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Sunday, September 20, 2009

Home as Shelter...

Recently I was reading Kiplinger’s Magazine, a favorite of mine. Knight Kiplinger, the Editor in Chief, had an opinion, entitled, An Investor’s Manifesto. It was actually a series of statements that related to investing. For example, “I know that every kind of asset entails risk -- even cash, which can be eroded by inflation.”

As I read through the list of statements, one of them popped out and resonated with me:

I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.”

Wow, did he have it right. I think so much of what homeowners are facing today, is that somewhere along the way, their house stopped being shelter and became a financial instrument. When I deal with both buyers and sellers, they talk about their house as an “investment.” Clearly it is something that we invest our money in, but is it an investment?

Last week, in the Wall Street Journal, there was an article by M.P. McQueen, called Your House: Just a Home, which hit really home (sorry for the pun) the idea that a house is first and foremost shelter.

“It's time to face facts, if you haven't already: sometimes your house is just a home.

“For most of the last decade, Americans treated their homes as sources of ready cash and as brick-and-mortar retirement plans… Foreclosures and short sales, where homes are sold for less than the debt outstanding on them, comprised 31% of total sales in July, according to the National Association of Realtors, helping depress prices for all…”

We need to get back to the idea, that our homes are meant to be our shelter, our refuge from the storms and our places of enjoyment and comfort. They’re personal – not business instruments, where we expect “a return on our investment.” A home is no substitution for a 401K account or an IRA. We will always need a place to live.
My brother and sister-in-law bought a house in a wonderful neighborhood in their hometown in central Michigan. It’s located in a real estate market that appreciates at glacial speed. They gutted the house and made it their own – everything was redone to perfection – it’s a stunning, wonderful house which they have lived in for nearly 20 years. Today’s value of the home is nowhere close to what they have put into it over the years.

Recently my brother and I were talking about it. I think he was feeling he was “never going to get his money” out of the house. But as we talked, he told me how much he loved their home. I asked him whether he regretted any of the improvements that they made to the house. His answer was no. I assured him, “Then you haven’t lost any money.”

Because that’s what your house is… it’s your home and unless you’re planning on flipping properties and moving every few years, then you have lost nothing when you improve a home to make it your own. But making it your own may mean, that when you do need to sell your home, not everything that was put into the house will come out. The market may be down. The buyers may not like the decorating choices. Or in my brother's situation, the improvements may never be recoverable, given the size of the house or neighborhood where it is located.

Hopefully, when that time comes, the seller will believe they have no regrets; they have lived in and loved their home.

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