While a fully paid-off home is half a step toward retirement, it is equally important to have an investment portfolio consisting of various asset classes to provide income when we have stopped working. Perhaps due to a long string of strong gains in housing prices, many people seem to believe that their home is an “investment” that will support them in retirement. A recent column in The Wall Street Journal shows why houses are not very good investments and relying on your primary residence as a savings strategy is not a good idea. The article makes some good points:
- Homeowners simply subtract the price paid from the selling price to figure how much “profit” they made without accounting for interest expenses, taxes, maintenance and home improvements.
- Houses are not such great investments over the long-term if you figure in all the extra expenses of being a homeowner. Depending on the area, you could do a lot better, or a lot worse.
- The best way to rein in home ownership costs are to pay down the mortgage as fast as possible and avoid costly renovations.
I do feel though that the article is over reaching to make its point. In calculating the costs of owning a home valued at $290,000 over 30 years, they estimate the total costs of maintenance and repair and renovations to be $408,000, which I think is far too high. In my own experience, I find that maintenance costs averages about 2% of the value of the home.