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  • A lot of people will tell you that buying a home is a good investment and that couldn't be further from the truth.

  • If you look at homes, most people say, "Hey, I bought a home 10 years ago, bought It for $200,000. I sold it for $300,000. What an amazing investment."

  • But in reality, it's usually a terrible investment because you're paying to live in that home.

  • You're paying property taxes, you're paying maintenance, you're paying insurance.

  • And there are all these other things that happen with your home that you've got to pay for.

  • Once you add that to the cost that you've put in, in many cases you're better off owning much less home or even renting and taking the money that you save, investing it in a diversified portfolio and watching that grow.

  • So when you're looking at renting versus buying, what you really have to compare is the cost of your capital.

  • So you might be paying very high rent.

  • Let's say you live in Brooklyn.

  • You're paying $2,500 a month to live somewhere.

  • If you bought, what would that cost?

  • Would it cost $4,000 or $5,000 a month?

  • What are all the other costs you're not thinking about to maintain that property and pay taxes on that property?

  • If you take the difference and you save it, that extra $2,500 you're saving in a diversified portfolio is most likely, almost certainly, over a long period of time, going to grow to be worth more than what your home equity would have been worth if you just put the money into a home.

  • The one thing about owning a home is that it's forced savings.

  • You've got to find the money every month to put into your home, to pay that mortgage.

  • So it forces you to build equity.

  • But if you're disciplined, what you can do is, you can take that difference, you can go open an account at a low-cost custodian and invest in a diversified portfolio.

  • You can start with something like the S&P 500.

  • And if you take that difference that you're going to pay towards the home and you save that every single month, 10, 20 years from now, you're going to be in far better shape than if you had invested that in a property that continues to take money from you.

A lot of people will tell you that buying a home is a good investment and that couldn't be further from the truth.

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A2 BEG US home paying diversified property cost portfolio

Why Buying A Home Is Usually A Terrible Investment

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    Julia Kuo   posted on 2019/08/22
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