Editor: Crass Cash
When I was in college I took a real estate class that was taught by a lawyer. He was an excellent professor and I learned a lot from him and the class. He made a comment though that proved to be a prescient statement. One day in class we were talking about how people can deduct mortgage interest and how it could be a savings for American families. He told us how it's become a trend for families to keep "trading up" for bigger and bigger mortgages since they could get a deduction. He told us it was a bad idea, but that it seems to be popular and people are getting rich off of it. Then he shrugged.
That was 3 years before the market crashed. It's still a bad idea! I've explained before how little money you actually save compared to if you had no mortgage interest deduction. I save a good bit of money because of my mortgage interest. However, when I compare it to if I didn't have one at all, it saves me about $850 a year at most. YOU SHOULD BUY A HOME ACCORDING TO YOUR NEEDS, NOT YOUR WANTS!
Contrary to what everybody tells you, your home is not an asset, it's a cash flow drain if you're like most Americans. By constantly trading up you're taking away more and more money that could be used for investing. "But more leverage means more return, right?". Yes, but people forget about all of the other expenses that come with a house. The bigger the house the more expensive it is.
Your home should be as small as possible to fit your needs. Nobody with a family of 3 or 4 needs a 5,000 square foot home. You maybe need a 2,000 square foot home. And I use the word "need" liberally. Back when my grandparents were my age the average family of 3.33 lived in a 1,000 square foot home. Now it's 1,500 sq ft and 2.22 people on average live in it. Both served the same function just as well, yet they usually paid off their homes in 10 years, not 30!
That was 3 years before the market crashed. It's still a bad idea! I've explained before how little money you actually save compared to if you had no mortgage interest deduction. I save a good bit of money because of my mortgage interest. However, when I compare it to if I didn't have one at all, it saves me about $850 a year at most. YOU SHOULD BUY A HOME ACCORDING TO YOUR NEEDS, NOT YOUR WANTS!
Contrary to what everybody tells you, your home is not an asset, it's a cash flow drain if you're like most Americans. By constantly trading up you're taking away more and more money that could be used for investing. "But more leverage means more return, right?". Yes, but people forget about all of the other expenses that come with a house. The bigger the house the more expensive it is.
Your home should be as small as possible to fit your needs. Nobody with a family of 3 or 4 needs a 5,000 square foot home. You maybe need a 2,000 square foot home. And I use the word "need" liberally. Back when my grandparents were my age the average family of 3.33 lived in a 1,000 square foot home. Now it's 1,500 sq ft and 2.22 people on average live in it. Both served the same function just as well, yet they usually paid off their homes in 10 years, not 30!
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