I’m hoping to start some dialogue on the subject of home ownership. It seems like there are a lot of PF bloggers that don’t own homes, or any real estate. Why is that? Do a lot of people think that real estate is risky? (Which I don’t disagree with, but I think it’s a relatively moderate risk when compared with all the other places that you could invest etc) Or do you think it’s just not a good place to keep some of your net worth?
I think that owning the home you live in is a sound strategy. One of the things I try to do as a general rule is look at people that are doing better than I am and ask myself why they are doing better. In most cases, when I do this, these people all own homes and have a sizeable percentage of their net worth in the equity in their homes. My net worth is significantly impacted by owning a home. Sure, I have to shell out some cash now and then to fix things, or paint it etc, but I believe I’m still way ahead.
One of my favorite things to read is CNN/Money’s â€œMillionaires in the Makingâ€. If you go through all of these stories of people that are on their way to becoming millionaires (by using many of the same principles/strategies that all of us PF bloggers use), you’ll notice that most of them own at least one property and it’s usually their residence. You’ll also notice that it figures in heavily to their overall net worth.
Another thing that I try to do is weigh effort versus return, when I’m considering how to make money. If I can own a home and see it appreciate at 4% a year, and write off the interest on my loan, I’m in the money. (Once the tax savings are calculated in, which reduces my already low interest rate on my loan.) I’ve found that just living here has drastically changed my financial picture. I’m also trying to be aggressive in other areas as well, but with over half of my net worth being equity in my house, it’s hard to believe that I could have made an equivalent amount of money by focusing on some of the other popular methods that many different bloggers have written about. Many money making ideas are very creative but seem to have a relatively high effort level (ideas where you have to actively work to make each dollar), or low benefit level. (I’m thinking about free samples etc)
Let’s say that, after all the home maintenance is done, taxes are paid, interest is paid and I’ve taken advantage of writing off the interest, I’m only $3000 ahead for the year. What would I have had to do to earn $3000 in interest or income? Could I have earned $3000 in interest on the money that I didn’t put towards housing if I had rented a house instead of owned one? I really don’t think I could have. Certainly not if I rented a comparable house. It turns out that I’m yielding far more than $3000 per year right now with the real estate market the way it is. Like I said earlier, I’m happy to see it going up but I won’t be spending any of the equity gains since it could easily start decreasing too.
So, what do you think? Do you own a house? Are you glad you do? If you don’t, how come? Are you glad you don’t? Do you disagree with my opinion?