Is buying a house a good investment? Our honest answer: for most people with a stable life and a long time horizon, yes, and for less exciting reasons than the internet gives you. A home is an illiquid, leveraged asset with real carrying costs that also happens to retire a bill you will owe every month for the rest of your life. This episode came out of a video by a creator we respect arguing that your house is a liability that does not build wealth, and the argument deserves a straight response, because parts of it are right and the conclusion still does not follow.
Per the Federal Reserve's Survey of Consumer Finances, the median homeowner's net worth has run roughly 40 times the median renter's, and about half of homeowner net worth sits in home equity. (Those figures reflect the survey current when this episode aired, 9/5/2023; the survey repeats every three years, and the rent and payment examples later in this article also reflect that date.) The standard hedge applies in full: past performance guarantees nothing about future returns. What the survey does show is that the experiment has run for generations of American homeownership, through recessions, rate cycles, and two housing busts, and homeowners keep ending up with dramatically greater net worth, with equity doing most of the work. Whatever you call it, wealth, comfort, financial security, owning has been a core piece of it.
One useful definition of wealth is an abundance of valuable assets that can be converted into a form you can transact with. Your residence struggles with that test while you live in it. Converting home equity to cash means selling, which takes months and costs commissions and closing costs, or borrowing against it, which raises your payment and shrinks the equity. A gold bar sells tomorrow; an index fund sells with a button. The house you live in does neither, and the Rich Dad framing that popularized calling a home a liability leans on exactly this: buy with 5% down and you hold a thin slice of asset attached to a large payment, plus taxes, insurance, and maintenance.
All of that is true, and the conclusion still overreaches. The equity is real and it grows, both through amortization and, historically, through appreciation. More importantly, the alternative to those carrying costs is rent, which carries costs of its own and buys back nothing. The payoff of owning your residence lives somewhere the liquidity test never looks: in what it does to your single largest lifetime expense.
Every payment on an amortizing mortgage retires principal. It is automatic, it is boring, and it does not depend on your discipline the way an investing plan does. Skip a decade ahead and a slice of your net worth exists purely because the payment made you save it.
A small down payment controls the whole asset. In the episode's illustration, a buyer putting 3.5% down on a 500,000 dollar home starts with a sliver of equity and, between principal paydown and whatever the market does, might plausibly reach 10% to 20% equity in five years and 30% to 40% in ten. Those are illustrations with appreciation baked in, and appreciation is never promised. Leverage cuts both ways, which is one honest reason a short holding period is risky.
Josh's own house cost 580,000 dollars in 2000, a number his aunt called insane because she had paid about 42,000 dollars for a similar home in 1974. It has since roughly tripled. Every generation looks at current prices and sees a crazy number, and over long horizons owners have historically been glad they bought anyway. That is history, never a guarantee, and homes are cyclical, local, and slow to sell. If you want the full asset-class debate, we put housing head to head with the alternatives in real estate versus stocks.
This is the mechanism the liability crowd skips, and we think it is the biggest one. You need shelter until the day you leave this earth, so the real comparison is never own versus free. A 30-year fixed principal-and-interest payment never rises, and rent has no 30-year fixed option. Jeb bought his home in 2012 and refinanced during the pandemic to 2.99% while keeping his loan term, and his payment now sits at about half what the same house would rent for. His timing was luck he would not promise anyone. The mechanism underneath it, fixing the cost, paying down principal, and holding the option to refinance if rates ever dip, is available to any owner. Carry a mortgage to the end of its term without cashing out and your housing cost in retirement drops to taxes, insurance, and maintenance, a fraction of the rent you would otherwise pay forever.
There is no 30-year fixed rent.
When prices and rates are elevated, owning often starts out more expensive, and buyers quit at that first comparison. Some clients of ours in Redondo Beach found a nice rental for about 6,000 dollars a month while the payment to buy something similar was about 6,800, and their first reaction was that owning looked terrible. Run it forward instead. With rent growing at an illustrative 3% a year, that 6,000 dollar rent passes 6,800 in about five years and reaches roughly 8,060 dollars by year ten, while the fixed principal-and-interest payment never moves and part of it retires principal every month. A future refinance could widen the gap further, and nobody can promise one, so treat it as upside rather than the plan. Compounding is the most powerful force in investing, and while you wait, it works against you: rents ratchet up, and the principal paydown you skipped never happened.
Between 55+ years combined in this business and owning homes and rental property ourselves, we have written every one of these checks. Roofs, water heaters, and the refrigerator that dies the night before a holiday sale and still costs 3,500 dollars. Property taxes, insurance, and mortgage insurance when your down payment is small. Maintenance spending is a genuine cost of ownership, and it scales with your standards for the home. Here is the context that matters: the homeowners in the Fed's survey paid their own repair bills for decades and still ended up far wealthier, because maintenance is an expense inside a system that was simultaneously fixing their housing cost and building equity. Budget for it honestly. Just do not let a future water heater talk you out of the whole arithmetic.
A popular alternative says skip owning where you live, keep renting, and buy an investment property in a cheaper market. It can genuinely work, and we have helped listeners do it in solid Midwest markets where a home priced a bit over 200,000 dollars can rent for 1,200 to 1,500 dollars a month. Two cautions before you treat it as the smarter path. Investment financing typically requires a much larger down payment, often in the range of 20% or more, versus as little as 3% down on an owner-occupied conventional loan (program minimums change; confirm current requirements with a lender), so the cash hurdle can exceed what buying your own home would take. And it leaves your own housing cost floating: the tenant's rent helps pay that mortgage, while your landlord keeps raising yours. Owning a rental is a fine wealth tool. It is a complement to fixing your own shelter cost, and it does not replace it.
The honest case includes the cases against. Buying tends to work against you when the holding period is short, because transaction costs are heavy and early payments are interest-heavy; when your job, city, or relationship is likely to move within a few years; when qualifying requires stretching to a payment that would break your budget the first bad month; and when the purchase is really a market-timing bet rather than a place you want to live for years. Buy at the right time in your life, at a payment you can sustain, in a home you would be happy holding for a long time. If you are genuinely unsure which side of that line you are on, we wrote a whole guide on rent versus buy and when waiting is the right call.
Judged purely as a trading asset, a house is mediocre: illiquid, expensive to transact, leveraged, and impossible to sell without also needing a new place to sleep. Judged as what it actually is, the one purchase that converts your largest unavoidable lifetime expense into a fixed cost and a forced savings plan, it has been the foundation of household net worth in this country for generations. Nobody can promise your result. The mechanism, though, only works with time, and it starts when you do. If you want to know whether you are actually ready, the free two-minute readiness quiz will tell you where you stand and what to work on first.
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Get my readiness score →For most people with stable income and a horizon of many years, yes, though not the way a stock is. A home builds wealth through forced principal paydown, leverage on a small down payment, long-run appreciation that history has favored but nobody can promise, and, most importantly, by fixing your biggest lifetime expense while rents keep rising. On a short horizon or a stretched budget, the math flips against you.
Yes, by a wide margin. In the Federal Reserve's Survey of Consumer Finances, the median homeowner's net worth has run roughly 40 times the median renter's, and about half of that homeowner net worth is home equity. The survey repeats every three years and the exact multiple moves around, and the standard caveat applies: past results are history, not a promise about any individual purchase.
Both descriptions capture something real. A home is an asset because it has value and your equity in it grows through principal paydown and, historically, appreciation. It behaves like a liability because it is financed, illiquid, and carries taxes, insurance, and maintenance. The resolution is the comparison that matters: you must pay for shelter either way, and only ownership converts part of that unavoidable cost into equity you keep.
It can work, especially in markets where prices are low relative to rents, and it is not a substitute for owning your home. Investment loans typically require a much larger down payment, often 20% or more versus as little as 3% owner-occupied (confirm current program requirements), managing from a distance is not for everyone, and your own rent keeps rising the whole time. Treat a rental as a complement to owning your home rather than a substitute for it.
When you may move within a few years, since transaction costs are heavy and early mortgage payments are mostly interest. The same goes for an unstable job or life situation, for qualifying that requires a payment that would strain your budget in a normal month, and for buying as a bet on short-term prices rather than as a home you want to hold. In those cases, renting while you get ready is the smarter investment.