
It rejects the common premise that a home is a good investment and he has compelling statistics to back up the premise. Of course, Mark Twain’s quote about statistics comes to mind, but it’s still a very interesting take on owning a home, especially with the recent increase in home prices around the country.
This sums up the gist of the article.
When most homeowners figure their returns, they don’t do much more than subtract the price they paid from the price they received. Then they come up with a really big return because they paid only a 10% or 20% down payment. So they figure they made a huge “profit.”
But they didn’t. That’s because the costs of owning a home — buying it with a long-term mortgage and then paying taxes on it, insuring it, repairing it, renovating it — sap most of what most homeowners think they make in price appreciation.
Dan, you’re right, a home is NOT an asset until you own it (no, “own” does not mean “paying for”).
A home is a LIABILITY. You MUST pay a mortgage payment each month, you must pay insurance on it, you must pay taxes on it, you must pay for upkeep, etc. When you add all that up, how much is it “worth” minus how much do you “owe” on it? If that amount is Negative (which most are), it’s a liability, you owe more than you own.
At least until your home is “worth” more than you “owe,” at that point, theoretically, it becomes an asset.
Realistically, unless something is bringing you actual income, it’s still not an ASSET. Which means that it’s only an ASSET on the bank’s books, because your home is bringing them monthly income.
» Comment by Joe Levi on March 21, 2007 @ 9:27 amHave you read Rich Dad Poor Dad? He talks about how assets aren’t really assets if they’re not actively making you money.
» Comment by dan on March 21, 2007 @ 9:37 am