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Ask the Readers: Is Your Home an Investment?

There is a great comment discussion in a recent post about it being an ideal time to purchase your first home.  With real estate being a hot issue these days, the discussion evolves to a topic which everyone has a different opinion.  That is, if home ownership (principal residence) is considered an investment.

Here’s my take.  Owning a home is typically a decent long term bet providing that you purchase at a decent price with affordable payments.  Real estate has proven to beat inflation over the long term by a couple percentage points, thus a long term inflation hedge.  However, it isn’t a replacement to being invested in the markets over the long term. Equities have returned at least inflation + 4.32% over any 30 year period since 1950 with an average inflation adjusted return of 6%.  You can view the long term market data here.

In addition, I think that real estate should be counted towards your total asset allocation.  That is an asset allocation consisting of: stocks, bonds, real estate and cash.  Renters can get their real estate exposure by investing carefully in REITs or even second mortgages.

So, even though you live in your home, I personally consider your personal residence a long term savings account or even an investment.  Even with the maintenance and upgrade costs, they could simply be considered the management expense ratio (MER) of the investment.

When it all comes down to it in the rent vs buy argument, I believe that it boils down to affordability.  If you live in Vancouver (or Toronto) where housing prices are sky high (maybe not for long?), then renting is probably the only practical way to live.  That way, renting can keep living costs relatively low with hopefully money left over to invest for the long term.

What do you think?  Is owning a home (principal residence) an investment?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 45 comments… add one }
  • Four Pillars March 30, 2009, 9:07 am

    I’m in the “don’t include your house in asset allocation” camp. I can certainly see both sides of the argument however.

  • Dividend Growth Investor March 30, 2009, 9:28 am

    I would certainly include the value of my home in my total net worth. It’s debatable whether it’s an investment or not for financial reasons, but for economical reasons it is.

  • Sig_hup March 30, 2009, 10:21 am

    It depends if you are going to use it for some income replacement (either through sale or renting a portion). I would say if your plan is never to sell to pay for a smaller place, or rent out the basement then it would remain out of the asset allocation since it is not an asset.

    If you are planning on selling off a big house to move into a condo during retirment, then yes it is an asset since it will produce a return (hopefully).

  • Jason Unger March 30, 2009, 10:26 am

    If you’re talking your primary residence, I hesitate to think of it as an investment. The reality is that, you will always need a place to live.

    Sure, you may make a bit of money when you sell it after you’ve lived in it for a few years, but one of the reasons we had this ridiculous housing bubble was because people treated homes purely as an investment vehicle.

    Like gold, or stocks, or any other investment, your house is only worth what other people will pay for it. So if you have the mindset that a house is for living in — with a side benefit of potentially making you some money — you’ll treat it right.

  • the weakonomist March 30, 2009, 10:27 am

    Your first home is not an investment, any homes you buy beyond that are. Like Dividend Growth Investor it would be a part of my net worth, but I don’t consider the primary residence to be an investment. If it makes money, dandy, but that isn’t the point of buying the home.

  • Michael March 30, 2009, 10:36 am

    I do not see my home as an investment, because to live in my home costs me money and does not make me money. However, my house did make me money for the last 8 years, however I believe this was an exception due to a huge housing bubble which is unsustainable and will correct itself sooner or later. Long term RE appreciation is zero.

  • DG March 30, 2009, 10:46 am

    I say its an investment, but allocation-wise it is such a distortion that you basically have to set it aside when making allocation decisions.

    Maybe a pool of homeowners from across the world could form a REIT from their homes to diversify. :)


  • Baker @ ManVsDebt March 30, 2009, 10:53 am

    This big issue here is that people are going to be planning on staying in the home for at least 5 years. As an agent, I almost never recommend people buy if they know their window is less than 5 years.
    The payment is another big issue. I’m a firm believer in the payment being between 20-25% of your take home pay at most. People who over extended on their payment amounts and that have bought and are now trying to sell within a short time frame are a big part of the current problem.
    Great article!

  • Miranda March 30, 2009, 10:55 am

    I think that your primary residence is a purchase. It’s one that can hold it’s value, and may give you a return, but still a purchase. When you factor in all the interest you pay over the life of the mortgage — even with the tax deduction — chances are you will be lucky to break even.

  • Thicken My Wallet March 30, 2009, 11:10 am

    Thanks for the link. Brad Lamb is a big hot shot real estate agent in Toronto who was quoted in 2008 as saying:

    “The buying of homes should be an emotional decision. Trying to buy a home and then going home to count how much money you made every day is a severly flawed idea.”


    I tend to agree with this quote. A principal residence is a long term asset but it should not be thought of as an investment in the same sense as stock where it is being bought and sold every day and there is a readily ascertainable price for the investment. I think part of the current issue is that we are conditioned to look at houses like we do stock now which is wrong approach to take.

  • Scott March 30, 2009, 11:35 am

    A house/home IS an investment by pure definition!

    Besides the obvious, what is the difference between investing in company XYZ stock with a long-term buy-and-hold strategy (let’s say to fuel your RRSP retirement fund) and buying a house? Pretty much nothing.

    Stock: you pay mutal fund and/or SDRRSP fees; you don’t control company direction/actions; it pays dividends; it increases in price (hopefully).

    House: you pay taxes, mortgage interest, and maintenance fees; you do control household “actions” (eg. renovations); it pays dividends (eg. rental suite, Smith Manoeuvre, food gardens, etc.); it increases in price (hopefully).

    The funny thing about money is that is HAS to go some where, and where ever it ends up, that’s the investment. Be it a sub-inflation rate bank account, mattress/coffee can, stock market, beer, real estate, gold, charity donation, vacation, Wal-Mart junk…they are all investment vehicles. Obviously some are more proven and well-established than others, and for some, the return is far more inscrutable.

  • Peter March 30, 2009, 11:56 am

    A house is an investment and an asset, but be wary of future woe if you consider it your retirement savings.

  • Traciatim March 30, 2009, 12:09 pm

    Just because the historical return mostly matches inflation doesn’t make it not an investment. Like Peter just mentioned I wouldn’t count on it to fund your retirement, but if you have a descent combination of stocks, bonds, and a paid off house when you retire, including your CPP/OAS, you’ll have a nice comfortable retirement that you can use to relax, volunteer, work part time at somewhere you really enjoy rather than for money . . . all kinds of options.

    Also, if you rent the place you live in, since rents also mostly follow inflation your cost relative to your income stays the same throughout your lifetime. There is no pay off period when you rent so when you retire and (the likely case) your income drops by a significant amount you end up with more income going to just a place to live.

  • Houska March 30, 2009, 12:30 pm

    I think you have to split into several different concepts – just saying “is your house an investment” is a discussion that will go around in circles because “investment” can mean different things.

    Your house is a long-term asset, just like your RRSP, cottage, etc. It is a repository for your wealth that appreciates (land), depreciates (structure), and undergoes improvements and maintenance. It will in the future be part of your financial strategy decisions (e.g. downsize for retirement, etc.)

    Your house also contributes two important risk exposures to your risk portfolio – a risk exposure to the local housing market, and an exposure to interest rates if you have a mortgage. Not many individuals think about their risk portfolio, but more should – having a lot of your net worth tied up in your home is the more risky if you also own rental properties or have income tied to housing (e.g. real estate agent).

    Your hourse is not typically part of your investment portfolio, since you are not able to reallocate it between asset classes. However, your portfolio allocation may depend on a) how much real estate exposure you already have, and b) if you are leveraging to invest e.g. based on your home equity.

    An implication of this is that repaying principal on your mortgage is an investment – it is a choice what to do with cash you have on hand versus e.g. investing it. “Investing” in home renovations should be counted as an investment/savings only to the extent you would recoup the money in liquidating your asset; the rest is an expense.

    Example: Joe has a $500k home on which he had a $300k mortgage. He somehow gets $40k cash. If he pays down $40k on his mortgage, that is savings. If he invests the $40k in the stockmarket, that is savings as well and an investment. If he spends $40k on an olympic sized backyard swimming pool, that is an expense since research shows money spent on a swimming pool is extremely rarely recouped in resale. If he spends $40k on a quality kitchen, he may increase his home value by $30k or so; that counts as savings while the remaining $10k as expense.

  • Les March 30, 2009, 12:51 pm

    I tend to think that a home/house is an investment and an asset but not a liquid one because it is not so easily sold. It is a part of your retirement by limiting your cost of living expenses.

    The reason it is an investment is that we all need to live somewhere and we can either own or rent. Generally over time you won’t lose on owning a home (note I am not saying you will necessarily gain either) and once it is paid off your expenses on it will be limited. In the meantime being able to get a HELOC on it and the excellent lending rate that comes with it can do wonders for your future investing in equities using the Smith Maneuver.

  • The Baker's Son March 30, 2009, 1:13 pm

    Principal residence is an investment only to your heirs! Ask yourself this: If I was to lose my job will my house pay my bills? The answer is no. You may be able to borrow against your house but that is not a return (as we associate with a real investment), it is debt.

    I have a real problem with the likes of CHIP (Canadian Home Income Plan). These plans are DEBT not income. And very expensive to boot! They should not be able to call it an income plan because the “plan” takes a claim to your house. Imagine if you bought a dividend paying stock that with each dividend payment takes a claim on your original shares. How many of you would sign up for that one?

    The Baker’s Son

  • Astin March 30, 2009, 1:32 pm

    I own my home outright and plan to rent it out when/if I move. So it’s very much an investment, and in the few years I’ve owned it it peaked at nearly a 33% increase in value. It’s dropped since, but still sits around 25% up from purchase price.

    As for prices in Toronto, there are still plenty of decent buys for those willing to look and willing to put a bit of time and money into making it THEIR home. If you want the perfect place right out of the box, then you’ll pay a premium, but if you’re realistic about your desires, then it’s certainly more affordable to buy, especially with mortgage rates at such ridiculous lows. Bear in mind that if you live in Toronto, you’re probably making more than an equivalent worker in cheaper cities as well. It’s all relative.

  • Ray March 30, 2009, 2:14 pm

    WOW obviously there isnt an agreement between the MDJ readers haha.

    What is your definition of investment?
    Property costs you money UNLESS you generate rental income from it. If you own it and live in it, even if you do not have a mortgage you still have expenses so I don’t see how you can consider it an investment unless there is cashflow.
    Yes it’s pretty much what Kiyosaki says.

    I like what Thicken My Wallet posted, the Bread Lamb quote.

  • Mechanonuke March 30, 2009, 2:28 pm

    The answer to whether or not your your principal residence is an investment, depends on a) the definition of investment and b) locating a property that is valued at significantly below market determined levels (and assuming a ‘non-housing bubble’ environment).

    If you define investment as the promise of ‘safety of principle with an adequate rate of return’ and find a property selling for significantly below (say 65%-75%) of the value of similar properties, then this would be an investment. If the reason that the property is valued at less than other properties is due to neglect, aesthetics, mal-repair, or other ‘fixable’ reasons; and the cost of correcting these, still leads to a property value significantly below market levels, the property can be considered an investment.

    In the chance that an owner has purchased such a property (and repaired it) during:
    -times of ‘depressed’ housing value, then he/she can reasonably expect that the property will increase in value as times become more normalized .
    -times of ‘normal’ housing value, then he/she can expect that their repairs alone will prove profitable if the property is sold (considering all other costs)
    -times of ‘bubble’ housing value, then he/she can at least be comforted that even tho no profit may be made, there is sufficient margin of safety that the property does not decrease in price below the initial purchase price.

    -courtesey of Graham/Dodd


  • CanadianFinance March 30, 2009, 4:25 pm

    I consider it an investment. If not from the literal finance perspective, at least for it’s place in helping secure my retirement.

  • 209 March 30, 2009, 5:15 pm

    A primary residence is not an investment. Even once your mortgage is paid off you have only broken even. If you sell your home for 20% more than you paid chances are good that your new home will cost 20% more as well. There are exceptions to this rule (ie move from a hot market to a cool one) but as a general rule of thumb your primary residence is just a roof over your head and will not generate income. It will however help you achieve financial freedom so that you can more effectively invest in something else.

  • Dana March 30, 2009, 5:16 pm

    A house is not an investment if you don’t own it. That’s like saying you’re making money on the principal that you have borrowed to buy stocks. I’m sure there are numerous analysis out there that compares the return on investment from the amount put into a house, compared to the same amount of money put into other forms of investment. Depending on tax refund issues in different jurisdictions, whether a can be considered a good investment compared to the alternatives is quite debatable. Housing prices have consistently gone up in the past few decades, making it seem like buying a house is a sure bet. This recession has changed a lot of those assumptions.

  • Archanfel March 30, 2009, 5:17 pm

    I think the key is to be consistent. Either it’s an investment, which means you should treat it as an investment. Or it’s not, which means you should treat it as a capital expenditure. You can also consider it as a mixed of the two. The one thing one shouldn’t do is to consider it as an investment, but does not treat it like one (i.e. ignore the cap rate, historical low returns, etc…)

    It’s certainly an asset.

  • DAvid March 30, 2009, 5:24 pm

    Investment. Using the same argument that GICs or savings accounts, which usually approach the rate of inflation. Owning a home also offers the security of protecting you from price increases in the housing market. Unfortunately, unless you managed to buy at a low in the market, you are not as well protected from downturns.

    In my town, prices moved from affordable to unaffordable (in my opinion) over the past 5 years as prices more than doubled. We have yet to see a downturn, though the rates of increase have slowed to just above zero. Those who waited to buy, can no longer afford to buy in, while those who bought, would be able to make a ‘lateral’ move with minimal expense.

    Oh, once I am old and frail, and need some form of care, I’ll be cashing out that investment to pay for my care.



  • Gates VP March 30, 2009, 6:16 pm

    Isn’t this the fundamental confusion surrounding home ownership?

    Technically, it’s a(n):
    1. expense mitigation (you have to live somewhere)
    2. depreciating asset (the building),
    3. potentially appreciating asset (the land)
    4. asset with overhead costs (taxes, insurance, utilities)
    5. assumed risk (market interest rates, location-based tethering)
    6. tax shelter (in the US)

    @Houska mentions this very real risk which is definitely coming to term in the US. It’s been a risk in “mill towns” everywhere, but Detroit is fast becoming a “mill town”.

    In the technical sense of the term, it’s definitely an investment as it has the “opportunity for appreciation”.

    But it’s so much more than that, it pretty much needs its own “pile”. If I had to package a personal residence as a security, it would be a very complex security. Most common vehicles for investment simply don’t carry the financial and emotional complexity of home ownership.

    Home ownership is really its own category, which is why everyone has a different take.

  • John March 31, 2009, 12:43 am

    Hard to find any investment that will give you the leverage a house will give.

    Often people will say it’s the best investment you’ll ever make. The only problem with that comment is it often comes from someone who has never made any other investment.

    Long term it’s not often you see people lose money on their house. Just don’t ask anyone that bought a leaky condo out west how good of an investment a home can be.

  • jesse March 31, 2009, 1:46 am

    Leverage has nothing to do with long term returns. The past 25 years have seen disinflation that is generally positive for capital assets. That has effectively come to an end. To claim that real estate is a “good investment” is only true if the utility you receive from it justifies the cost you pay. Housing isn’t some magic entity that is any better or worse than any other piece of capital.

    There have been periods of history in which real estate has been an absolutely horrible investment, most notably those who bought in the ’20s. We now may be in one of those times. Leverage will decidedly act against those holding assets falling in price.

  • TStrump March 31, 2009, 2:19 am

    I don’t think your house is an investment unless you can somehow get cash flow out of it – renting out a basement suite?
    It’s great if you buy at the right time, but what if you buy high and have to sell low, for some reason?
    And don’t forget maintenance costs.

  • Sarlock March 31, 2009, 2:44 am

    Receiving the rate of inflation on real estate is not an “investment”… it’s a place to live. And with the coming drop in real estate prices in Canada akin to what has happened across the border (expect a good 30% or more in some areas), the calculations will be redone and home prices will not prove to have even kept pace with inflation over the decades. And this is how it should be: Homes are depreciating assets, it’s the land that has appreciated due to increased demand (city growth, population growth, economic growth, etc). Take away some of those land appreciating factors and suddenly homes are a significantly depreciating asset. And why not? Houses get old and are generally less desirable after a decade or two (until you reach such a point with some old and well-built houses where they become desirable again… but we’re not building those kinds of houses these days)

    Buy your primary residence as a place to live and enjoy being your own landlord… but beware viewing it as an investment, those days are done for a very long time. We’ve had a generational feeding frenzy on homes (largely driven by the Baby Boomers) and it is coming to an abrupt halt and the hangover could last a decade or two. Don’t get caught waiting for another big price appreciation for your “investment”… one isn’t coming.

    Don’t forget that houses are very illiquid too. Often when you most want/need the money out of your investment, you are waiting a very painfully long time to find a buyer (like these days).

  • Sampson March 31, 2009, 3:12 am

    There are ‘good’ investments, and there are ‘better/best’ investments. Not all investments are pulling 11.5% annually.

    As DAvid points out, if you view a GIC as an investment – then something beating inflation MUST be an investment.

    Parking your money somewhere that beats inflation – sounds good enough for me.

  • Mockingbird March 31, 2009, 7:56 am

    Definition (Investorswords.com)
    Investment: In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns.

    In a strict definition of the term, the primary home is an investment. I’m not sure about you guys, but I didn’t buy my house hoping to lose values in long term. If not, I wouldn’t have bought it in the first place. I also bought one of the cheaper house in a nicer neighbourhood even though I could’ve bought much bigger and nicer home in a shady area. Why did I do that? I also bought my house knowing full well there won’t not be any capital gains on its potential appreciation value. I’ll take that risk anytime. (btw, I love TFSA). Not like automobiles, if my house gets burnt down (god forbid) I will get a full replacement home from the insurance. Not what I paid years ago. If I thought my personal home will be a depreciating asset, why would I make efforts to prepay, double up payments, and increase the frequency of my mortgage (to pay off in 7yrs). I know this will increase the capacity of my HELOC, thus more can be reinvested. The personal home can have a rental suite for the extra cash flow. The primary home is just another extension of my overall financial portfolio. We all review our investment portfolio and make proper adjustment. And my personal home will be no different. I will upgrade certain places to increase the value of my house. Just like FT, I consider the maintenance/upgrades like MER fees. All part of doing business. The time might come when I HAVE to sell this house regardless of less liquid or not. That’s risk of owning this specific investment. The stock market has inherent risks and so is your principle residence. Both can be bubble driven.

    By treating it as an investment, I make every efforts to make the money work for me. If you feel that it is just a depreciating asset, then be a renter. Have your 30yr mortgage. No need to maintain or improve your home. Location is not important. No need to figure out what HELOC is. If renting, perhaps try to afford that same home 10yrs from now.

    @Jason Unger: I don’t believe bubbles are caused by people who purely treating homes as an investment vehicle. More likely due to the miss use of leverage and GREED. Agree, houses are worth what others are willing to pay for.
    @Bakers@MansVsDebt: Yes, home might be more of long term investment grade.
    @Thicken My Wallet: Only difference between long term vs short term is the “term”. The house might be less liquid, but still more likely to sell quicker if priced correctly. We are all greedy and all think our houses are worth way more. I try not to limit my investment options.
    @Scott: Agree with your comments.
    @Peter: I’m sure it can be retirement savings for many baby boomers. Especially to those who bought in Vancouver for under $200k and now worth $1.5 million
    @Traciatim: Agree, the combination of overall portfolio matters.
    @Housak: Agree, the investment can be different thing to many because we all try to make our own definition. We create it to fit our own needs. :)
    @The baker’s Son: The investment has a “potential” to have favourable future returns. If you lose your job, then you are losing on your cash flow. Losing a job doesn’t equate to how much cash flow your home loses. You are not comparing apples to apples. ROI of your principle residence is the difference between what you paid for and what your sold for. And compare that to the cost of rent during that same period.
    @Astin: Congrats! Must be nice to be mortgage free.
    @CanadianFinance: Yes, just another piece of puzzle.
    @209: I beg to differ. If you treat as an investment, you will make proper use of home equity. Also get ones with secondary suite if you have to. Like any other investments, you do have choices.
    @Archanfel: Well said.
    @John: The leaky condo caused much fiasco here in west coast. However, it created much opportunity for many. I know a half dozen people (risk takers) who purchased those condos for $70k-$120k years back. Despite these recent housing price drop, still rarity to find condos under $200k in my area.
    @jesse: The argument could be said about those who bought stocks at the peak of 1929 or 2008.
    @Sarlock: Again, you are using your own definition of “investment”. Is GIC at 3% any less of an investment than a stock market that just lost 60%? I find the word “illiquid” used to loosely on houses. Perhaps, more hassle to sell primary homes (arrange for showing, packing, moving, etc), but right prices will almost always bring in buyers (except in Detroit where can’t sell homes even for $500). It’s our greed to maximize gains makes the house asset illiquid. Despite the slow realty market, 2 out of 4 houses in my neighbourhood still sold theirs within 24hrs. Why? Price was right.

    Phew.. my apologizes for submitting a long winded comment.

  • Canadian Dream March 31, 2009, 9:51 am

    I have to agree with some of the comments above that indicate it’s both. A house can be an investment or not. It depends on what your intent was when you bought it.

    So far the two houses I bought were places to live, but I did keep in mind I would sell these places one day so I made certain considerations towards my house being an investment. I made sure to buy in a decant area and make sure I live near to services other people would find useful.

    The fact I have made money on both places is not surprising given I buy fixer uppers, but for me that’s more of a hobby than trying to make money.


  • chuck April 1, 2009, 12:10 am

    We consider our house an investment. We spent a lot of time trying to ensure we were setting up in a good neighbourhood, and had ready access to transit and schools. We treat the property as a going concern and maintain it – all activities designed to enhance the long term viability of the property.

    In the long long run we have little to no interest of living in Toronto for our retirement years, likely returning near the small town where we grew up and still have friends.

    However we don’t track our house as part of a portfolio. Being a home owner didn’t make me run away from REITs. However it did make me buy a few mortgage backed mutual funds, which managed to survive the market meltdown last year.

  • MStar April 1, 2009, 9:34 am

    WOW….Your primary residence (PR) is NOT an investment.

    1) Cash flow is king. And a PR costs you money (-ve CF) and not make you money. Even if you recover some of the costs through renting of the basement or one floor – it helps pay down the debt service costs and ownership costs – but is still not considered an investment. The only have, for a CF perspective, is if you are making POSITIVE CF (even $1) – b/c now you are putting $ into your pocket.

    2) Appreciation – Yes, there will be cycles in RE, and you may have an upswing. But, banking on appreciation is speculating not investing (CF related). So, again its a nice bonus to have upward appreciation; however, your typical PR is still not an investment.

    3) Tax – Typical PR setup, where you cant deduct the mortgage interest cost (in Canada) is another reason why it is NOT an investment. If you are using the SM, then the point is nullified.

    4) Mortgage paydown – You have to ask yourself who is paying the debt servicing? If it is you or your family – then it is not an investment. Whereas, in a investment/rental prop – the tenant is fully covering the costs (ie positive CF), so that would another form of investment.

    In summation,

    1) This is just my viewpoint and how I look at it.
    2) I’m not saying owning your PR is a bad thing at all. There is a lot utility and satisfaction that comes along with home ownerhship (but this is an entirely different reason…and what makes you happy does not always have to equal $ or investment).
    3) To reiterate, CF is king. That is the bloodline of all investments – whether it is RE, Stocks, or Businesses. As soon as CF weakens or becomes negative, you know there is only so long before the investment goes underwater. I’m not saying that there are other relevant criteria for investment – I ‘m just saying that is a very crucial and one that I use as baseline to evaluate if the transaction I’m getting into involves an asset/investment vs a liability

    Just my thoughts – Let me know your thoughts?


  • Scott April 1, 2009, 11:32 am

    If ‘Cash Flow’ is king, in the realm of investments, then there would be NO “investing” — only trading. If you buy a stock and hold it long-term (something some people may consider ‘investing’), where is the cash flow? If you hold that stock for 25 years and never sell one share of it, where is the cash flow?

    I think what people should consider, in this case, is what they are truly investing in: it’s not the house, it’s the mortgage. Trust anyone of the posters on here when they say there is a TON of cash flow in a mortgage. If you are lucky/rich enough to buy a house outright, that is an investment too.

    Some things can be over simplified. An investment can be a personal definition. I would say any non-consumable product is an investment. But that’s just me.

  • Mockingbird April 1, 2009, 7:25 pm

    Well said, Scott.

    There’s big a big difference between “cash flow” and investment. Your stock example is pretty good. Also, just storing a bar of gold under your mattress might be a good investment (or investment hedge), but will not give you a cash flow.

    It’s what you do with your primary residence (asset) makes it a bad or good or even greatest investment. Hard to beat the leverage that the banks give you when purchasing it (possible 20:1). Agree, many financial bloggers who post here understand this power equity. And for others, it is just a roof over their head.

  • Dk April 2, 2009, 12:34 pm

    If you buy a stock and hold it long-term (something some people may consider ‘investing’), where is the cash flow?

    The cash flow is the earnings that the underlying company generates. When you buy a stock you are buying a stake in the company’s cash flow. That’s what gives it value. In theory, you wouldn’t buy shares of a company that has no chance of making money, now will you?

    I think what MStar is saying is that a PR is like the company that has no chance of making money. You could buy it but you wouldn’t consider it an investment.

  • MStar April 3, 2009, 11:15 am

    Nicely put Dk! I hadnt thought of saying it like that – but that is precisely what I was trying to convey. Thanks.

    Again, everyone is going to have a different/personal opinion on this…but for me…I try to focus on acquiring Assets/Investments (that produce +ve CF) and if you continue this over the years – you’ll end up in much better place (financially), as compared to accumulating what people may ‘think’ are Assets/Investments (ie -ve CF).

    So, I just wanted to clarify that if you think a typical PR or other -ve CF producing items (ie a business not covering its costs) are assets, you may look back after many years – and wonder why you may have not achieved the financial freedom/ wealth desired.

  • Ms Save Money April 3, 2009, 3:07 pm

    I think you’re home is only an investment after you’ve paid it all off and you rent out to other people to get fix income from it.

    Otherwise, it’s all a liability.

  • Sampson April 3, 2009, 5:54 pm

    From #34.

    > 2) Appreciation – banking on appreciation is speculating not investing

    On the same vein, banking on a company to maintain profits, and grow them is also speculative. So would ‘expecting’ equities to increase in value also be speculating and not investing?

    Most studies show that real estate will at LEAST keep up with inflation. The same can not be said about any fixed income ‘investment’ such as bonds or CDs. Whether RE is a GOOD investment is specific to each case.

    3) Tax – Typical PR setup, where you cant deduct the mortgage interest cost (in Canada) is another reason why it is NOT an investment.

    Cash Damming.

    4) Mortgage paydown – You have to ask yourself who is paying the debt servicing? If it is you or your family – then it is not an investment.

    When buying stocks on margin, it is also me or my family that is paying the debt servicing.

    I don’t believe your PR is a very liquid or flexible asset. But it ultimately depends on what you plan to do with it. A place to park money (that grows faster than inflation), which can be sold or passed on at death to generate positive returns sounds like a decent investment in my books.

  • m April 6, 2009, 11:11 pm

    A home is not an investment but a money sink. Do you know many self-managed equity investments that have annual carrying fees in the order of 3-5%? (maintenance, taxes, repairs) without any sale taking place?

    A home is an expensive lifestyle choice, albeit a functional and utilitarian use of capital.

    You could only consider it an investment if you sell it, and either you will no longer be living in it or any other similarly priced house, or you are getting a reverse mortgage.

    Otherwise it is the hardest “investment” to monetize, with huge carrying costs. House rich and cash poor sums it up for most.

    On the other hand, investment real estate is another ball game.

    Judging by the increased volatility in capital markets due to a number of factors, i would however say that although on paper, equity markets do better over 30 years, real estate has the potential to be much less volatile for most areas in canada except for some areas of bc, alberta and toronto.

    Stock markets have become dangerous in a sense: proliferation of new players who can manipulate market direction, instant communications and information/rumors, automated trading algorythms.

    All this means equity investors will have to be ready to suffer a -20% or more in a given year. If this big losses are near the time when you plan to exit, ouch!

    If you told a broker in the sixties that in 40 years, markets could lose 30% over a couple of years, then lose another 40% 4 years later, they would have thought you were crazy.

    Real estate can’t be any where near as volatile (except in very selective areas in Canada and I stress Canada where lending standards aren’t insane like the US), so you could argue that capital preservation or risk adjusted return is a far more useful metric when comparing equities to real estate, while the variability of returns should be carefully examined.

  • mojo30 April 18, 2009, 12:36 am

    a personal residence is never an investment, it’s a financial burden first and an asset second (once paid). The reason we had this bubble is because of the word ‘investment’ being thrown around like a rag doll. If people actually started to do some basic math they can figure out that there is no investment in a personal residence.

    If I put a dollar in the stock market and 10 years later its worth a $100, that’s an investment as I dont have to make further payments, no maint, no interest paid and so on after my initial $1. Even if someone paid cash for their house, there is still prop taxes, maint, utilities and so that would eat into any profit you would of made. Buy a house you can afford with ease to live in and not to profit, unless you plan on selling and living under a bridge with a suitcase full of money

  • Josh Moore April 18, 2009, 10:11 pm

    Steve McKnight, a well known property investor in Australia (and author of ‘from 0-260+ properties in 7 years) has an interesting take on your house as an asset.

    His older site covers this issue here:

    Alternatively, his newer site http://www.propertyinvesting.com covers more on this topic.

    Finally, I have my own take that it depends on your circumstances and goals, and what you want to achieve. I have written a post on this at http://www.moorethought.com/2009/03/wealth-pillar-five-make-your-home-asset.html

    All the best,
    Josh Moore

  • m April 23, 2009, 4:14 pm


    mcknight`s idea is right, except for the psychological aspect of renting forever: limited choice of property styles, presence of neighbours and neighbourhood choice to consider, how much do you really want to spend on decorating/renovating someone else`s house, the owner take back the home at any time, etc.

    Owning a house is a lifestyle choice, and the intangible benefits are hard to get if you are renting. The additional costs of owning a home are presumably the costs of those intangible benefits.

    But I do agree of course; renting is often a far cheaper solution and one that usually leads to excess free cashflow (depending on where you live, i.e. downtown manhattan, neither renting nor buying is affordable for most). What you do with the excess cash determines your outcome. If you invested heavily in equity markets from 2000-2009, you would have wished you had bought that house 15 years ago.

  • Jeff October 15, 2010, 8:45 am

    My House (Primary Residence) is an investment…My employer contributes $1500/mth Tax free directly to the Mortgage. I also rent 4/6 rooms which generates $4050/mth in rental income. My total out of pocket expenses including P+I, utilities, prop tax are $2600/mth. I took possession in Dec 08 and paid 650K. Conservatively the current market value is 750K. I would consider this a good investment.

    Typically though I believe otherwise, if it doesn’t generate you income it is not an asset until you liquidate it.

    Oh in case you’re wondering how in the world i do this. Two words, Fort McMurray. :-)

    Great discussion though a lot of very valid points on both sides.


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