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I have heard a few people say that "a house is not an investment" as an argument to stay in an apartment. (To me, this seems like a stupid reason, but that is not my question.)

Of course, this is not the only place I have seen this argument. I've seen some scammy TV commercials trying to sell financial advice claiming the same thing.

So, the way I see it, I'm building up equity. When I need to, I can use the house as collateral, or I can buy a new house with that equity,, etc.

So, why do people say that that isn't an investment?

10 Answers 10

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The below assessment is for primary residences as opposed to income properties.

The truth is that with the exception of a housing bubble, the value of a house might outpace inflation by one or two percent. According to the US Census, the price of a new home per square foot only went up 4.42% between 1963 and 2008, where as inflation was 4.4%. Since home sizes increased, the price of a new home overall outpaced inflation by 1% at 5.4% (source). According to Case-Shiller, inflation adjusted prices increased a measly .4% from 1890-2004 (see graph here).

On the other hand your down payment money and the interest towards owning that home might be in a mutual fund earning you north of eight percent. If you don't put down enough of a down payment to avoid PMI, you'll be literally throwing away money to get yourself in a home that could also be making money.

Upgrades to your home that increase its value - unless you have crazy do-it-yourself skills and get good deals on the materials - usually don't return 100% on an investment. The best tend to be around 80%.

On top of the fact that your money is going towards an asset that isn't giving you much of a return, a house has costs that a rental simply doesn't have (or rather, it does have them, but they are wrapped into your rent) - closing costs as a buyer, realtor fees and closing costs as a seller, maintenance costs, and constantly escalating property taxes are examples of things that renters deal with only in an indirect sense.

NYT columnist David Leonhart says all this more eloquently than I ever could in:

There's an interactive calculator at the NYT that helps you apply Leonhart's criteria to your own area.

None of this is to say that home ownership is a bad decision for all people at all times. I'm looking to buy myself, but I'm not buying as an investment. For example, I would never think that it was OK to stop funding my retirement because my house will eventually fund it for me. Instead I'm buying because home ownership brings other values than money that a rental apartment would never give me and a rental home would cost more than the same home purchase (given 10 years).

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    I'd love to hear from the downvoter what was not useful about my post and learn from my mistakes. – justkt Sep 30 '10 at 15:02
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    @justkt - Your "Advice" and observations are contrary to my experience. Your whole first paragraph is not factual and one could show circumstances the other way around. So much depends on the timing, the house bought, the location, etc. It is silly to pretend to say that a house doesn't give a "Return". A whole host of people have experience that contradicts your statements. You also leave out key financial benefits to owning over renting. (estate tax, exemption from capital gains, deductions, etc.) The downvote was for generally Bad advice and incorrect comments – Tim Sep 30 '10 at 16:50
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    @Tim - While my first paragraph is contrary to your experience, I believe you should check out the sources I have added. It is entirely factual according to the US Census and the Case-Shiller index. Did you happen to check out the NYT calculator I liked or any of the original articles? They take into account tax deductions, the various costs of renting, and all those facts that are for home ownership, but yet say that renters STILL sometimes come out on top. I did clarify that my points are not about income properties, which in some areas where rents are high work. – justkt Sep 30 '10 at 17:10
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    @justkt - that article you posted is written in 2005 at the HEIGHT of the bubble - of course it was better to rent than to pay outrageous prices for houses. Sheesh. I also don;t understand why people think by renting they are not paying for things like real estate taxes. Of course they are - they pay the landlord and the landlord pays the RE taxes. But the landlord gets all the writeoffs. I love it when I hear people talk like this because it means I can have someone else pay off the loan of my rental properties and I get these great investments using other peoples' money. – Tim Sep 30 '10 at 18:45
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    @justkt - actually, I was the one who commented on your answer... And I also live in high COL area. Long Island NY. I would say only a handful of places in the US outstrip Long Island for cost of living. By the way - I agree that a primary residence should not be looked at as an investment - I just don't like how owning a house is portrayed in a bad light with some of the remarks. – Tim Sep 30 '10 at 18:50
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When I purchased my house I struggled with this same idea. I felt sick to my stomach signing a contract stating how much money I now owe a bank. However, the lawyer I was using put it in terms that eased the nausea a little (I still hate owing that much money - but it's a little more palatable).

His words, paraphrased: At the end of the day, you have to have a place to stay. Your mortgage payment is replacing your rent except in this case, you're paying yourself instead of someone else. You lose a little flexibility in being able to up and move with relative ease. However, you've lived in apartments, you know that rent almost only goes up. Your mortgage will not.

He wrote out some numbers and basically showed that everything evened out except mortgage payments will give you property as opposed to paying for someone else's property.

To answer your question though - others have already stated - you'll get a better return in the stock market (usually). But unless you're really really bad at real estate evaluation - you should make some money off your house when you decide to sell.

  • +1 I would add that its really hard to find somewhere you actually want to buy, and when you do find it the price may have little relation to average prices quoted in media etc. – NimChimpsky Sep 30 '10 at 8:12
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    "You're paying yourself instead of someone else" is not alwaus a helpful one. The vast majority of your early mortgage payments are paying someone else - the bank - in interest. – DJClayworth Jan 13 '11 at 19:09
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    In the early days it is a very small fraction of your payments that are reducing your debt. Sometimes you would end up with more money by renting, and paying the difference between cost of renting and cost of owning into a savings account. – DJClayworth Oct 11 '13 at 0:06
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    ask the people priced out by rent increases in places like SF how they fell about renting vs owning – Neuromancer Feb 17 '14 at 17:28
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    @Neuromancer Ask them the same question when their owned properties have dropped 10-30% in price and they are looking at needing to move elsewhere. At least if you rent, the maximum cost to you to move at any time is reasonably limited, perhaps a few thousand dollars in a really upscale neighborhood in a major metropolitan area, obviously depending on the termination clause of your contract but always predictable. If you buy, and have to sell at an inopportunate time, you could stand to lose a significant fraction of the principal, which will likely have to be covered by an unsecured loan. – a CVn Aug 21 '16 at 15:01
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A house is a funny kind of investment. Normally when you invest, you do it to make money. The return on a house, though, isn't principally real money, it's the imputed rent - money that you would have needed to pay to rent the house. The thing about this imputed rent is that you consume it right away. Getting a bigger house and putting more money into it doesn't save you any money, it's just a way to consume more "house" - so, unlike regular investing, it's not really responsible and doesn't contribute to your financial well-being.

  • Actually, IMO it's equally valid to invest to generate income (whether by price appreciation or dividends/interest/rent/whatever) or to reduce expenses. I built a dog pen on my property which I consider an investment, in that having the pen significantly reduced my monthly fixed expenses as compared to not having it, at the cost of a capital expense upfront. Would I get back the full amount that I put into it should I sell the house? Probably not (the materials do depreciate over time), but it has already (after a few years) paid for itself simply by that reduction in expenses. – a CVn Aug 21 '16 at 15:08
  • So you're collecting imputed rent on the dog pen. That's about the same. But it's still a cheaper way of spending your money, not a way to earn money. – user296 Sep 7 '16 at 10:48
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With an investment, you tend to buy it for a very specific purpose, namely to make you some money. Either via appreciation (ie, it hopefully increases value after you take all the fees and associated costs into account, you sell the investment, realise the gains) or via a steady cashflow that, after you subtracted your costs, leaves you with a profit.

Your primary residence is a roof over your head and first and foremost has the function of providing shelter for yourself and your family. It might go up in value, which is somewhat nice, but that's not its main purpose and for as long as you live in the house, you cannot realise the increase in value as you probably don't want to sell it. Of course the remortgage crowd would suggest that you can increase the size of the mortgage (aka the 'home atm') but (a) we all know how that movie ended and (b) you'd have to factor in the additional interest in your P&L calculation.

You can also buy real estate as a pure investment, ie with the only objective being that you plan to make money on this. Normally you'd buy a house or an apartment with a view of renting it out and try to increase your wealth both due to the asset's appreciation (hopefully) and the rent, which in this scenario should cover the mortgage, all expenses and still leave you with a bit of profit.

All that said, I've never heard someone use the reasoning you describe as a reason not to buy a house and stay in an apartment - if you need a bigger place for your family and can afford to buy something bigger, that falls under the shelter provision and not under the investment.

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"Your house is not an asset, it is a liability. Assets feed you. Liabilites eat you." Robert Kiyosaki

From a cash flow perspective your primary residence (ie your house) is an investment but it is not an asset. If you add up all the income your primary residence generates and subtract all the expenses it incurs, you will see why investment gurus claim this. Perform the same calculations for a rental property and you're more likely to find it has a positive cash flow. If it has a negative cash flow, it's not an asset either; it's a liability. A rental property with a negative cash flow is still an investment, but cash flow gurus will tell you it's a bad investment.

While it is possible that your house may increase in value and you may be able to sell it for more than you paid, will you be able to sell it for more than all of the expenses incurred while living there? If so, you have an asset.

Some people will purchase a home in need of repair, live in it and upgrade it, sell it for profit exceeding all expenses, and repeat. These people are flipping houses and generating capital gains based on their own hard work. In this instance a person's primary residence can be an asset. How much of an asset is calculated when the renovated house is sold.

  • The OP seems to be conflating the terms asset and investment. As you have quoted from @RobertKiyosaki, defining an asset as something that produces income, and a liability as something that incurs expenses. This gives an investor a useful operational definition to measure investments. Although these definitions are not strictly accurate from accounting terms, they clearly show the investor the importance of choosing and viewing investments using a critical tool. – ChuckCottrill Feb 18 '14 at 0:25
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I think the claim is that you shouldn't buy a house expecting it to increase in value as you would a stock portfolio. OTOH if you are looking at it from the stand point of "I need housing, mortgage payments and rent are comparable and I build equity if I buy a house rather then rent" that's potentiality a very different situation (that I'm not qualified to judge).

  • but the equity building is countered by the lost opportunity cost for your down payment (which could be sitting in the stock market making you more money instead) and the fact that your money is not liquid any more should you need it, which is important to consider. – justkt Sep 28 '10 at 18:00
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    @justkt: OTOH after long enough you quit paying mortgage payments. The details could be such that it goes one way or the other. Heck, it might work out you would be better to rent a cheap appointment till you can buy a house for cash. My main point is to differentiate the claims in the first and second sentences. – BCS Sep 28 '10 at 18:03
  • @justkt: In my situation, my down payment was effectively negative. 2.5% (FHA) minus the $8k first time homebuyers credit. – John Gietzen Sep 29 '10 at 3:43
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One reason I have heard (beside to keep you paying rent) is the cost of maintenance and improvements. If you hire someone else to do all the work for you, then it may very well be the case, though it is not as bad as a car.

Many factors come into play:

  1. Purchase price (of course)
  2. Location
  3. Age of the house
  4. Quality of the construction
  5. Who does the work

If you are lucky, you may end up with a lot that is worth more than the house on it in a few decades' time.


Personally, I feel that renting is sometimes better than owning depending on the local market. That said, when you own a home, it is yours. You do have to weigh in such factors as being tied down to a certain location to some extent. However, only the police can barge in -- under certain circumstances -- where as a landlord can come in whenever they feel like, given proper notice or an "emergency." Not to mention that if someone slams a door so hard that it reverberates through the entire place, you can actually deal with it.

The point of this last bit is the question of home ownership vs renting is rather subjective. Objectively, the costs associated with home ownership are the drags that may make it a bad investment. However, it is not like car ownership, which is quite honestly rarely an invesment.

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You're hearing alot of talk about housing (and by implication property) not being an investment today because on the downside of a market, the conventional wisdom is to be negative about buying things that have lost value. Just as it was dumb to listen to your coworker about hot .Com IPOs in 1999, it's dumb to listen to the real estate naysayers now.

Here's another question along a similar vein: Were stocks a good investment in the spring of 2009?

The conventional wisdom said: "No, stocks are scary! Buy T-Bills or Gold Bullion!". The people who made money said: "Wait a second, Goldman Sachs is down like 75%? IBM is down like 30%, are they going anywhere? Time to buy."

The wrong house is a poor investment in any economy. Buying a house in Detriot in 1970 was not a good move. Buying a house that needs $50k in work, not a good move. Buying a condo with a bankrupt HOA in Florida is not a good idea. But a good house that is well cared for is a great investment.

I'm living in a house right now that is 80 years old, well maintained and affordable on a single income. A similar home a few blocks away sold in May for the same price as we paid in 2006. I'm paying about 20% less than I would for an apartment, and we'll think about moving in 2016 or 2017, by which time I'll probably have put $30-50k into the house. (Roof, kitchen, exterior painting, minor renovation)

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    I'm envious. Homes here that are well maintained at 80 years old aren't affordable on a single income or less than an apartment. Glad that worked out so well for you! – justkt Sep 29 '10 at 13:15
  • @justkt: Remember the real estate adage: "Location, location, location!". I'm lucky to have a good job in a area of the country that doesn't really boom or bust. – duffbeer703 Sep 29 '10 at 14:08
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I invested in single family homes and made ok. Houses can be an investment. (though the OP seems to equate "house" with primary residence)

Just like any other investment buying houses has risks.

I would not treat your primary residence or a vacation home as an investment. That is asking for trouble, but for many many years it was safe to assume that you would make a good return on it, and many people did.

If you evaluate the numbers for purchase price, rental market, etc and find that rentals or flipping is worth your exposure then by all means, do it. But treating your primary residence as an investment apparently is what that comment means.

Just like the stock market, many people have gotten wealthy on homes and there are lots of people who lost their shirts.

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There's an old saying: "Never invest in anything that eats or needs maintenance."

This doesn't mean that a house or a racehorse or private ownership of your own company is not an investment. It just points out that constant effort is needed on your part, or on the part of somebody you pay, just to keep it from losing value. Common stock, gold, and money in the bank are three things you can buy and leave alone. They may gain or lose market value, but not because of neglect on your part.

Buying a house is a complex decision. There are many benefits and many risks. Other investments have benefits and risks too.

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    "Never invest in anything that eats or needs maintenance" that rules out everything doesn't ? Common stock, well someone is maintaining the company your just a few levels(profit margins) removed. Bank savings - tell that to the people who had money in Iceland. Gold, ah gold (I sold half mine about three months ago), well you need it locked up securely. – NimChimpsky Sep 30 '10 at 8:14
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    There's another old saying, "Buy real estate/land - they ain't making any more of it" – Tim Sep 30 '10 at 17:12

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