Why Your Home *Is* the Investment You Think It Is

[christilden]

I recently read this article by David Crook. He must plan on living with his parents, or is homeless, because he does not factor in the cost of renting into any of his calculations. Because, as you know, if you do not own a home, then you have to rent one. Normally the concept of opportunity cost is covered in Economics 101.

Comments

[jasonscheirer]

I agree you need somewhere to live, but the attitude of getting rich of the sale (flip?) of one's house was what turned me off and was what I think the author was getting at. That is to say, the attitude of assuming that a house will appreciate at a rate far beyond that of anything else and that any other type of investment is unnecessary is a very bad strategy and that many people seem to have adopted it in recent years with runaway home price escalation.

Foolish Flippers; Hedging Inflation

[christilden]

Agreed. The author has valid points, but his critical error has caused him to reach invalid conclusions.

IMHO the flippers do not realize the extreme risk they are taking with these investments. The risk is two-fold: 1) each house is 100% unique, and 2) the flipper is using leveraged buying. Because of the uniqueness, evaluating the "true price" of a house is difficult. For example, taking two comparable houses; one could have a pipe burst tomorrow (causing $20k in damage), whereas the other has no problems for years.

I have more recently come to the conclusion that owning a primary residence is not an investment at all, but actually a hedge against inflation. Only a true "investment property", one that you lease to someone, is an investment.