Stop Thinking Your Home Is Making You Money

NEW YORK (MainStreet) — “Housing is an investment.” Every buyer, seller and lender who helped inflate the housing bubble said that at one time or other, and if you talk to any of the millions of Americans stuck today with an underwater mortgage, chances are they only ever took on that outrageously high debt burden in the first place because they’d convinced themselves of it.

The statement isn’t untrue so much as it’s misunderstood. Problem is, the English language has only one word — “investment” — to describe two completely different things. Some investments are intended to generate income, while others serve only to reduce expenses. Or, to put it another way, there’s make-money investments and save-money investments. The housing bubble happened because too many people got confused: Your primary residence is a major investment, yes, but it’s a save-money one.

Stocks and bonds are the best-known make-money investments; with luck, they generate actual income for you.

But real estate is a make-money investment only if you intend to rent property out as a landlord. You can’t do that with your primary residence, or anything else to make money either (remember that home equity lines of credit are not “income” but “debt obligations”).

If anything, your primary residence is likely to cost you money — taxes and insurance, maintenance and repairs — and the presumptive savings apply only when compared with rental costs.

Shelter is a basic necessity of life: No matter what happens, you must pay money each month in exchange for a place to live. The whole point of buying rather than renting is that in time, when the mortgage is paid off (or inflation makes your payment shrink in real dollars), you can live there for less than the cost of renting a similar place.

That’s why, when I moved out of my parents’ house into my first very-own apartment in a nearby town, the monthly rent I paid for a tiny two-room efficiency was only slightly less than their mortgage payment on a four-bedroom suburban palace. My apartment also lacked a washer and dryer, and hauling clothes to the coin-op laundromat was my least-favorite chore of adulthood. So a few years later, when I upgraded to a better apartment with washer/dryer hookups, I bought a pair of laundry machines immediately, primarily for convenience: Hang the costs (I thought), doing laundry at home is much easier than collecting quarters and hauling everything to the coin-op.