Buying a House Might Not be a Great Investment

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Buying a House Might Not be a Great Investment


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January 03, 2020

For most of us, owning a home will be the biggest investment you have.  But is it really a good investment, or is it just a place to lay our heads at night?   You have to live somewhere, and as I like to say, “you can’t take a brick out of your house to put food on the table.”  Many people hold the belief that a house is a good investment.  And I agree it is a worthy goal.  But the desire for owning bigger houses is widespread, especially among high income earners.  So, let’s explore the numbers by looking at the S&P Shiller 20-City Composite Home Price Index.  Over the last 10 years after the recession, the annual return of the index is 4.21%.  If you go further back to 2000 to include the Real Estate run up and bubble, the annual return is only 4.11%.  In comparison, the S&P500 over the last 10 years averaged 10.99%.

You might say, 4.21% is not bad.  It’s better than inflation and less risk than stocks.  But the return is misleading, because houses require continual upkeep.  Expenses like roof, water heaters and furnace repairs, will reduce your potential return.  And mobility issues could come into play.  If you have to move for a job and the housing market is in a recession, you might find yourself S.O.L.

But there are good sides to home ownership.  Depending on your tax situation, you might be able to deduct your mortgage interest.  You don’t have to ask a landlord when you want to paint a room.  And not having a housing payment in retirement with a paid-off mortgage could be huge.  But unless you have great timing on the purchase, you will only see a modest return on you home investment.  And saying your large home purchase is a great investment, in most cases, is just not the case.


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About the author

a man wearing a suit and tie smiling and looking at the camera

Van Pappas

Vice President, Private CFO®

Van Pappas, CFP® - Van is a native of Atlanta. He holds his undergraduate degree in Finance with an emphasis in Real Estate. As a planner for 15 years, he earned his CFP designation from Kaplan University. He is currently the Chairman and founder of the Chamblee Chamber of Commerce and sits on the Downtown Development Authority for the City of Chamblee. In 2012, he noticed the value of helping the X-Y Generations and decided to merge his practice with oXYGen Financial.

Background and qualification information is available at FINRA's BrokerCheck website.

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