Re: Why Your Home Isin't the Investment You Think It Is.

I posted a blog with reference to an article in the Wall Street Journal (March 12, 2007) about why investing in homes may not be the best financial decision. Read the original here if you wish: link

Here is a comment on the blog:
Anonymous said...

You are missing a key point here. If you finance your home with an interest only loan, you will pay less than renting to live in a likely appreciating asset, while maximizing your tax deductions. This is teh best of both worlds. Less near term cash outflow,(which you could invest in the market), and an equity stake in an appreciable asset. Of course yoru house could depreciate, but so could your stocks. In addition, for your low low down payment on $100,000 house you can earn 2% -20% on that entire amount, while investing that down payment of let's say $20,000 ,you only earn maybe 11% in the market on that 20k. This is what the stock broker boys and girls never fully disclose, and why real estate has and always will be a nearly gauranteed form of wealth creation.

Therefore, I went ahead and made a few more calculations to my Loan Calc spreadsheet. The screen print you see on the right hand side is from my spreadsheet. It re-affirms Mr. Anonymous that I stand to make a potential profit of over 28% with my three year investment. The best C.D. that I know of gives me around 6% every six months (maybe 12% a year...I am not really sure). Even a 12% is not close enough to the 28%.

I guess my thoughts are headed towards the classic Risk-Return graphs. I could play roulette and have possibly HUGE returns on my little investments but I stand on a high risk too. I appreciate Mr. Anonymous for carrying this debate forward. I am not taking a stand that investing in houses is not right. I guess it would make more sense to read the full article on the Wall Street Journal, but I can not publish a subscriber-only article without breaking copyright laws.

The article also refers to people that bite more than they can chew only to make that killer investment in homes. Further, people borrow against their home loan to plan vacations, renovations and big-screen televisions.

I have bought the author of the article, David Crook's book on home investments. I haven't gotten around to reading it yet, but I am going to before I put my money down on a house.