Real Estate Bad Investment

I read three sites everyday:

  1. Wall Street Journal
  2. Business Insider
  3. BiggerPockets

I encourage everyone to do the same.

BusinessInsider recently ran an article that stated:

Trish Regan: “Then why buy a home? People trap their savings in a home. They’re running an opportunity cost of not having that money liquid to earn a better return in the market. Why do it?”

Robert Shiller: “Absolutely! Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better…

“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000′s. And I don’t expect it to come back. Not with the same force. So people might just decide, “Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.

“If you think investing in housing is such a great idea, why not invest in cars? Buy a car, mothball it, and sell it in 20 years. Obviously not a good idea because people won’t want our cars. It’s the same with our houses. So, they’re not really an investment vehicle.”

Homeowners understand that you can’t sell a home with 30-year-old roofing, carpet, and kitchen appliances. Sure, the home price might go up, but investors must adjust prices for years of maintenance and renovations.

Source: BusinessInsider

My first reaction is to scream at the computer (as I’m sure yours is too). However, let’s be honest and look at the facts:

Yes – housing does require maintenance expenses…

well…

…I’ll pretty much stop there because that’s the basis of his argument.

Comparing a house (non-discretionary) with a car (very discretionary) is like comparing apples to oranges.

It’s actually kind-of frightening that a Yale professor would compare …read more