Losing Money? The $100,000 Noose Around Your Neck

I just finished reading Rich Dad Poor Dad. And I enjoyed the contrarian viewpoint on money and what it should mean.  The suggestion that a house is a liability rather than an asset is thought provoking. Is a house just our emotion conquering our logical brain?

Growth Over +20 Years

1. A $100,000 mortgage at net 3% interest over 30 years, is $161,778 toward the cost of the house (with monthly payments) including a down payment of $10,000.
2. Homes from 1980 to 2013 have basically remained flat in value across the U.S.  Homes in New York have almost doubled in value, so a $110,000 house would be worth $220,000.  In San Francisco a $110,000 home would be $275,000 according to TheEconomist.com.
3. Over the same period, the S&P has increased on a compound annual growth rate of 8.22%. This means $1 invested in 1980 would be worth $14.67 in 2013.  $110,000 invested and adjusted for inflation would be worth $1,613,700 not including advisor fees and taxes.

Of course, the alternative to owning is renting and your rent money goes to someone else, whereas a mortgage payment pays down some principle that you get to keep. However, even with paying a ball park $1,500 in rent for a similar sized house over 23 years and paying 30% in taxes on capital gains, investing still wins handily.

WHAT DOES MAKE CENTS

The math above is simplistic and meant just to get you thinking. There are all sorts of emotional reasons for owning a home. What does makes sense is to buy only what you need. Then your excess cash can be working for you instead of paying for rooms you rarely use.   I was qualified for a home worth $150,000 more than what we purchased. We didn’t even use my husband’s buying power to qualify and I saw no reason to buy a larger house than what we’d need. I parked that money in the market and labeled it my Freedom Account.  It has helped me fund one of my true joys – helping women build money confidence.

Related Topic: 3 Dangers When Talking Money to Your Banker

Carrie Rattle is a Financial Therapist and the CEO at BehavioralCents. She is an executive veteran of the financial services industry and works with professional women on their mind and money behaviors to help them build an equal voice in the world. Thoughts always welcome: carrierattle@behavioralcents.com.