In the last two weeks’ posts I
have tried to analyze the value of owning a house as an investment. I deconstructed an article by well-known
investment manager Ken Fisher that contended houses are a “lousy
investment”. But at the end of the day,
we should recognize that a house almost always becomes a home. As such, it usually brings with it emotional
attachments that can endanger the investment because we do not view the house
dispassionately and thus could make unwise decisions concerning it.
In that sense, a house differs
from the typical investment because it is simultaneously a “good” or product as
well as an investment. We invest in the product/investment,
mostly in the form of memories—memories of things we did there, our nearby
friends and neighbors, life events in general that we classify by place of
residence, such as “that happened while we were living on XYZ Street in
Anywhere, USA.” That may cause us to
over-value the house if we try to sell it, or hold on to it when we ought to
sell it to downsize (as we grow older) or upsize (when the family is growing).
But putting aside those pitfalls,
owning a house has benefits beyond what an ordinary investment offers, and I’m
surprised Ken Fisher ignored these.
First, it is an inflation hedge,
especially if you have a fixed rate mortgage.
I saw this firsthand in my own home-buying experience. In the early years I struggled with the
mortgage payment and tried not to think of the measly sum I was applying to
principal each month. But not only did
the amount of interest paid go down and principal payment go up over time, but
my monthly payment remained steady. Over
just a few years, inflation and wage growth made that monthly payment a
progressively smaller percentage of my total income and left me more money to
save—and invest. In fact, over the
course of 30 years and buying/selling four houses, our mortgage payment never
varied by more than $150. And most of
that increase was due to refinancing to a shorter term loan. If I were still living in an apartment I am
quite sure my monthly rent would far exceed what I ever put out in a mortgage
payment, by at least a multiple of three.
And of course the value of owning
a home without a mortgage in retirement is priceless. My own dad discovered that after he sold his
house and reaped a nice chunk of cash—but thereafter worried continually about
the steadily rising rent at his apartment.
No, an elderly person doesn’t need a high maintenance money pit for a
home, but a reasonably sized residence with easy and low maintenance
requirements and owned free and clear is a source of security in old age.
Finally—and I don’t necessarily
endorse the idea—a reverse mortgage is a source of income in retirement that is
only available to homeowners. It is a option
with some serious drawbacks, but as an emergency source of income, a supplement
to the income of someone who did not save enough to generate an adequate income
stream in retirement, or as a last-resort means for the uninsured to pay for
what will likely be a life-ending stay in a nursing facility, a home is nearly
unrivaled.
And I’ll throw this thought out
there, not to disparage Ken Fisher but to raise a red flag and remind you to “follow
the money” (see my first blog post) whenever you read investment advice
(or blogs about personal finance). Ken
Fisher is not a real estate agent; he’s an investment advisor. Is it surprising he would downplay real
estate and promote investments that he might be able to sell you? Just sayin’.
I hope I’ve made a convincing
case for buying a house. The tangible
investment benefits and the intangible aspect of pride in ownership argue
powerfully for it, in my opinion. Just
keep in mind that it does require a commitment.
Signing my first mortgage note, realizing I was committing to a monthly
payment on it for 30 years—longer than I’d been alive at that point—was
sobering. So, too, were the
responsibilities of owning a house, like becoming a handyman (I use the term
loosely when referring to myself) or having to purchase and maintain things
that a landlord used to take care of. It
takes some mental preparation as well as financial. Count the cost before leaping.
Until next time,
Roger
“Get your fields ready and plant your crops before starting a home.”
Proverbs 24:27 CEV
No comments:
Post a Comment