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?
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?