Your home an investment or liability.

[Anthony G]

Do you see your personal home as an investment or an expense? I'm on my second duplex that I bought to live in, improve, and then rent. My next home will likely be a single family and in a nicer neighborhood. I'm not sure if it will be a long-term home, but if it's not I'd like to buy at least a 15 year house after that. When you guys buy a house to live in for a long period of time, do you buy as an investment hoping for appreciation or based simply on a budget and find something that meets your location, size, and architecture requirements?

[Jon Holdman]

IMHO a house you live in is usually a pure liability.

Its easy to compare a value from 30 years ago to a value today and say "wow, that was a good buy." But when you factor in:
1) The interest you pay on the loan,
2) The insurance you pay for 30 years,
3) 30 years of taxes
4) all the maintenance and updating required to generate that value after 30 years (I've looked at houses that haven't been updated in that length of time, we call those "needs work" and "deferred maintenance")
5) the costs you will incur to sell,
6) Changes in the area (bad or good), changes in house styles, etc.
then its rarely a good investment. In many cases, the first four, added to the price you paid, total up to more than the new value. Then slice 8-10% off when you sell and you're actually in the hole vs. the money you've spent.

OTOH, many folks don't have any real investments. So, if you buy a house and diligently pay it down for 30 years, at least you do have a big asset. If you use it as an ATM, though, and take the cash out, not so much. You're slowly selling the house rather than building up an asset.

If you use your ability to shelter gains, and do "low speed fix and flips" where you buy a junker, live in it and fix it up over the course of two years, and then sell it at a tax-free profit, then it really can be an investment.

And, if, as David Niles says, you pay it off and leave it to the kids, then they have not only a nice asset, but also get it with a stepped up basis, avoiding taxes. Even then, though, if you leave behind a "needs updating, deferred maintenance" property that's mortgaged to the hilt, you've left nothing to the kids.

But in any case, you need a place to live. Even if the net costs is negative, after adding up the true cost, you should compare that to what rent would have cost you. Even if, as an investment its mediocre, it may still be the cheapest way to put a roof over your head.

Key to buying a house you live in is to buy the cheapest thing that fits your needs and is something you can afford.