The American Dream: Asset or Liability?
| December 13, 2006 | Posted by Roshawn Watson under Uncategorized |
Warning, this may strike an emotional cord. If we have spoken lately about purchasing houses, you have probably heard me say that I think that a mortgage is a liability to the “owner” of the house. By liability, I mean something that costs you money. Many people say that thei
r houses are assets, and I always challenge them to prove that their house makes them money. Usually, they fumble around or tell me about the tax benefits of “owning” a house. I then argue that they would rather pay the bank $10,000 annually in interest to avoid paying the government $2,500. Others say that they make money from the sale of their homes. This may be true, but some homes depreciate in the short-term. Will they really make any money?
The numbers tell the real story. The truth is that a house is an asset, but not for the owner. A mortgage is the bank’s asset, and it is designed to make the lender rich. For example, if one carries a 30-year loan to term, he’ll pay more than double the cost of the house. The myth that a house is an asset is misleading, causing many to try to get as much house as they can afford.
I’ll admit that I’m bias: I HATE debt. Still, there are worse things that one can do with his or her hard-earned money. Could I be wrong about this one? Why don’t you weigh in on the issue and tell me what you think.
© Copyright 2006, Roshawn Watson, Pharm.D. All Rights Reserved
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Shawn,There have been a number of studies on the wisdom of home ownership as an investment tool. The results vary, but probably if you could be disciplined and invest regularly large amounts of money in a well-paying fund, you would come out ahead financially. Of course non-financial variables include quality of life with home ownership and the fact that most people are not disciplined to put away large amounts of money when not forced to. As with most things in life, the answer to whether home ownership is a good investiment is, it depends.Zlatic
Shawn,Youre crazy dude. Is this your version of my space? Trying to stirsome things up about homes. I have to say I agree to a degree. Maybepoint out you recently bought and your mortgage is very similar to your rent payment. However you have nothing to show for when you rented this past year. Now you have a hobby and a lot of work in this new home. Besides it is the american dream and does a damn good job driving the economy and putting us consumers further in debt.Brandon
Shawn,I agree with Brandon. You are crazy. I'll come talk to you some more when we do our taxes, then you can counsel me on the wisdom of having a kid for tax benefits. Happy Holidays…you wild and crazy guy.Jules
Hello Dr. Watson,I will refrain from making extensive comments in reference to your recent post entitled "The American Dream: Asset or Liability", but I just wanted to let you know that I agree with your argument. Anyway, I'm going to buy myself an entire trailer park and I'm gonna hold wild parties. You're invited, of course. Will you buy me an Audi for Christmas? I'll give you a cookie.
Home ownership is great but the American dream is accomplished through business success. Home prices go up and down and ownership is unstable, but success and the capital you build cannot be taken away.