Your House Is a Hobby, Not an Investment
We recently sold our first house. We bought the house just over four years ago and put a lot of time, sweat, and money into it. Luckily, we bought a fixer-upper at the right time and unlike many people, we were able to sell it and get the money we put into it back out. But, since the housing crash in 2008, I've probably heard the phrase "a house isn't an investment" about 5,000 times. So if you shouldn't think of your house as an investment, what should you think of it as? My answer — a hobby. (See also: Things I Wish I Knew Before I Bought My Second House)
Here are my four top reasons that a home is a hobby, not an investment.
1. You Should Only Do It If You Will Love It
There is no such thing as a low maintenance house. Washing machines break, furnaces need tune ups, windows need washing, lawns need mowing. Home repair can be fun, but you should only willingly take it on if it's something you'll enjoy. Like with a hobby, you don't have to love every minute of it, but generally you should enjoy the extra work that goes into being a homeowner. If you're unsure of whether or not you should move, check out my checklist.
2. You Will Sink a Lot of Money Into It
Even if you buy a house that's "move-in ready" the house-inspector is more than likely going to recommend some additional work to be done right after you move in. And even after you move in, things will start breaking. Small items also add up — items like curtains or shelves. (Seriously, if you've never bought a house you probably have no idea how much window coverings like shades and curtains cost.) Besides the tangible items, there are dollars you spend that you'll never see again, like homeowners insurance. (My renter's insurance policy used to be $13/month; homeowners insurance is closer to $100.) Many hobbies are pricey, but homes are even pricier.
3. You Will Sink a Lot of Time and Energy Into It
Almost all hobbies have a learning curve that require a lot of time to climb and once you've learned your hobby, you will continue to spend hours pursuing it. Homes similarly take a lot of time. Beyond the start up maintenance (perhaps wallpaper to be removed and walls to be painted), day-to-day maintenance takes time and effort. And before long, you'll have a major project to undertake, such as a bathroom or kitchen remodel, or a roof to replace. Even if you hire someone to do most of the maintenance and remodeling, you still have to spend the time and energy choosing the right person to hire and then making choices about tile options, paint color, etc. These are not small tasks.
4. Your Taxman Thinks Your House Is a Hobby
Another reason to think of your house as a hobby and not an investment is that the IRS sees your home that way (at least sort of).
Without getting too deep into tax matters, if you buy a stock for $100 and then the stock loses money and you have to sell the stock for $50, you'll probably get to deduct on your taxes that $50 you lost. But, if you buy your house for $100,000 and sell it for $50,000, you aren't going to see a tax deduction. So the IRS doesn't see your house as an investment. Instead, it's more similar to a hobby. Again, without making things too complicated, you can't deduct losses for hobbies. For instance, if you knit and sell the occasional sweater for a total of $1,000 a year, you can't claim a deduction for the $4,000 you spent on yarn and knitting equipment that year (this is a loss of $3,000, which you could deduct if you were running a business).
I love being a homeowner (most days), but not because my house is an investment. Thinking of it as a hobby is a far more realistic way to view it.
Do you think of your house as an investment? As a hobby? Or as something else entirely?
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You are right that it is not exactly an investment, but it can be a smart financial move to own a home even if, like myself, you do not enjoy the hobby of home ownership. Buying a house makes sense if your total monthly or annual expenses are less than they would be if you rented. In that case, you are being compensated for the extra work of owning a home. After owning homes in several parts of the country, my wife and I have never spent more on a house than we would have if we rented in the same town. Of course we paid cash or paid off the mortgages within a couple years to avoid interest expense (buy small homes and prioritize paying off the debt), which might change the calculation for many readers.