I hate it when blinkered, tunnel-visioned investment advisors come out with advice that works if you are buying what they are selling, but not in the real world.
For example, this commentary (click) by some guy who says that owning a home is always, 100 percent, bad advice.
Always? Well, he goes on to talk about “wealth” creation and how the money locked up in a house is not “building wealth” for you, but we need to look at definitions.
What this guy is calling “wealth” is what most of us think of as money in the bank, generally represented by numbers of a sheet of paper that the bank mails you every month. If the numbers are big, you have lots of money, but do you have wealth?
No, you have money. Real wealth is not money, but the things we have to give us the way to live. It may be machines that let us make things, or tools, or a place to live.
Money is not wealth. Money is just a marker for the work you have done that you exchange for things you need. We don’t barter commodities any more, buying medical care with sacks of potatoes we grew, so we use a substitute for those potatoes. But as we all know, you can’t eat money, you eat potatoes. Someone with lots of potatoes will not starve, someone with lots of money will unless he finds a person willing to swap potatoes for money.
Thus it is with houses. From a strict, dollars in, dollars out, point of view, it may be possible to accumulate more money over your lifetime if you don’t buy a house. But in the real world, you darn well better be thinking of other things than just money.
As we’ve seen over the past 10 years, money can be hard to come by, and very hard to keep. Jobs can disappear. Banks can crash, and on and on. There are a lot of people who are now homeless, not just because they couldn’t pay their mortgage, but because they couldn’t pay their rent.
Owning a home — and by that I mean a home that is small enough for you to pay off in a reasonable amount of time — gives you far more than something that won’t sell for what you paid for it in 20 years. Homes should never be an investment, not unless you plan on making a living as a home investment professional.
What owning a home gives you is a place to live. If your home is paid off — that’s where buying small pays off — then you always have a place to live. If you have a paid-off home as part of a lifestyle choice that also includes living within your means, avoiding debt and accepting that not everyone can vacation in Italy every year, you will have an extremely valuable asset.
That asset — a place to live — is real wealth. Nobody can take it away from you. Your annual taxes are what others pay for rent in two months, and the rest of the year is free and clear.
Yes, you have to pay maintenance, but so what? If that thinking applied across the board, nobody would ever buy cars, either. I mean, cars? Talk about a money pit.
Yes, people who move every two years probably shouldn’t buy. No advice is universal and that’s the real point here — the housing bubble was built on the wrong idea that all houses never lost value, so speculators went nuts and then we found out that, yes, they do. That’s another nice thing about a paid-off house: You don’t care what it’s worth. It is where you live.
Telling people to never, ever, buy a house is equally stupid.