This article is going to be a contradiction. After the fall that housing has suffered, I think that that, as an asset class, housing will probably be a decent investment going forward. But nobody should ever consider owning a home.

One of the biggest scams perpetrated on the American public is that owning a home is the "American Dream." It's more nightmare than dream as millions of Americans now know. But it has always been that way. Here's why.

1) No diversification. Most people put the bulk of their net worth in their house and then they borrow money to pay for the rest of it.

2) It's illiquid. When times are tough and you need cash, you can't sell it.

3) It costs a lot more than renting. Most people think you are "throwing money away" when renting. Quite the reverse. There are many hidden costs when buying a house:
  • Transaction costs (legal, real estate agent, title check, inspections, etc.) often come to 7% to 10% of the cost of a house. So you are 7% to 10% down immediately.
  • Home improvement (adding a bathroom, upgrading the kitchen, installing double-pane windows, landscaping, etc.)
  • Ongoing maintenance and repairs (periodic roofing, plumbing repairs, yard upkeep, fixing things, etc.)
  • Your real estate taxes (which will ultimately be more than the tax savings you get on your mortgage interest)

4) It's not fun. I'd much rather have my landlord shovel the snow than me shovel the snow. And, by the way, heart failure goes way up during a snow storm. A sedentary lifestyle doesn't lend itself to the arduous task of shoveling our driveways.

5) Your down payment is not a down payment. It's the sound of a flushing toilet. Think about it: You never get that money back. Even when you sell the house, you just put it into the next down payment for tax reasons. You can say goodbye to that money once you put it into a house.

6) No job flexibility. Why did owning a house become "the American dream"? Not to sound socialist (since I'm the opposite), but Corporate America was happy to propagate that myth so it would be harder for you, the homeowner, to leave your job if there were few jobs in your area. You'd have to both move and quit your job if you wanted to leave your job. Moving is harder when you own.

7) I think in the long run, housing prices go up. But if you really believe in housing as an investment, then own a good REIT or two and diversify by buying REITS that own residential homes throughout the country so you aren't tied to any one area. If you really want to borrow 300% and put 50% of your net worth plus debt into one investment, then that's what you should do. But I wouldn't really recommend that either.

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nicholas moran

May I reproduce this article on my website ? I agree that for the most part housing is not an investment but rather a managed cost and Im glad to see another author agree. I want to bring your view point to my audience and introduce the article as a guest post.

August 23 2012 at 12:17 PM Report abuse rate up rate down Reply

This idiot was touting nat gas as a great investment before it dropped 80%. He claimed to be moving 'all in' at the time. I agree a house isnt an investment, its a lifestyle.

May 30 2012 at 2:52 AM Report abuse rate up rate down Reply

It is quite sad and so wrong that greed greed greed keep those who want to live in and someday own a comfortable home(no one OWNS a home until the bank receives that last mortgage payment if the house was not purchased outright with cash). All these over-the-top appraisals are just plain sickening and simply put it is nothing more than GREED/corruption and it is wrong. Seeing a realtor pride him/herself on the sale of a property that is no way worth the kind of money received is corrupt to the core. The manner in which humanoids treat one another with this kind of greed and corruption is indeed sickening - we are our own worst enemy, and why would someone want to purchase a property way below what they can afford when it will likely no where near what that person is going to be happy with or have his/her needs met with regards to space and functionality. True, so many got caught up in this housing crisis because they purchased more than they could afford, but with the over-priced cracker-boxes that are built over and over again to supposedly accomodate families it is understandable how folk get themselves into these messes.

August 25 2010 at 12:04 PM Report abuse rate up rate down Reply

My house is still worth over $200,000 more then I paid for it six years ago. Didn't do much work to the property other then regular maintenance. It will be paid off in another nine years. Gosh what a horrible investment! A little bit of advice. If you are going to buy a house now is the time. You buy low then sell high. Of course you could listen to the drivel written here and in another five or ten years when real estate is booming again curse yourself. Your call!

August 24 2010 at 10:02 PM Report abuse +1 rate up rate down Reply
1 reply to exultation's comment
John Yowza

it all boils down to location ... if your house truly appreciated 200K in 6 years (which I'd need to see proof to believe) the you must be in a VERY desirable location, like South Florida or the like. In the Midwest and other non-coast locations, houses do not appreciate like that, which makes renting an intelligent alternative

October 15 2015 at 3:05 PM Report abuse rate up rate down Reply

that may be true in the short term , not a good time for people that flip properties. when you own your own property you can do what you want when you want with in any government restriction,can you go out and buy a pet-dog,cat etc... most cases when you rent that awnser is you want to improve your surroundings,if you rent painting may be as far as you can take that in some cases.and home ownership is still one of the the last tax haven the middle class has left.

August 23 2010 at 1:20 PM Report abuse +1 rate up rate down Reply

Obviously people that can't or don't want to buy homes should rent. Just remember someone has to own the property you live in and is making money off your payments. Renters certainly do pay a "mortgage" and "property/school tax bills". Just happen to be someone else's mortgage and tax bill.

August 23 2010 at 9:42 AM Report abuse +2 rate up rate down Reply

I've never seen a more delusional lot than you people. Have you been paying attention to the economy in the last 2 years?!?! The 20th century is over. Get used to it. It's a new paradigm. Wake up people:

August 23 2010 at 9:34 AM Report abuse +1 rate up rate down Reply

A house to many is simply not an investment, it is a home as well. In this regard it can be more than a financial investment. Be that as it may, for singles and DINKs, he is probably right. For people raising families, not so much, particularly in a market where it is cheaper to buy a three bedroom house to accomodate mom, dad and the 2.2 kids they probably will have than it is to rent. And, when I say cheaper, I do not mean over the long haul such as 10, 15 or 30 years. I mean where the saving can be seen on , at most, an annual basis if not monthly. The problem here is not so much buying as it is over-buying. The myth being packaged and sold is not that one needs a house as much as it is that one needs a McMansion.

August 23 2010 at 8:53 AM Report abuse rate up rate down Reply

This fellow has it RIGHT, especially the part about the "sound of the toilet flushing" as you sign the closing contract.

August 23 2010 at 8:35 AM Report abuse rate up rate down Reply

i dont wannabe tied down to a morgage forever i rather rent and be able to leave when i want and not be a slave to the banks and wait years for a house to sell or go up in value

August 23 2010 at 2:34 AM Report abuse +1 rate up rate down Reply