After talking to a few clients it occurred to me that I need to clarify what we (myself and chief real estate economists in America) mean when we explain that your house is not an investment.
Take a $316k townhouse with $2,558/month in total residence costs for example:
$2,558/month in true real estate costs which include HOA, property taxes, homeowners insurance, hazard insurance, repairs etc, that only INCREASE as your house grows older.
So lets say your $316k condo is expected to appreciate in price to $600k-$650k in some 30 years.
But here’s just simple math: multiply $2,558 x a 30 year mortgage (aka ‘360 months’).
You should immediately see you’ll be spending $920,880 over 30 years to maintain a $600k-$650k condo.
Ahh but thats not even the real problem here.
Guess what $600k-$650k will buy you in 30 years?
THE SAME THING $316K WILL BUY YOU TODAY.
Why? Because of American inflation.
So you’ve essentially spent $920,880 to save up $316k.
This is why we refer to houses as expensive savings accounts or even liabilities -if you even make it to the point where you keep “your” house after potential job loss, divorce, consume debt and everything else.
This is the hardest concept for black folks to grasp. The real economic principals on the eroding value of the American dollar. This is inflation. And its more than real.
So what is an actual investment?
Its an asset that not only beats inflation but downright murders it. An asset whos appreciation isnt pilfered every year because of interest paid to a bank. An asset that doesnt take money out of your pocket but puts money IN your pocket.
“But if I invest in the equities market where will I live? I can live in my house..I can’t live in a stock…”
If you and your spouse both contributed $500 each month to a personal investment account, you would have $2,046,000 in 30 years.
And you know what $2,046,000 earns you after being transferred into a tax free municipal bond portfolio paying you 5%?
$102,300 in income each year to pay for wherever the hell you want to live.
All while you still have $2million dollars in the bank.
But never mind all that. You don’t want to put your money in anything thats not “tangible”. Lmao
Good luck with all of that.
“The secret to success is to own nothing, but control everything.”
Bonus: 5 things we don’t yet grasp about real estate:
*1 – you are not a homeowner with a mortgage. The bank bought the house you bought the mortgage.
*2- within that 30 year mortgage, all you are doing is paying interest the first 7-8 years of that loan. This is also called RENTING.
*3- your house does not appreciate in value. Learn the difference between price and value. A person interested in wealth creation would do best to stay away from chasing short term price spikes and instead focus on long term value creation. (your house will provide the same value as it has for the last 300 years: shelter. The value of which does not increase)
*4- it takes more time to get to the years in your mortgage where your payments aren’t just going to interest than to invest and buy the house straight out in cash.
*5- there is no bank on earth that requires a borrower to have revolving accounts like credit cards and other for a mortgage to be approved for them. As a matter of fact, an installment loan such as a mortgage has nothing to do with revolving accounts like credit cards. All you need, if you’re adamant about staying in debt for a mortgage is a student loan balance paid on time.