I've written in the past why buying a house is a great investment. It got some good attention, some bad attention, and plenty of controversy. As real estate prices keep sliding, I'm still actively in the market looking. It is simply amazing how upgrading where I live is, overall, roughly the same price as renting right now -- including average home repairs and maintenance.
In this article, we'll look over the basic reasons buying a house isn't a bad investment, and everyone should at least consider it to see if it mixes with their long-term portfolio strategy. But first, let's discuss the most basic question of all -- is a house really an investment?
Is a House an Investment?
Yes, it absolutely is. One common response to the notion that a house is an investment, is that it's not an investment, but is something we consume. This is a great example of how people often cripple their ability to analyze the world through logical fallacies.
A house is certainly somewhere you have to live, but it can also be an investment. It's not remotely either/or. That's why so many people made money during the bubble and so many people were burned during the crash, because a house absolutely was an investment and an asset class, even if it's the house where one lives.
Because this is an alternative investment available to almost everyone, it's probably one of the more important bits of analysis one can do. Every month I pay rent, I pay with $20s. I usually have to pay more than I can stuff into my wallet -- it really stings.
Still, here are three big reasons home ownership is a great investment, compared to the non-investment of renting for life.
Reason 1. Ownership is increasingly affordable.
A mortgage stays flat and then disappears. Rent stays flat for a while, but eventually increases. Rent stays for life. I know men who are retired, still paying rent every single month. It's a hassle, a huge cost, and they never fully "own" their own home.
Meanwhile, people who actively purchased a home when they were in their 20s and made relatively small extra payments saw their home purchased within 20 years, and had the ability, if they wanted, to even refinance during the middle of their payments to lower them further.
Whether your goal is to own it outright as soon as possible or just get lower bills within 10 years, either option is available for home buyers.
Reason 2. Security is just as important as profit.
This is important, because it's something people often completely don't understand. This is something most of the "you can't beat the market" people don't understand when they're writing articles -- maximizing profit is only one investment goal.
After all, if I came out and said no one should ever buy cash or bonds and should put all of their money in stocks because they make more over time, would you respect my position? Of course not -- it's a bad argument, because there is a time and place for different assets. Gold (GLD) and silver (SLV) are similar.
I'm going to go ahead and assume the people buying Utilities Select Sector SPDR ETF (XLU) are looking for something different than the people buying Facebook (FB). Some investments are great for security purposes. Housing is a good example of this. If you own your own home -- after the mortgage is gone down the road -- your financial security goes through the roof. It's easier for you to take a pay cut, for example.
And no, a portfolio doesn't offer the same protection; a lot of people learned that when they found themselves part of 9%+ unemployment while their portfolio was kicked in the teeth. Economically speaking, bad events often cluster. Having to pay 1-2k less every month during a crisis isn't just nice -- it's absolutely a life saver.
Reason 3. Ownership builds equity and diversification.
Rent money should be seen as putting cash in a pile and burning it. You'll get nothing after you spend that money. Next month you'll have to do it again.
Equity is different. It does everything from helping build your credit over time, giving you the option of a reverse mortgage later in life, giving you financial security, giving you diversification, etc.
That's something no REIT that specializes in single-family houses, like PMT (PMT) or CMO (CMO) can offer. That's something stocks can't do. And most importantly, that's something your rent doesn't remotely come close to achieving.
Over the next year, I'm actively looking for houses to purchase. Where I live, foreclosures are absurdly cheap, and it's likely I can have a house -- with maintenance -- for less than what I pay every month right now. For me, it's a no brainer. Should you buy a house now? It's definitely something to consider. For anyone close to being in a position similar to mine, the answer is "yes".
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I own physical gold, silver, and am looking to purchase a foreclosed home in the near future.