INDYSTAR.COM

Should I consider my home to be an expense or an investment?

Posted: June 8, 2008

Alice Bryan

North Star Financial

Your home means a lot to you, including comfort, protection and security. It's probably your biggest asset, and the equity you've built can become a source for future goals.

Many people have used their homes as substitute credit cards, for everything from cars to vacations. For others, that equity is seen as an additional piece of their retirement plan.

That said, there's nothing as silly as paying off your 2007 vacation to Florida in 20 years when you finally settle your mortgage. Economic studies have shown that houses cost more than most people make when they sell and rarely match the long-term returns of a well-managed investment portfolio.

Your costs -- when carrying a long-term mortgage and paying taxes, insuring a home, repairing it and renovating it -- drain most of what homeowners think they make in price appreciation.

You can control two big costs: interest and improvements.

Here's some advice to consider:

*        Pay as little as possible and reduce your mortgage as quickly as possible. But be sure to save for retirement, as you speed up those mortgage payments.

*        Few renovations help make a profit compared with their cost. And if you borrow the money, you improve your odds for a loss when you sell.

*        Stay put longer. The average home stay is seven years, but you won't fare better than a renter if you're carrying a mortgage unless you're there at least 15 years.

Weigh emotion with reason, as with all wise investment choices.