Your House May be Bad Investment - Take II

In continuation to my post from a few days ago regarding how Your House May be a Bad Investment, I would like to point out that this morning flexo publised an excellent article on Consumerism Commentary, titled "The Cost of Buying a Home Over 30 Years". This post offers a sobering look at the true value of a home as a real estate investment. Those costs are seldom looked at seriously.

I would also like to add the following clarification to my previous post. It's not that I am against real estate investments in principle. That would be a strange position to take. In fact, approximately 7% of my own portfolio is in real-estate investments (REITs).

Investing in a house (or other real estate) has certain advantages which are very hard to match for other asset classes. For one thing, it is one of the only investment types in which the average Joe can invest other people's money, through the use of a mortgage. Investing in equity through margin lending is a possible exception to this rule, but carries a higher risk profile.

In addition, for some strange reason the government is choosing to subsidize investments in real-estate over other types of investments. They are doing so by allowing individuals to take tax deductions based on their interest mortgage payments, and sheltering large amounts of capital appreciation from capital gains tax for most people selling a house. Those advantages are material to investment decisions, and should be taken into consideration.

In short, I am not saying real estate investments are necessarily bad. What I am saying is that your house is primarily your home. If it has some appreciation potential, fine. But that is not a good enough reason to make it your exclusive or even your primary invesmtment vehicle.