Keys to a homeHouses are cheap. Interest rates are low. And the economy is improving. Even Warren Buffett says that housing might be the best investment today.

So should you run out and buy a home?

Not necessarily.

Although owning your own home is often associated with achieving "the American Dream," it's arguable that could also be your worst nightmare -- an investment that costs you more money, time, and happiness than you realize.

Here are six reasons not to buy a home.

1. You'll Develop an Emotional Attachment.

Realtors know how powerful this can be.

Walking you through a home, they'll have you envision yourself bathing in the Jacuzzi tub, preparing Thanksgiving dinner for your family in the kitchen, and snuggling up to your spouse in front of a roaring fire in the living room.

You're hooked before you even put the keys on your keyring. In your mind, you already live there.

Imagine the same with a stock. Would you envision it going up ten times in value? Do you think about how happy it'll make you, and how you'll spend the profits?

Secretly, maybe. But it's not -- or at least it shouldn't be -- the main reason for investing in a company.

When you're in love with an investment -- any "investment" -- emotions get in the way of your rational thought process, which often leads to stupid decisions. That's why plenty of investors end up selling their winners way too soon and hold on to their losers in the hopes they'll come back around someday.

2. You'll Be Buying Something with a Horrible Track Record.

Home prices always go up in value, right? After the recent real estate bubble burst, we all now know this isn't true.

But what you may not know is this was true even before home prices began falling.

Homes appreciated at an inflation-adjusted 0.4% annually from 1890 to 2004, according to Robert Shiller in his book Irrational Exuberance. Consider this: A $100,000 home is historically worth only $112,723 after a 30-year mortgage is finally paid off. Whereas $100,000 invested in large-cap stocks -- assuming that market segment's historical rate of return -- would be worth $719,677 if they earned their long-term average return, even after adjusting for inflation.

Bottom line: Homes are historically not a profitable "investment."

3. You'll Take on a Huge Amount of Leverage.

Knowing that homes appreciate slowly, does it make sense to devote 28% of your income for 30 years to pay down a loan you took out to buy your dream home?

For those still wed to the "a home is an investment" argument, let's tweak this scenario a bit. Would you take out a loan to buy stocks that will probably end up being worth little more than the initial amount you invested, and then slave away at a job you hate for three decades just so you could shell out one third of your income to pay for them? No.

Sure, there are tax benefits attached to the interest you pay on a mortgage, but as James Altucher pointed out in a recent column, it's "a microscopic dot on your tax return." The debt enslaves you to that home -- and your job.

4. You'll Toss Liquidity Out the Window.

Need cash in a pinch? Good luck getting it from the home you're heavily in debt with.

True, you could try a home equity loan or line of credit, but that'll only enslave you even more to the home and boost your mortgage payment. Plus, if your area sees a decline in home prices, it could ultimately send you underwater on your home.

5. Your Portfolio Will Become More Concentrated Than You Realize.

For most Americans, a home becomes the largest investment in their portfolio. Ridiculously large. After all, how many people with a $100,000 home also own $900,000 worth of stocks (meaning the home is a reasonable 10% of their entire portfolio)?

Not many.

And it's an investment that, again, you're emotionally attached to, appreciating slowly, don't own outright, and wholly dependent upon the local economy of the specific geographic location your home is in.

6. You'll Have to Give it Constant Attention and Invest More Money in It.

Whereas some stocks pay dividends, homes work in reverse. They require a growing percentage of money to be spent on them to keep them in working order.

The walls will need repainting. Your dishwasher will break. You'll need to replace the roof. And this adds up -- meaning saying goodbye to even more money than you already thought you were spending, and spending even less time enjoying your life.

Add it all up and you can see why buying a home just to cross it off your bucket list, as an investment, or to fulfill your idea of the American dream can be a costly mistake.

If you can convince yourself to get over this mental hurdle and instead rent a home, then invest extra money in the market's best stocks. You'll be wealthier, freer, and happier in 30 years.

This article was written by Motley Fool analyst Adam J. Wiederman. Click here to read Adam's free report on how to ensure a wealthy retirement.

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Spot on analysis. Realtors and bankers hate it when you pull back the curtain on the illusion.

When you factor in the total cost of ownership: down payment, interest payments, insurance, upkeep costs, property taxes, transaction costs - buying a home in most markets is poor investment. Even in a market where home prices appreciate year over year, you're most likely losing out vs. investing that money in a diversified portfolio with average rates of return. I doubled my money from a house I sold in 2002 in a hot market. At least nominally. When I looked at all the costs however, I really cleared about 10%. i would've done much better with other investments.

RENTING, the masses are told is throwing away your money. But you gotta live somewhere and living costs money and anyone who tells you different is trying to snooker you. Buying, when you look at the total cost of ownership, costs MORE in all but a runaway market (which may seem great but the volatility isn't exactly good news for most of us as there is always a reckoning). You need to look at the opportunity costs of that house investment as well as the RISK. You, the lowly home buyer, assume all of the risk while bankers, brokers, realtors make certain money off of you. And as the author wrote, for most middle class folks, it puts WAY TOO MUCH of your income and savings into a single investment. You're totally at the mercy of the market and your investment is illiquid. It's a racket, peddled to gullible commoners who dream of owning their own palace, perhaps getting rich over time.

Happily renting and happily enjoying my savings and freedom. And at least in my market, I get to live in a pretty nice place, landlord lives far away and leaves me in peace. :-)

September 08 2012 at 8:10 AM Report abuse rate up rate down Reply

Where I live, my rent never goes up. And I can do anything to my apt. I want to. My landlord lets me put in new carpet. My choice of grade & color. Paint. Hang wallpaper. I needed new countertops. Got granite! And in return, I've lived in the same place 17 years & my rent has never gone up. I have other posts but I remembered another good reason why I rent & not own. If you're paying taxes every year after it's paid for, then you don't own it. You're still paying something on it. If I buy another house, I'll pay cash. No one get's interest off me. I paid cash for my Lexus. I know some folks that after they make their house payment, there's nothing left to to fixer uppers. I pay cheap rent & put 3x back in savings. I DON'T HAVE TO DEAL WITH SQUATTERS IN MY APT. COMPLEX.

May 31 2012 at 12:53 PM Report abuse rate up rate down Reply

Retired at 57 now 63, I already bought one six years ago, paid cash. Right on a big lake in northern Arkansas and got a deal to boot. Sold high in the Chicago suburbs and bought low down here. That's the way to do it. The house I sold was 95 years old and the house I bought was 9 years old. I'm out in forest on a big lake, no traffic-no rush hour-no crime-no road construction just peace & quiet. One road in and one road out. It's not for everybody but I'll take it.

May 31 2012 at 7:56 AM Report abuse rate up rate down Reply

This article may make sense in some instances; however I have to wonder if the person who wrote it is a landlord and is pushing for more people to rent properties. Here's the deal. People have to have a place to live. Renting leads to having someone else tell the resident how they can use the living spaces and decorate when it comes to colors, etc. When leases are up it's about 90% sure that the rent will go up with the re-signing of a lease. Yes, a house is not an investment, but the argument needs to be made for the fact that a house payment can be much cheaper than the mortgage for the same time of residence. The landlord is in it to make money and they are going to collect; the mortgage, taxes, and a little bit of profit. I would rather own my own home than contribute to making someone else rich.

May 31 2012 at 7:47 AM Report abuse -1 rate up rate down Reply

If you are paying rent you are already buying the home you live in. The problem is you are buying it for someone else.
mikesells4u, REALTOR

May 31 2012 at 7:04 AM Report abuse rate up rate down Reply

Nice article but the simple fact is you can't live in a stock . Throwing money away to rent as well as the tax write off make buying a home much more attractive!

May 31 2012 at 5:07 AM Report abuse -1 rate up rate down Reply

One SImple Reason why you SHOULD buy a home:

It is YOURS (at least as long as you make the payments). You can paint it, remodel it, redecorate it. No landlord can fine you for it, or enter it (it requires a warrant for anyone with a reason to get in), or harass you because your children leave their toys in the yard.

It is YOURS.

May 31 2012 at 5:03 AM Report abuse rate up rate down Reply

I disagree. It can be a hedge against rising rents. Thank goodness my mom's home is paid for. Her neighborhood would rent a home like hers for about $6,000 per month which she could never afford at 79 years old.

May 31 2012 at 1:33 AM Report abuse +1 rate up rate down Reply
1 reply to casinoman89109's comment

My dad just died and my mom is going through readjusting her income each month. She lives in a condo and has the monthly condo fees. She is questioning whether she should sell and rent. I had to show her what the rents were in her area, and tell her she would have to budget for rent increases at the end of each lease term. She was shocked at what rents are when I showed her; I think she was advised over and over to stay where she is; she can afford it but will take a hit financially; but would take a worse hit renting each month after all is said and done. It's just expensive to live each day; she would do better to cut back the satellite TV, etc. to a more basic lifestyle. That's also where family steps in to help also, and we will in every way possible.

May 31 2012 at 8:05 AM Report abuse -1 rate up rate down Reply

But, if you rent, you're stuck with everything that landlord gives you and nothing more. Hate the carpeting? Tough. Hate the color of the paint? Tough. Want to knock out a wall to make a room bigger? Tough. Decide you hate your cable provider and want to bolt on a dish? Tough. If the house is poorly insulated or has issues with plumbing and electrical, you're at the mercy of the landlord to upgrade.

By the same token, who says you have to pay off your mortgage in 30 years. We started out with a 30-year mortgage. After 3 refi's, the mortgage will be paid off 21 years after purchase.

Further, if you rent, there is no deduction whatsoever. If you buy a home, you can deduct both the mortgage interest and the property taxes. After buying a home, our income taxes went down, a lot, because we could itemize.

What's wrong with owning the place you live and loving it? If you treat a home strictly as an investment, then having children makes no financial sense. They are just an endless pit of money that can frustrate you to no end, especially if you first have to go through adoption or infertility to get one.

May 30 2012 at 11:23 PM Report abuse +2 rate up rate down Reply

Obviously, we're all not going to agree on this matter. However, I give kudos to the writer for adding a moment of clarity in what could become another frenzy of "gotta have the American Dream...NOW!" nonsense that we just came through and for which we are all still paying a steep price. This article is all about taking the emotion out of the equation and adding a healthy dose of rationalism. Renting is good. Renting provides shelter. Home ownership is good, homes provide shelter. One or the other will make sense at different times in your life. The article is particularly useful, though, for folks contemplating buying their first home, who may not have the cash upfront for the downpayment, and who also may not have the cash flow for ongoing operating costs of home ownership. Rent, rent, rent, if you fit the description. Save, save, save till you don't and proceed with caution when you do. Even in a strong economy, keeping nimble and flexible is critical for younger families. Healthcare, retirement and college assistance is a much higher priority these days.

May 30 2012 at 11:03 PM Report abuse rate up rate down Reply