Planning your retirement strategy around your home could be a huge mistake. I think I've probably touched on this in the past...but I keep reading about how great it is to own your own home that I can't resist bringing it up again.
If I were planning retirement strategy, I think I'd start with the basics...insurance, 6 months worth of income in a savings account, yada yada, yada. I know that's not how most people approach it, but I still think getting back to basics is a good idea. But not everyone listens to me.
That's why I want to talk about someone else's blog today - momentarily. I want you to meet the "mommy millionaire next door". She seems like a nice gal, and We've traded a few emails (or at least one that I can recall off the top of my head)...
...anyway, she's posted something interesting on her blog. It sounds more like a personal experiment than something she advocates for everyone but I'll let her do the explaining from here on out:
Whether you pay mortgage payments to the bank or rent payments to your landlord, you are paying for SHELTER. Contrary to what most people used to believe (but now we know better, right?), homes do NOT always go up in value. Your home is your shelter — not an investment. Often it is less expensive to rent a home than to buy one. Consider renting and investing your down payment savings and your monthly savings into income-producing real estate, businesses, stocks and bonds, your education, etc. instead. You will often come out ahead financially in the long run.
I think you are a little off on your math. What would a $290,000 home be worth in 30 years at a 5% appreciation? What would that down payment be worth if you put it into a mutual fund for 30 years and got what the average investor got as a rate of return (4.4%)? And what will it cost to rent a place for 30 years? Those are the numbers you ought to look at? And did the person who came up with the $1M number take off for the tax savings from the mortgage interest and real estate taxes? Just wonderin because I have run these numbers and never come out behind! Finally, if your point is that at certain time and certain places it might not make sense to buy then I would agree with you on that. But to flatly state buying a home is a bad investment is, in my mind, wrong.
And if you want to become a real estate investor (as opposed to a RE speculator), you can find no better rate of return for your capital! But you have to learn how to do it first, just as you have pointed out you need to learn how to invest in stocks!
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My Response: Thanks for your comment. Actually, it’s not my math. So, I’m going to blame it on the original author who received an embedded link from me.
Anyway, yes, I do see your point. You have to play the leverage game to make a home profitable. But, sitting on a home with the goal of paying it off and owning it free and clear…it’s tough to make that a winning proposition.