Your House IS NOT An Investment

A lot of friends I know are buying, or in the market for houses. Knowing that I bought a house at the end of last year they come to me asking all kinds of advice. One of the questions I always ask is: “Why exactly do you want to buy a house?”

It’s a simple enough question, but too often the answer to it is 100% wrong.

“I’m sick of wasting money renting & It’s a good investment!” 

If I ever have the “Why do you want to buy a house?” conversation with you and you answer with the above phrase you’ll notice I don’t reply right away. That’s because I’m suppressing the urge to slap you in the mouth.


I know a couple, fresh out of college, working their first entry-level real world jobs and recently engaged. Both are riddled with student loan debt, and the first thing they want to do is buy a house. Are you kidding me?!

Pay off your debt, start building a 401(k) balance, start contributing to a Roth IRA and get your future on track before you think about buying a house.

Too many people think “I’m paying $1000 per month in rent for my apartment, why shouldn’t I get a $1000 per month mortgage and build equity in something?!”

A) Once you see what kind of house you can get for the same mortgage payment as you’ve been paying in rent, you’re going to increase your budget immediately.

B) You’re forgetting all the hidden costs of home ownership. Property taxes, insurance, maintenance costs, maybe even an extra utility bill or two. The true cost of owning a home will be 50% or more per month when you factor in these variables.

“OK, but you still haven’t explained why a home isn’t an investment!”


Ok, here we go…

The average length of ownership in the U.S. is 7 years. For these examples I’ll assume everyone reading has excellent credit (to get the best interest rate) is above average and will own their home for 10 years.

The example below is for a 30 year fixed rate FHA loan with 3.5% down. Assuming a 4% annual interest rate, $4,500 per year in taxes & insurance and a 1% PMI (because no one puts down 20% anymore!)  This is by far the most common mortgage scenario in the US today.

Your total monthly payment is $1457.25 and it breaks down like this.

Now lets say that after 10 years you turn around and sell your home for $300,000. You just made $100,000, right?! Not quite…

After 10 years you’ve actually lost almost $24,000. And that’s not even accounting for any maintenance or repairs that you’d have to pay for over those 10 years or the 6% fee you’ll be paying the Realtor when you sell.

Even if you’re one of the few these days you puts 20% down on the house you’re not looking much better. With 20% down your ROI is just over $37,000 after the same 10 years. Again, not adding in any maintenance or 6% Realtor fees when you sell.

Even in a scenario where you do come out ahead after selling your house, have you ever met ANYONE that pockets those profits and moves into a smaller, more affordable house? No, you move out of one house and buy a bigger, better, more expensive house the 2nd time around!

The point is, over the last 100 years the average annual increase in home prices was 3.3% per year. This barely edges out the inflation rate over that time which was 3.1%.  0.2% per year is NOT what I’d call a good investment. For comparison, the S&P 500 returns about 8% annually, Great Depression, dot-com bubble burst and our recent “Great Recession” included.

This post isn’t meant to talk anyone out of buying a house. If you plan on staying there a long time and your financial situation allows for it I highly encourage you to buy a house. A house is a place to live, a place to start and raise your family, a place to put down roots, create memories and grow old in. There’s just one thing it’s not – an investment.


Note: This article refers only to your primary residence. Properties that are purchased solely to rent out and generate income are obviously investments, and often very good ones. 




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12 Responses to Your House IS NOT An Investment

  1. Mark says:

    I have a couple of comments:

    For the house to increase in value from 200k to 300k in 10 years you would need to average a 4.6% increase each year which is 56% higher than the historical average and with the slow housing market that seems like a pipe dream.

    If you only sold the house for 260k after 10 years and included the realtor fees you would have lost about 115K. However if you had been renting for 10 years with a starting value of $1,000 a month and a 3% increase in rent each year that would have equated to $137K. Plus with owning you get more utility out of a larger customized space.

    Housing ownership is not an investment, but rather an exercise in how to spend the least amount of money and have the most utility.

    • FirstMillionBlog says:

      Yeah, I didn’t want to get into the whole renting vs buying debate as you can make a strong case for ether side and it basically comes down to your personal situation.

      Home ownership is great, but its not for everyone. And if your main reason for wanting to buy is that you think you’ll make a bunch of money when you sell it in 5-10 years I hope I’ve proved that is the wrong way to approach home ownership.

  2. MJK says:

    I just wanted to point out that these numbers are also a little skewed because you didn’t take into account the fact that property taxes and interest payments are tax deductible.

    My house may not be an “investment” but I find it is actually pretty equal to renting in my area.

    • FirstMillionBlog says:

      Yes, interest is tax deductible, but in most cases you’re saving money that you ordinarily wouldn’t have spent. I also didn’t include all the maintenance and renovations you’d end up paying for too, so let’s call that a wash :)

      Like I said before, its not about renting vs buying. Its making sure that if you buy, its for the right reasons. Not because you think you’ll make a bunch of money living there for 5 years then selling it, or because you think deducing mortgage interest will net you a big tax refund.

  3. A house or some form of shelter is a necessity. At this point in the housing market, my opinion is that buying a house is a good idea… NOT necessarily an investment, IF the following criteria are met:
    min 20% down
    15 year mortgage
    reasonable annual taxes
    spend less than 30% gross on house payments
    little or no other forms of debt needing to be paid off

  4. my home is an investment. i bought it for 795k when it was worth >1M. we lived in it for 2 years to get the personal home exception 250k for each person with no taxes. we are selling.

    hard to make absolutes, it all depends on the circumstances. great time to buy now.

    • Mark says:

      I obviously don’t know your specifics, but even if you do sell your house for 1,000,000 I still don’t anticipate you getting a large return on your investment. Here are some estimates of costs that you may have incurred over two years of buying, owning, and selling the house:
      Closing costs (not including prepaid taxes) – $8,000
      Property Taxes – $31,800 x2 years =$63,600
      Mortgage Interest for 2 years @5% – $77,000
      PMI – $5,000 (maybe more?)
      Realator fees 6% of sales – $60,000

      Expenses total $213,600
      House appreciation $205,000

      So if this was purely an investment you lost about $8,300, not a very good investment, but if you factor in the utility you got to live in a $1,000,000 home for 2 years for $8,300 which isn’t bad.

  5. John says:

    I’m starting to feel this way myself – that houses are not investments. When you account for inflation over 100 years I’d be willing to “bet” that housing hasn’t been a great investment at all even over the long term.

    • FirstMillionBlog says:

      This is exactly right. I don’t think I included it in my post, but I know I read as I was researching that over the past 100 yrs or so housing has returned only 0.9% above the inflation rate over that period of time.

  6. David says:

    To say that it’s not about renting vs. buying ignores the big picture as much as saying that buying a house is a good investment while ignoring maintenance, repair, closing costs, commission, etc. It is true that you could make more money investing in the stock market. So if you have a place to live, I agree it is foolish, unless you are a flipper, to try to make money off a house. But if you are renting, you can save a lot of money from buying vs. renting, which can be the same as making money in the stock market while paying rent. Money saved is money earned. Ideally, you buy a home AND invest in the stock market.

  7. Nightvid Cole says:


    You are also neglecting the fact that with renting, you can rent a single room and share a bathroom and kitchen, which saves a lot of money. With buying that option does not exist.

    Also with buying you are rendered immobilized if your job changes even within the same city. If your job moves and you cannot, you’re going to be spending $8k per year or so owning operating and maintaining your primary commuting car. Surely this should be factored in as well?

  8. Michelle says:

    I have never really viewed a house as an investment unless I was purchasing it as a rental property. I think of a house as a secured asset that I have when I retire and something to give to my future children. I may be completely wrong in thinking this.

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