Posted by Dave on June 15, 2010
Has anyone ever told you that your house is the best investment you could ever make? I’ve heard this several times in my life and was always skeptical about it. For something that costs as much as it does, you’d hope that it would be a good investment, but to me it really isn’t.
I don’t look at my house as a great investment, or really as an investment of any kind. I look at the significant money it is costing me to pay down a mortgage as a prepayment for housing that will hopefully take me through the rest of my life. I have to live somewhere, whether it be some sort of rented room, an apartment or a box (which really isn’t an option if I want to live in Canada – unless it’s a really nice box). All of these housing options are going to cost me money. Renting a house or apartment will cost money forever – if I don’t pay my rent, I won’t be welcome to stay. From a cash-flow perspective, a large upfront cost is much more palatable to me than payments to perpetuity.
In the same vain, buying a house will cost money in the form of property taxes and maintenance, but once a house is paid off, these costs are fairly low. For me, monthly expenses would amount to approximately $300 per month (property tax and condo fees) to live.
My end goal is to have a house that is worth as much money as it cost me to attain it (up-front costs plus improvements and interest). Part of the reason I have accelerated the payments on my mortgage is to significantly reduce this cost of ownership. One year ago, I amortized my mortgage over 35 years, and so far have cut approximately 20% of these years out, with the intention of paying the entire house off in around 6 years. If I paid regular payments over the entire 35 year amortization for this place, I would have to pay for the house twice.
I understand that I could invest the almost $200,000 I’m going to end up spending on my house and be making a reasonable return, but I’d much rather be debt-free after 6 years than shackled with an enormous debt. Having no debt would provide a significant amount of freedom in my career and lifestyle that would not be afforded by having to pay my lender over a longer period of time.
With all this being said, after a year do I regret buying a house? From a spending perspective it’s pretty crappy to be allocating 25% of our spending to paying down the mortgage every month, but when I look at it that over the past year, I have pre-paid approximately 2-3 years of rent in my city.
I’m wondering how you look at your house? Do you utilize the tax-free capital gains afforded to your residence to gain on sales? Is your house your best investment?