I Am Not Convinced That the American Dream Isn’t a Nightmare

//I Am Not Convinced That the American Dream Isn’t a Nightmare

I Am Not Convinced That the American Dream Isn’t a Nightmare

Lets say I offered you an investment that:

  • Is highly illiquid
  • If you do sell there are tremendous surrender charge like fees
  • At any time I can ask you to put more money into it that may or may not raise your principal investment, but if you don’t put that money your principal investment will go down QUICKLY
  • On going interest charges for 30 or so years
  • You will be taxed on the value of the investment every year
  • Will literally never throw off income
  • Every month/year you will have to give me more money and if you don’t you almost everything you put in
  • Taking everything into account above it is very likely you’ll have a negative internal rate of return…but don’t worry no one takes everything into account.

Every year the in-laws rent a house on the NJ Shore.  No it isn’t like the TV Show we are in a very nice area separated from the water by a small boardwalk.  I always have a good time, but this year was especially awesome since the boy is getting older and we can play more and man does he LOVE the beach.Anyway, it was after a few cocktails (read: my father in law is Irish it was more than a few) that home ownership became the topic of conversation and I said, “I am not convinced that home ownership should be the litmus test of a responsible adult nevertheless a good investment”  You would have thought I pissed on a bible!

It wasn’t worth bringing up the fact that I went through the very detailed calculations of buying and selling my previous home and while it seems to most I cleared $50,000…I know I didn’t.

The conversation was short and focused mainly on the internal rate of return portion.  If someone buys their house for $300,000, paid $150,000 in interest and put in $100,000 worth of work and then sells it net of fees and taxes for $500,000 – they didn’t make money despite “clearing $200,000” from purchase price.

Does it Matter Whether I Believe Owning Your Home is a Good Investment?

In a word. No.

There are intangible benefits of owning a home such as stability and there are some tangible benefits such as a forced savings mechanism.  Plus, everyone should strive to live not on the street, so I’d have to pay rent to someone at least this way I have the possibility of upside potential.

By | 2013-09-26T14:51:26+00:00 July 12th, 2013|Rant|18 Comments

About the Author:

Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

18 Comments

  1. retirebyforty July 12, 2013 at 11:32 am - Reply

    I agree. A home isn’t a great investment, but you gotta live somewhere. I think it’s better than renting, don’t you?

    • Lazy Man and Money July 15, 2013 at 11:15 am - Reply

      This is exact what I was thinking too. The alternative “investment”, rent, isn’t much better since it never ends, often goes up, has no rate of return, retains no principal, throws of no income, etc.

      • Evan August 26, 2013 at 9:10 pm - Reply

        But if owning a home has a negative rate of return would it better to have zero?

  2. Blinkin July 12, 2013 at 11:49 am - Reply

    Buying a house is consumption, not investment. I love that our government has brainwashed everyone into thinking it’s an investment everyone should make. The studies that have been used to express the benefits of homeownership are flawed. Do people that own homes have a better family environment? Probably. But, buying a home doesn’t change behavior. Shitty parents are shitty parents wherever they are. People that don’t save, don’t save wherever they are.

    I LOL at my friends that say real estate is a better investment than stocks.

    • Evan August 26, 2013 at 9:12 pm - Reply

      Doesn’t it depend if the real estate is throwing off an income?

  3. krantcents July 12, 2013 at 6:41 pm - Reply

    I don’t think I ever thought of my home as an investment and I never include it in my net worth. It is a better alternative to renting though because the government subsidizes my mortgage through a tax deduction.

    • Evan August 26, 2013 at 9:13 pm - Reply

      Is your mortgage interest more than the standard deduction though?

  4. Kevin Watts July 12, 2013 at 9:38 pm - Reply

    I have read several articles saying the same thing that owning a home is not a good investment and in the long run it gives you 0% return. What about rental properties? I know they can be risky but they can give you significant source of passive income.

    • Sandy July 15, 2013 at 11:53 pm - Reply

      I rip my hair out when I hear someone say owning rental properties is PASSIVE income.

      • Evan August 26, 2013 at 9:24 pm - Reply

        Passive? NO CHANCE! lol

  5. Grayson July 14, 2013 at 10:56 am - Reply

    I don’t consider my home an investment. I consider it a place to live. I would have to pay someone, so why not at least have the opportunity to own it when I am done paying?

    • Evan August 26, 2013 at 9:26 pm - Reply

      Maybe b/c the income off of a portfolio may provide income through retirement…just an alternative theory

  6. Squirrelers July 15, 2013 at 3:17 pm - Reply

    I agree that a home isn’t a good investment. Now, it probably has been for people living in the Bay Area (SF in particular) or other specific places that have been strong. But in general, I think it’s best to look at a home as a place to live.

    Looking at it too emotionally, or looking at it as an investment, are ways people get derailed in my opinion. In other words, getting wrapped up in the concept of a “dream home” (nobody needs that) or getting sidetracked by hot real estate markets can cause issues for people.

    • Evan August 26, 2013 at 9:43 pm - Reply

      “Looking at it too emotionally, or looking at it as an investment, are ways people get derailed in my opinion”
      – It is very hard not to get that attached to a home that has seen so many memories

  7. Sandy July 15, 2013 at 11:54 pm - Reply

    Love the “pissed on a bible” part. I actually laughed aloud at that line.

    • Evan August 26, 2013 at 9:43 pm - Reply

      I try!

  8. Funny about Money July 22, 2013 at 11:40 am - Reply

    Actually, I do think it matters whether a man like you — and any man or woman in your age bracket with comparable earning power — believes a house is a bad investment.

    First, it’s a good sign in that it means an influential segment of your demographic understands real estate as “investment,” not as some misty woo-woo like “American Dream,” “home,” or “dream home.”

    Second, the realization that a house is not a home, it’s a financial instrument coupled with the ability to articulate that vision means more people in the under-40 generation will make smarter long-term financial decisions. More will rent until they have enough cash to put down 50% or more of a house’s value, minimizing mortgage interest over time. Some will rent until they’ve saved enough to pay cash for a roof overhead. And some will decide never to buy a “home” but to invest all their savings in more liquid, more tax-favored products that will help support them in retirement.

    Now, if I were a real estate agent, a mortgage broker, or a banker, of course I’d think these were just terrible prospects. But as a member of the fading U.S. middle class and the parent of a man your age, I see them as healthy developments that will clarify the facts of investment and money management for a lot of men and women on the low side of middle age. You don’t have to own a house to have a good life, and in fact it’s entirely possible that you can swing a better life by investing your funds elsewhere.

    • Evan August 26, 2013 at 9:52 pm - Reply

      Even with my struggle I am still on the same road I was always on. I wonder if it will ever be a trend.

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