Financial Jungle

For most people their home (if they own one at all) will be their most valuable asset. As such it would, in my view, be a mistake not to treat it as an investment and to assess the merits of owning or not owning on that basis. At times it will make a lot of sense to buy your own home. At other times it will not. You cite some good examples of people how have done very well choosing to rent rather than to buy. Others (myself included) have done very well by chosing to buy rather than to rent. A lot depends on market conditions and expectations at the time the decision is made.

[…] Financial Jungle wrote an interesting post today on Is Home Ownership An Investment?Here’s a quick excerpt This has been a hot topic among bloggers, so I’ll throw in my 2-cents. Every asset you own can be classified into 3 broad categories: necessities, luxuries and investments. Examples include: Necessities: electricity, gasoline, food, water, clothing, banking, medicine and *shelters*. Luxuries: Tag Heuer watches, iPods, Coach bags, Ferraris and sailboats. Investments: stocks, bonds and rental properties. No. That’s not a typo. I did place “shelter” as one of the necessities, but I bel […]

Although I’ve done extremely well with home ownership in the past - all I can say is that owning a house is a pain in the butt.

Mike

People who believe being in massive debt to the bank for the sake of “home ownership” or as an “investment” I think have been misguided. Sorry. I have rented for many years and have a lovely 6-figure portfolio to show for it. None of my equity is tied to one single RISKY investment (a house). Many of my friends are home owners and constantly tell me I am the misguided one. Albeit, I’m not the one plowing good “investment” money into a new kitchen, or fixing the furnace. Besides, the amount of money my friends spend each month on interest payments and condo fees WELL EXCEEDS how much I pay in rent. Looking at how much equity these “homeowners” have in their house is laughable as my diversified portfolio well exceeds their debt investment. The hard thing is talking to people out of “home ownership” as they are very wed to the idea of “owning” a house. It’s an emotional debt which many cannot get past thinking of as perhaps a bad debt.

[…] Financial Jungle Is Home Ownership An Investment? […]

I see home ownership similar to hole life insurance. It is technically an investment since you will likely recoup something above your initial cost, but it it (at least in my case) will be well below what I could have earned in the market.

For the record, I am a homeowner. When I mention this to my wife I get “the look”. I do run IRRs on my past and current home.

I live in the south (U.S.) where you can get a lot of house for the money (upside) but appreciation is relatively small, 2-4% per year.

Best Wishes,
D4L

I bought a house because that’s what I wanted. A place of my own. It wasn’t bought as an investment (although I also wanted it to have characteristics that would appeal to a broad segment of the market should/when I sell later).

Like I have a car that many would consider “wasteful” in terms of its cost. As I love cars, it really doesn’t bother me because I enjoy it immensely everyday.

It’s difficult to “calculate” the amount of enjoyment you get out of things you really like.

I agree that jumping on the bandwagon of thinking that the home ownership is always smarter financially is dumb.

Enjoy your blog - it’s great! Thanks.

Glad to see new names popping up over the past few weeks. (Traineeinvestor, Julie, Johnny, Seminar John, mohican, virtualcreditcard, Lin Ennis, Glen, Mortgage Claims, Guerilla Investor, ETF Income, and Transcanada.)

Hope to read more of your feedbacks.

Once you understand cashflow then you can understand why home ownership isn’t an investment.

A fully paid home improves cashflow (i.e. no rents to pay). Doesn’t that make it an investment?

Good Post FJ. Keep up the good work.

As investments go, a home is a pretty lousy investment. A home has a voracious appetite for cash and upkeep. Still, home ownership works because most people are not disciplined enough while renting to save the difference and invest it responsibly in higher growth assets. They just consider the extra cash as disposable income and spend it. When they own, they are forced to make the mortgage payments and build a small amount of equity every month.

Good post, a very technical look at an emotional topic.

But why not take a very technical look at another emotional topic: Marriage. If you take emotion out of it, then you’d want a spouse who made a lot of money and was good around the house and with kids. Good looking and funny? Those are luxuries!

Or how about kids? If you look at the numbers, kids are a pretty bad investment (financially at least). And they’re certainly not essential (for you individually at least, for the race as a whole, that’s a different story). They must be luxuries.

I agree that a house is not an investment. Some people spin it as that since it’s the only ‘investment’ that they have.

Some people get ‘pleasure equity’ out of their house. And their car and tvs. Some get more out of these things than others. And some don’t get enough out to justify the expense.

My wife and I bought a duplex; we live upstairs and rent the downstairs. The rent helps pay for our mortgage and part of the expenses (including some mortgage interest) are tax deductible.

When we move out, we’ll rent both parts of the house.

I definitely consider my home an investment.

Canadian Capitalist - Well said. The best investment is one that fits well with the individual’s psychology. The math comes in as secondary.

nobleea - Like a home, I do believe a wife is part investment and part luxury. Well, that’s unless your name is James H. Marshall. In that case you can marry someone like Anna Nicole Smith for no financial rewards.

Home ownership, to most people, is partially an investment. Whether it’s a good one or not depends on the price paid. I still remember there were times when financing a home was cheaper than renting it.

In my opinion, whether or not it can be considered an investment is contingent upon the owner’s end game. If you get a smokin’ deal on a run down house in a great neighborhood in a major Canadian city, can do your own repairs and renovations, and plan to live in it for 20 years then sell and move to Nicaragua, you can probably consider it an investment. If you buy a brand new house at the top of the market, and intend to live in until you die, then it can only be considered a liability.

OT.Bpt is halt trading today. What does it mean? Is this a very bad news?

Sorry for the typo. I mean BPF Boston Pizza income fund.

This sounds troublesome since it wasn’t put in place to stop an uncontrolled selloff. Hopefully will find out more tomorrow.

Still cannot find why trading was halted yesterday for BPF.

Anyway, what do you think about PDM and KEG, FJ?

[…] post by Financial Jungle Guy Related Posts: Stocks, Bonds, & Mutual […]

dropby - haven’t done much work on these 2 trusts. At a glance, KEG has good potential. Maybe you can research it and share your opinion with us.