Why Your House Is a Terrible Investment

Common advice is to put money into your house, because you’ll see a return on that investment. These guys don’t think that’s true.

In that article, the authors take a break from talking about good investments and instead imagine what a “worst-case investment” would look like.

Quoting from the article - here’s a partial list of the qualities they imagined a really bad investment would have:

  • It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.
  • It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
  • It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.
  • It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.
  • It should generate low returns. Certainly no more than the inflation rate. Maybe a bit less.
  • It should be leveraged! Oh, oh this one is great! This is how we’ll get people to swallow those low returns! If the price goes up a little bit, leverage will magnify this and people will convince themselves it’s actually a good investment! Nah, don’t worry about it. Most will never even consider that leverage is also very high risk and could just as easily wipe them out.
  • It should be mortgaged! Another beauty of leverage. We can charge interest on the loans. Yep, and with just a little more effort we should easily be able to persuade people who buy this thing to borrow money against it more than once.
  • It should be unproductive. While we’re talking about interest, let’s be sure this investment we are creating never pays any. No dividends either, of course.
  • It should be immobile. If we can fix it to one geographical spot we can be sure at any given time only a tiny group of potential buyers for it will exist. Sometimes and in some places, none at all!

This is only about half of their list detailing out how suburban homes are a horrible investment. Read the rest.

But wait. Home ownership is The American Dream, right?

About that:

Then, too, the challenge would be to get anybody to buy this turkey. But we can. In fact, I bet we can get them not only to buy but to believe doing so is the fulfillment of a dream, indeed a national birthright!JLCollinsnh.com

It doesn’t take much looking to find companies like Quicken Loans doing just that.

Look at your house. Think about the time and energy you spend paying for it and maintaining it.

Now think about your life without that cost and obligation.

What could you do instead?

What’s your home ownership story?

Did you put a bunch of money into a house? How did that turn out?

5 Comments Why Your House Is a Terrible Investment

  1. Picture of Jenn Jenn August 17, 2015

    Curious as to what you would consider a good investment?  We are in the process of selling our house and will have a decent chunk that we are trying to figure out what to do it with next… The reality is at some point we might not be able to work and we don’t want to rely of the government. We already contribute to a Roth IRA.

  2. Picture of Michael Boyink Michael Boyink August 17, 2015

    Hi Jenn - I have no experience with investing a decent chunk of money.

    If it were me I’d buy this book and consider what he recommends.

  3. Picture of Garrett Garrett August 20, 2015

    Great article!  After running the numbers on our house it is going to cost us $627,323.00 to buy a $365,000.00 house over 30yrs not including renting our house from the city and state for $800 a month, which I hear on the news is not enough and will be going up.  But for that we get a public school that I refuse to use. 
    It is amazing the conditioning that surrounds us. Constantly being influenced to go to college ( debt), buy a house (more debt), fill the house with new items (more debt) and these items will provide you with the happiness you just can’t seem to find.  Of course it leads to taking that job that pays enough to cover each month( stomach ulcer) and a doctor that says “We have a pill for that”(heath insurance, can’t leave job). Meanwhile both parents work and then school, camps or somebody other than a yourself raises your child.
    As ugly as all that sounds my wife still finds comfort in a brick and mortar house, living the standard definition of success.  Corporate job, single family home, two kids, and massive debt.  So I continue to compile my list of many reasons to leave and she continues to express her one, “No”.

    Thanks again for posting.

  4. Picture of Michael Boyink Michael Boyink August 21, 2015

    I haven’t referenced it here yet but I’m enamored with James Altucher’s American Religion - which is is basically just a name he’s applied to the thinking you just laid out (with some added “commandments).

  5. Picture of Garrett Garrett August 21, 2015

    Yes, I found that following the links in your article and “Why your house is a terrible investment”.  Another great read!  It falls into the other myths I believe have hurt us as a society.  The bastardizing of the the American Dream and The Story of Robin Hood . 
    The American Dream doesn’t entitle you to anything.  It is the freedom to pursue your dream.  Whatever that might be.  It doesn’t matter where your parents are from or what careers they have or work they have done.  It is the freedom from a Feudal Hierarchy System.  If you wish to own land, own land.  If you wish to be educated, be educated.  But no one but yourself is to provide you with or be responsible for your pursuing of those dreams.  The American Dream was never entitlement of house, must go to college, and then be handed a good job because your educated and deserve one. 
    The twisting of the Robin Hood Story I feel fuels many of the other myths that exist.  Robbing from the rich and giving to the poor.  That is not The Story of Robin Hood.  The Robin Hood story is an over oppressive government, the king( the rich), taking more then agreed upon from the producers, the farmers, peasants, etc (the poor) who don’t have a choice to fight back and Robin fighting for them and taking it back.  Somehow this has been twisted into if you don’t have a lot of possessions then your not happy and the rich are stealing from you and evil.  The poor are entitled to those things the rich have because the rich have too much or stole it.  Possession exist in society and should be passed out equally. 
    It is great to read articles that materialize my ideas and thoughts to paper better then I would have done.  Again thanks for posting. 

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