Friday, July 16, 2010

Part II - Why Homeowners Need to Understand that Ownership Is Not a Business...

I wrote a blog the other day rebuking the idea that a Strategic Default was, and is a "Business Decision".

In my opinion, that's the furthest idea from the truth. Now I have ammunition to back it up.

An article written by US News reporter Luke Landis, "5 Homeownership Myths To Avoid" suggests that buying and living in a home is almost exactly the opposite of running a business:

Your home is a good investment. A business relies on ROI (Return on Investment) and P/E (Price to Earnings) ratios in order to stay relevant and viable. Maybe that's part of the problem we are in today. Some people are looking at the numbers and deciding it's not a good way to invest. It's your home, you moron. It protects you and your family from the rain. If you want to invest, buy gold. If you want to gamble, go to Vegas.

Taxes breaks. Easily offset by the homeowner having to buy a new furnace. Or water heater. Or lawn mower. Whatever.

Renting. Renting can be cheaper than owning because of the upkeep issues associated with owning a home. And it makes the renter much more flexible when it comes time to move.

Forced Savings. That's funny. Forced SPENDING is more like it. Ever heard of the Home Depot ?

Your home is not a good investment. In fact, here's an article with that title "Your House is Not a Good Investment". Hmmm...I wonder what the article is about ?

I understand that during the past 5 years, everyone wanted to be a "real estate investor". People would sell their old home and move into a bigger, better house in that brand spanking new neighborhood. And keep the old property as an "investment".

But there is a significant difference between an actual investor and a "forced" investor. The real investor has knowledge. Expertise. Understanding of the market place. They are professionals. It's their job. It's a BUSINESS.

In my opinion, these "forced investors" should have sold their homes before moving into new ones. Or else stayed put. If it was a new job or requirement to move for one reason or another, that's understandable. But I would almost bet they were not. People moved because "everyone was doing it". And now a lot of these so called "investment" properties set on the foreclosure rolls of the banks and other financial institutions.

Others would take advantage of the newly available "liar loans" and go out and buy five or ten investment properties with Interest Only loans, thinking that real estate would continue to appreciate in perpetuity. These activities were the drivers of the housing boom. And they were also the same activities that drove the housing market into the ditch.

The myth that your home was a good investment has led to society thinking that owning a home was also "good business". Your home has nothing to do with business.

Your home is where you raise your children, grow your tomatoes, play with your dog, get married, cut the grass and paint the walls. Where you work is business.

If you are a homeowner, your home is simply where you LIVE.

What ever happened to just living ?


  1. The post was quite informative and i think it will be of great help, Thankz for the good work dude.

  2. Thanks Ashok. Very soon, I am going to launch a new blog which is totally dedicated to a discussion on mortgages. A lot of people do not understand how it works, and I think they should. Check back soon...

    Thanks for the positive feedback !