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Is Buying a House a Sound Investment?

by SMD 


Robert Aronen of the Motley Fool recently wrote an article discussing whether or not buying a home is a poor investment. That article, titled The Worst Investment Ever.

Aronen spends the majority of his time breaking down the ins and outs of why owning a home is not a prime investment. In his article, Aronen attempts to both educate readers on some of the shrinking possibilities in this market, as well as smash some of the well matriculated myths regarding home buying and the real estate investment market. His main contention is that, using generally accepted investment analysis tools such as cash flow ratio, expense ratios, and other fee totals associated with investing, he can find things that are much more worthy of a person’s money, time, and attention.

Though Aronen is dead on the money with much of his analysis of the home market and he correctly identifies the fact that real estate agents are getting rich off of home sellers, he fails to expound upon some key points. It’s common knowledge that the usual 6% fee that real estate agents collect is an outrageous rate that hurts the ability of a home flipper to conduct business. Common sense should tell us that the housing downswing has caused people to run for the hills. Still, trying to compare home investments to the more stable things like mutual funds is something that doesn’t have much merit. Simply put, you can’t live in your mutual fund. You won’t have any luck bringing a lady home to your high yield investment account.

That is why Aronen’s article makes little sense. The reason why buying a home is a good investment is because it beats the alternative by a long shot. No one is suggesting that your home will consistently gain as much value from year to year as a mutual fund or any other stock option. It will save a person, over the course a lifetime, a ton of money as opposed to renting a home. When pay someone else to live in a house when you could be building equity in your own home. There really is no comparison.

It does not take a ton of business sense to understand why buying a home is a good long term investment. Though it might not gain value as quickly as something like a mutual fund, it will always be there. Barring a major collapse in the housing market, a home’s value won’t turn sour at the drop of a hat. Ginnie Mae’s home buying calculator will show exactly why buying a home is a good idea for most folks. To calculate how much money you can save by buying a home, visit this calculator.

Aronen’s informative article seems to be more of a knee jerk reaction to the currently slumping real estate market. Though prices are down, as evidenced by this article from CNN, there is still no better way to grab hold of a long term investment that consistently gains value.

Comparing home buying to mutual fund buying makes little sense and it’s not something that potential investors need to think about. When people start sleeping and having dinner in their mutual fund, then I’ll concede this comparison.     Until then, don’t sell your house and start paying the new owner monthly rent just yet.

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Comments

5 Responses to “Is Buying a House a Sound Investment?”

  1. Welcome to the 107th Carnival of Personal Finance » Blogging Away Debt on July 1st, 2007 9:41 pm

    [...] Is Buying a House a Sound Investment? (554 words) [...]

  2. Reducing Your Monthly Spending, How To Spot A Borrowing Addiction : My Carnival Picks For The 4th Of July » Silicon Valley Blog About Money on July 4th, 2007 9:10 am

    [...] The Simple Dollar: Trimming The Fat: Forty Ways To Reduce Your Monthly Required Spending Ask The Advisor: Are You Addicted To Borrowing Money? My Financial Journey: Another Financial Goal: My very own full court basketball court Smart Money Daily: Is Buying a House a Sound Investment? [...]

  3. Reducing Your Monthly Spending, How To Spot A Borrowing Addiction : My Carnival Picks For The 4th Of July » Silicon Valley Blog About Money on July 4th, 2007 9:10 am

    [...] The Simple Dollar: Trimming The Fat: Forty Ways To Reduce Your Monthly Required Spending Ask The Advisor: Are You Addicted To Borrowing Money? My Financial Journey: Another Financial Goal: My very own full court basketball court Smart Money Daily: Is Buying a House a Sound Investment? [...]

  4. July 4th Links and Money Lessons (Ask Mr Credit Card’s Blog) on July 4th, 2007 6:52 pm

    [...] Is buying a house a sound investment? by Smart Money Daily is a provocative question. My answer is that it may not be. Buying a house is like buying zero coupon bonds on leverage (like what hedge funds do). The only difference is that there is no ‘mark-to-market’. If there was, we would never look at house as an investment the same way! [...]

  5. Buying a home is more than finding a place to live. : Arizona Real Estate Blog: Laveen To Surprise Homes on August 9th, 2007 3:46 pm

    [...] Here is a related article [...]

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