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Should You Pay Off Your House/Mortgage Early?? Your Home is a Bad Investment, Pay it Off Early to Lose Less.


I often hear people refer to buying a home as a good investment.  They usually say it is one of the best things you can do to virtually guarantee a long-term positive gain.  I disagree.  The other day at work, I had a discussion with a co-worker about this. 
When I told him that I felt the sale of your home is almost impossible to generate a profit on, he looked at me with his "stupid face".  I gave him an example:  A couple bought a home for $150,000 and 30 years later sell it for $300,000.  I asked if he felt they made a $150,000 profit (he said yes).  I then told him that typically they would have paid about twice the original loan amount by the time it was paid off (interest).  So the $150,000 mortgage eventually came to $300,000 after principle & interest (no, I didn't use a mortgage interest calculator).  They also paid 30 years worth of real estate taxes ($100,000 worth???).  They also spend $25,000 or so in upgrades over the years (flooring, remodeled kitchen & bathrooms, etc).  They also spent thousands on landscaping & yard maintenance.  How much did they spend on refinancing the mortgage trying to get the lowest mortgage rates? 
Now if an "investment" is supposed to MAKE you money, how does paying $425,000+++ for something that eventually is sold for $300,000 count as a good investment?  To me it is cheaper than renting but definitely not a good investment.  All you do is "lose less".  
I do agree that it is definitely possible to make money in buying rental property.  In that case, the renter basically pays off the mortgage and when all is said and done you will own the asset.  Time to go mow my money losing grass.....

1 comment:

Anonymous said...

Man that must have been one run-down house if they only spent $25K in upgrades over 30 years! ;)

Ha - but all joking aside...I consider it somewhat of an "investment," but not the same way others do. If we didn't have the house, we'd be paying rent. At the time we bought the house - yearly rent for a similar house was about the same as our yearly mortgage payments & upkeep expenses. But NOW, the same house rents for more than TWICE as much as our mortgage and yearly upkeep combined (including the amount we are pre-paying!) - it's already paying off!! The house will be paid off in less than 8 years (I'm looking to speed that up with a refi with ING - did you know ING has mortgages?!?! I'm a little hesitant b/c I don't know anyone with an ING mortgage - but they offer a 3.5% 7 year with very little closing costs)....but back to the point. When the house is paid off and all we have to pay are taxes & upkeep, well that "investment" will really be paying off then!
So - it's not a money maker...but it is an investment in our retirement in that it will save us loads of money once it's paid off! ;)