Why You Should Think of Your Home as an Expense -- Not an Investment

It's important to go into homeownership with the right frame of mind.

People are often advised to buy homes rather than rent because with the latter, you're paying a landlord's mortgage. With the former, you're paying your own. And that means eventually, you could own your home outright.

Plus, homes have a tendency to gain value over time. Granted, it can take multiple years, or even decades, for your home to appreciate in value. But much of the time, if you buy a home and keep living there for 10 years or longer, by the time you go to sell it, you'll be able to get more than what you paid for it (barring a housing market crash).

But as much as some financial experts might tell you to think of a home as an investment, you may be better off looking at it as an expense. Here's why.

You may not actually make any money

Imagine you buy a home today for $300,000, and in 30 years' time, it's worth $600,000. On paper, it looks like you doubled your money, and that's a good thing, right? Well, not so fast.

While you may be looking at a $300,000 gain as far as your home price goes, that doesn't mean you didn't sink $300,000 or more into that home over the course of those 30 years. In fact, think about all the expenses you likely incurred during that time, from property taxes to maintenance to repairs. Chances are, you sunk in as much money, if not more, than what you'd be gaining by selling your home.

And let's not forget mortgage interest. Mortgage lenders don't give out home loans to be nice. They do so to make money.

If, to buy that $300,000 property, you put down 20% and take out a 30-year $240,000 mortgage at 4%, you'll end up spending almost $130,000 on interest in the course of paying off your home. Between that and the aforementioned expenses, you may not end up with an actual profit when you account for the money you put into your home.

A better way to invest

Buying a home could make sense for one big reason -- you need a roof over your head and you don't want to have to follow the rules a landlord sets. Also, you may want the stability of owning your own place. When you rent, your landlord could decide to stop renewing your lease, forcing you to move.

But if your goal in buying a home is to score a solid investment, you may want to change your line of thinking and instead focus on other ways to grow wealth. Buying stocks, for example, could be a better investment from a profitability standpoint. You might put $100,000 into your portfolio, sit back, do nothing, and see your balance grow to $1 million over 30 years without having to spend any extra money along the way.

None of this is meant to discourage you from buying a home. And there are plenty of good reasons to purchase a place of your own and stop renting. But you're better off thinking of your home as an expense -- not an asset whose purpose is to make you money.