Your House Is Not An Investment

"Your house is not an investment." - My grandfather

My grandpa told me this one day when I was a teenager. He was driving me home from somewhere and we were stuck in traffic on the freeway. I don't remember what the whole conversation was about, but that line stuck in my mind because it was the opposite of what I heard so often before: "The path to the American Dream starts with home ownership."

Many people, including financial advisors, advocate home ownership as a top financial goal to strive for. And for many people, this is perhaps a smart move. Real estate values generally rise over time although, as we have seen in the last decade, there can be dramatic corrections. A mortgage payment is a type of forced savings plan because you are forced into paying down your principal each month, building up your equity in your house that you can recoup when you sell it.

But to call your home an investment is not true. As any home owner will tell you, it costs money to own a house. I'm not talking about the mortgage payment. I'm talking about all the expenses that go into keeping a house in a livable condition. Consider:

• Your refrigerator died and all the food inside went bad and had to be thrown out. Plus, you had to buy a new refrigerator.
• Your yard is overgrown with weeds, so you need to hire a gardener or buy a lawn mower and spend your weekends keeping the plants under control. 
• The yard attracts pests, so you need to hire a pest control company to stop the bugs from invading your family room.
• The water taps for your washing machine have corroded and are now leaking all over the floor.
• Rodents played in your crawlspace and destroyed the vapor barrier, which needs to be replaced before the wood walls start rotting.
• The condensation drain line for the air conditioner in the attic plugged up, causing the drain pan to overflow and you now have water damage to your ceiling.
• A glass seal on your double pane window broke and let water in, which damaged the window sill. Both the sill and window need to be replaced.
• After 15 years, the insulation in your attic has broken down and needs to be replaced.

I'm not making this up. Every one of those things has happened to me at some house I have called home. We're talking tens of thousands of dollars in repairs.

If it regularly costs you money, it's not an investment.

Investments put money in your pocket. Your home does not put money in your pocket.

The only time a house is an investment is when you own it and rent it to someone else. Then, it's putting money in your pocket.

This isn't to say owning a home is bad. I don't think it is. You need a place to live and a house provides that. You get the benefits of a mortgage interest tax deduction, but you also have the maintenance expenses. One could make a persuasive argument that it's just as smart financially to rent an apartment as it is to buy a house.

So look at your house as a place for you to live and raise a family. Fix it up the way you want. Make it yours.

Just don't think of it as an investment.