Home Ownership: Bad Investment, Good For Wealth Building

The Good: Your Wealth Will Increase

-The best medium term aspect of owning a home is the fixed mortgage payment versus having increased rent each year. Over time, your "rent" costs go down each year as inflation decreases the cost of the dollar.

-Forced "savings." The portion of your mortgage that goes toward principal increases your net worth by paying down debt.

-Levered asset appreciation. A $1 million dollar home going up 5% in a year equals 50K increase in paper net work. A 100K stock portfolio going up 10% in a year equals 10K increase in paper net worth.

The Bad: Your Money Will Decrease

-Levered property tax each year. So while your asset appreciates, you also have to pay property tax on the assessed value at time of purchase.

-Repair costs. Varies.

-Selling a home is an expensive proposition. You pay 6% to real estate agents of the entire cost and then need to turn around and spend money on another place to live.

-You cannot sell part of a home if you just need some cash like other investments.

-Having a mortgage means the bank has a piece of you if something unexpectedly goes wrong.

The Negligible:

-Interest deduction on taxes. You save some tax, but you're paying interest.

-You can borrow money off the home if need be.

The Neglected Elements:

-Home mortgages serve as a rare inflation hedge for a joe average person. Say inflation skyrockets 10-20%. That hurts joe average, but actually makes the relative value of paying down the mortgage less. So it works as a hedge.

-The option to pay off your mortgage with additional money. Additional payments hack away at your principal and turn each subsequent mortgage payment into a higher ratio of principal repayment and a lower ratio of interest, thus making all future payments more beneficial to your wealth.

-Paying off in full one day. No housing payment would be real nice.