Is Buying A Home A Good "Investment"?
- Timothy Iseler
- Sep 3
- 18 min read
I get asked some variation of this question fairly often: “is buying a house still a good investment in this day and age?” It’s in the same vein as, “is a college education still worth the price?” In other words, there were things that worked for previous generations, but do they still make sense in today’s world?
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I want to explore this question from a few different angles, sharing some pros, some cons, and some that are neither here nor there or, at the very least, open for interpretation. But here’s a little TL/DR upfront: I think buying a home can be an excellent investment, in the right circumstances and with the right motivations. And I’m going to share with you how & why I think it makes sense. But there also are a lot of aspects of how many people think about home ownership in the modern era that I completely disagree with, and I’m also going to share those ideas.
And I want to be crystal clear: the way I look at this issue makes sense to me, but that doesn’t mean that it’s the only way to think about it. You might file this whole episode under “Tim’s hot takes” or choose to ignore it completely, but I think my reasoning is sound.
So with that in mind, let’s establish some basic concepts at play.
How is buying a primary home different from other investments?
It gets said all the time: the purchase of a home is the single biggest investment that most people will ever make. But a careful observer will note that home ownership is not considered an investment in the same way as buying stocks, bonds, or income property. There are different rules about what counts as a tax write off, how capital gains get treated, different rules about how you can borrow against equity, and even the potential for direct government support in the form of special loans for certain homebuyers.
So what’s the deal? Why isn’t a primary home the same as other investments?
According to Investopedia.com—which is a great resource, by the way—an investment is “an asset or property acquired to generate income or gain appreciation.” So that means that something that you buy for your own personal use—like a primary residence, a car, a fancy vintage microphone that you use for recording, etc.—is not considered an investment. And that has nothing to do with whether the thing in question is likely to go up in value. The distinction is in whether or not you are buying it for your own personal use.
So if you buy a vintage, Pre-War Gibson acoustic guitar because you think it’s a really great instrument and it’s gonna look great in your music room, that’s not really an investment. You’re buying it to use and enjoy, which is fundamentally different from investing. And that’s true even though it happens to be the case that Pre-War Gibsons consistently go up in value over time. However, if you buy that exact same guitar with the idea that you will rent it to musicians or studios for recording sessions, that does count as an investment because you bought it to generate income. Likewise, if you take that guitar and put it in a fireproof, climate-controlled safe because you want to sell it in five or ten years, or even just grow your net worth, then that also counts as an investment.
Do you see the difference there? If you buy something to use it—like a primary home—then you’re not really buying an investment. If instead you buy the exact same house and use it to generate rental income and later sell it for a profit, then it does count as an investment.
But, of course, that’s more of a technical discussion about semantics and not really how most people think about owning a home. So, even though things you buy for personal use don't strictly fit the definition of investment, it’s common to call them investments in everyday speech. For our purposes today, let's just go ahead and set aside the technical definition and consider purchasing a primary home as an investment so that we can evaluate it on those terms.
Before we dive in, though, I want to lay down some ground rules. The first is that if we want to have a meaningful discussion about what makes an investment “good” or “bad”, we need to compare it to some alternative. The second distinction I want to make is that there are fundamental differences between the ways that previous generations thought about home ownership and the way it’s thought of today.
Compared to what?
If we want to talk about whether something is a good investment or not, we need to compare it to something else. Is gold a good investment? Well, that depends on what is happening in the gold market and what is happening in the markets for other investments like stocks, bonds, or even other precious metals. You can’t say that an investment is good or bad without comparing it to an alternative.
Since I happen to believe very strongly that everyone should participate in the stock market, I’m going to use the U.S. stock market as our “option B” when it comes to deciding if buying a house is a good investment.
Old fashioned v modern
And I really want to underscore the difference between the old fashioned way that people used to think about home ownership—where you buy a house and live in it for 20 or 30 years, or even the rest of your life—and the modern way that people think of investing in a house, which is more like “I’ll buy this place now, live in it for 5-10 years, then sell it and use that money to buy a bigger, nicer house; then sell that house in 5-10 years and buy a bigger, nicer house,” and so on, until you finally feel like you have the perfect home (which might never happen). Those are fundamentally very different mindsets and motivations when it comes to investing and where the actual value in owning a home is derived. We’ll explore both of those in a little more detail in a few minutes.
If anyone is looking for a little history lesson, check out this chart from the New York Times, circa 2006. It shows the relative price changes in U.S. homes, adjusted for inflation, from 1890 through 2006. It’s worth noting that this chart was published before the collapse of the subprime mortgage market, followed by the collapse of the entire housing market, followed by a stock market crash and the Great Recession. And what you’ll notice in this chart is that, prior to the late 1990s, home values didn’t appreciate all that much with any consistency for about a hundred years once inflation is factored in. In other words, prior to the late ‘90s, owning a home was not really a sure-fire way to boost your net worth the way we think of it now. But then in the ‘90s, due to deregulation, investment in things called Collateralized Mortgage Obligations (or CMOs) began to take off and we see housing prices start to go nuts. So in a very real way, the demand for the same underlying investments that lead to the 2008 housing market crash are also what defines the modern idea that a home is something that will just appreciate indefinitely. But people don’t really talk about that anymore because, as a culture, we have a short memory and, plus, as long as people keep making money, no one wants to spoil the party.
Ok, enough history lessons. Let’s dig into some nuts and bolts of how buying a home compares as an investment.
Apples to apples: how does it compare to conventional investing?
Since a primary home doesn't generate income like a rental property, for example, today we're only going to consider price appreciation relative to money paid as the measure of return on investment. And, because every area has different expectations for property taxes, upkeep, the price of a new roof, etc., let's restrict this to just the expenses related to the down payment and ongoing mortgage payments.
So let's say you live in a fairly competitive real estate market like Durham NC, where I live. To get into a single family, three-bedroom home in a decent neighborhood in Durham is probably going to cost at least $500,000. That seems like a lot of money to me, but it's the reality of the times in which we live. And let's assume that the annual property value appreciation is 6%, which would be a fairly hot real estate market. For context, between 1992 and 2024, the U.S. housing market grew at about 5.5% annually. So 6% appreciation is high, but not insanely high.
And as I write this post, average interest rates for home purchases are in the ballpark of 6.5-6.7% Annual Percentage Rate, or APR, for a 30-year mortgage. Let’s go ahead and say you locked in an amazing APR of 6%. With a 20% downpayment of $100,000, that puts the monthly payment on a 30-year mortgage for a $500k house at $2,398.20 per month. Let’s just call it $2,400. (Here's the calculator I used to come up with this info.)
Now let's say that you want to compare the return on investment of purchasing that home for resale at some later date with investing the same amount of money in the stock market. The U.S. stock market historically returns on average about 9-11% per year, so let's just split the difference and assume a 10% average annual return. That means we're comparing the home purchase as outlined above to investing $100,000 upfront & $2,400 ongoing monthly contributions in an U.S. stock market index fund returning an average of 10% per year.
With me so far?
Let me just jump ahead right now: there is no scenario in which buying the home beats investing in the stock market with these assumptions. It's not even close, so I’m not going to waste time getting into it.
But let's even the odds a little. Instead of an initial $100k investment, let's say that you invest $50k in the stock market up front and just spend the rest on something fun. Now, if you choose to invest in the stock market instead of buying a home, you're still going to need a place to live, so you’ll have to rent something and therefore can’t use the full $2400 for investing. In Durham, you can rent a pretty nice place for $2,000 a month, which leaves around $400 to invest every month (compared to that $2,400 mortgage payment). In other words, we’re looking at an initial investment of $50,000 with subsequent monthly investments of $400.
Here's a recap of the variables we’re assuming to do an apples-to-apples comparison:
Buying a home
$100,000 initial down payment
$2,400 monthly mortgage payment
6% average annual property value increase
Investing in the stock market
$50,000 initial investment
$400 monthly investments
10% average annual market returns
Using these assumptions, in 10 years your home would be worth about $895,423.85. Pretty good, right?? That's up almost $400k above the purchase price. But we have to account for the initial down payment, all the monthly mortgage payments you’ve made, and the amount still owed to the bank. The downpayment was $100k, ten years' of mortgage payments works out to $287,784, and you would still owe $334,742.90 on the mortgage. Subtracting those from the sale price of $895k leaves you with $172,896.95, which works out to a 44.59% return on investment.
If you chose to invest in the stock market instead, your account would be worth about $217,290.07 after 10 years. Once we subtract the amount you put in ($50k initially, $48k in ongoing contributions over 10 years), that leaves a gain of $119,290.07, or about 121.72% return on investment.
A couple of observations:
You would have about $53,000 more at the end of those 10 years by selling that primary residence compared to investing in the stock market according to the assumptions we've made; but you would also have committed almost $290k more of your own money with the home purchase in order to get that extra $53k;
Even though the dollar amount is higher from the home sale, the primary home actually performs much worse in terms of return on investment. The performance of the stock market investment is over 2.7x better than the performance of the home sale if we're just looking at return on money invested.
So if we're only comparing pure investment return—in other words, money received relative to money invested—then the results are unambiguously in favor of investing in the stock market over buying a home.
And let’s not forget: none of our calculations or assumptions so far have factored in things like replacing a roof, buying a new hot water heater, ongoing maintenance or yard work, etc. There are a ton of expenses that come with owning a home that don’t ever show up on the mortgage or in the eventual sale price.
So why is it that people think that buying a home is a good investment when it stacks up so poorly compared to investing in the stock market?
Well, one of the main upsides of owning a home is actually the same one that violates the definition of investment as previously discussed, which is that you actually get to use the thing. You can make it your own, you can paint the walls, you can put holes in the walls, you can do all kinds of things that you can’t do when you rent. So there is a huge benefit there, but I kind of think we have to keep that outside the scope of this conversation because “feeling good” is not a great way to track investments.
But there are other very real financial benefits that come with home ownership besides the sale price, and I’ll discuss a few of them in a second.
Some shaky assumptions about risk
Before we dive into those other advantages, though, I would be remiss if I didn’t touch on a commonly held belief about buying a house—or just owning real estate in general—that I think is fundamentally flawed. And that is the idea that property is inherently less risky than other kinds of investments.
This is a bit of a pet peeve of mine because there’s no real way to do any kind of side-by-side comparison of market volatility for your specific home compared to any other investment. For example, with very few exceptions, the U.S. stock market is open for business 6 ½ hours a day, five days a week, which means that you can see the value of your stocks going up and down and down and up in realtime. And there’s a ton of data that supports the idea that the stock market is, without a doubt, a volatile market.
But nothing like that exists for the value of your home. There are things you can use for a ballpark price—like the so-called Zestimate from Zillow or even what your neighbor’s place sold for—but you can’t actually know the real market value of a house with any kind of accuracy until you sell it. Everything between the purchase price and the sale price is just guessing.
So the idea that property is inherently less volatile than other investments seems to me to be predicated almost entirely on this lack of real time price information. Just because you can’t see the price going up and down, that doesn’t mean the price is stable; it just means you can’t track it. And without that information, there’s no real way to quantify volatility when it comes to your home’s value. So it doesn't make any sense to say that owning property is less volatile than other types of investments, because there’s no data on which to base that claim.
Now, some people will say that property is less risky because it’s real; it’s tangible and you can touch it and use it and live in it, regardless of whether the price goes up or down. Setting aside, of course, that personal use of an asset is exactly what makes something not an investment, there’s also the issue of debt. Buying property usually requires taking on a lot of debt. I grew up on a farm in a farming community, and you’d better believe that all of those farmers carried a ton of debt. A farmer might own hundreds of acres of land, but a few bad years and all of a sudden the bank owns all of that land. So price volatility aside, taking on a big monthly debt payment comes with its own risks. If you’re low on cash, you can always just not add to your retirement or investment accounts. That option is always on the table. But if you can’t pay your mortgage anymore, guess how stable that investment seems all of sudden? Kind of precarious. So again, I disagree with the idea that owning property is inherently less risky than other options.
“But Tim,” some contrarian might say, “if you simply hold a property long enough to outlast market ups & downs, then it will almost certainly go up in value.” Sure, yes, that’s probably true if you own property for long enough. But the same thing is true when you own stocks, especially if you buy index funds that own tiny slices of hundreds or even thousands of companies. They tend to go up in value over long periods of time. So it may be the case that property tends to go up in value over time, but you could say the same thing about lots of kinds of investments. Therefore, I don’t consider that an indicator that real estate is an inherently safer or better investment than lots of other investments.
And, of course, property is extremely illiquid, meaning you can’t turn it into cash on short notice and expect to get a fair price. So there’s also liquidity risk involved in owning property. This is often how people end up “house poor”: they own a valuable property, but are strapped for cash and struggling to get by. Even though stock market investments are very volatile in the short-term, they are highly liquid: you can turn them into cash at the current going rate at any point during trading hours.
So I just don’t think the argument that property is a safer kind of investment holds any water. You can disagree with me, that’s ok. I think my logic is sound.
What other financial advantages are there to owning a home?
But there are some really attractive, legitimate financial benefits to home ownership besides the eventual sale price that need to be considered, particularly if you own it for a very long time.
Taxes
One of the big ones is tax advantages. For one thing, mortgage interest up to a very high amount can be deducted from your income tax return to lower your overall taxable income. In 2025, you can deduct up to $750,000 in mortgage interest on your tax return. While that’s not the same as keeping that money in your pocket, it is nice to get a big tax break for the interest portion of your mortgage payments.
Another tax advantage is that a large amount of any profit from a potential sale is excluded from capital gains taxes if you have owned and used the property as your primary residence for at least two of the five years leading up to the sale. In 2025, you can exclude up to $250,000 of gains from the sale of your primary home for single filers or up to $500,000 for married filers. So in the example we used above, the hypothetical $172k in gains received from the sale of a primary residence would be tax free as long as you lived in the place full-time for at least two of the five previous years. That is very much not the case when you decide to sell stocks, bonds, or pretty much any other kind of investment.
Access to equity loans
Another advantage of owning a home is access to money through things like home equity loans or home equity lines of credit.
When you own a house, you build up equity over time, meaning the portion that you own (as opposed to the portion that the bank owns) increases as you pay off the mortgage. But your equity also increases as the value of the home appreciates.
So let’s use our example from earlier again and instead of selling the house, you decide instead to access some of the equity in the form of a loan. In this scenario, you still owe the bank a fair amount of money on the mortgage, but the difference between what you owe and the market value of the house is all equity that belongs to you, which you can tap in the form of a home equity loan or home equity line of credit. Those differ slightly in how they’re used and when they’re appropriate, but it’s enough to point out that in this example you could potentially access hundreds of thousands of dollars in loans because of the equity built up in the house.
There are ways you can do similar things with conventional investments, but the interest rates for those kinds of loans are generally not awesome, and there are specific rules about how much you can borrow relative to investment value that open you up to a lot of risk if the value of the underlying investments goes down unexpectedly. That’s a deeper conversation than I want to get into today, but I want to stress that borrowing money against investments is not something I recommend. However, borrowing against the equity in your home is a fairly straightforward process.
Mindset: Long-term or Short-term?
And now we’re getting to the part of the conversation where your investment mindset and timeline make a huge difference when it comes to the financial advantages of owning a home. Specifically, do you want to buy a home so that you have somewhere to live for many decades, possibly even the rest of your life, or do you want to buy a home so you can sell it later and buy a better home?
Cost of living fixed in time
One exceptional advantage of owning a home for a long time is the very real cost of living benefits that start to accrue if you've been in the same house for a few decades.
For example, if you're 20 years into a 30 year mortgage, that means that your ongoing cost of housing is locked in time to whatever it was 20 years ago. Let’s assume that inflation is around 3% every year, which is pretty much the historical average. That means that a place that costs $2,000 per month to rent today will cost around $3,612 per month in 20 years (an increase of about 80%) and about $4,854 per month in 30 years (an increase of almost 143%). So if you make it more than 15-20 years into your mortgage, your average monthly cost for housing will be much lower than if you were a renter.
And, of course, if you actually make it all the way through your mortgage, then your ongoing housing costs drop off a cliff and all you have to cover is property taxes, insurance, and maintenance. That seems like such an old fashioned idea these days, but it’s incredibly powerful for building lasting, long-term wealth. Imagine if your housing cost—whether that’s a mortgage payment or rent—suddenly just disappeared. You would be able to have a much higher standard of living for exactly the same amount of money if that expense was off the table.
Generational wealth
There’s also the concept of creating generational wealth through homeownership, which is an equally old fashioned idea. Here’s how it works. Let’s say that you buy that $500,000 house and live in it for the rest of your life. Assuming you live long enough, you’ll eventually pay off that mortgage. We already covered how that helps you get ahead because your cost of housing remains low compared to inflation, but something else happens when you die (spoiler alert: it will happen) and that home passes to your kids or your siblings or whomever you happen to name in your will: when someone receives an inheritance, the basis on the inherited items resets to present day values.
Now, basis is a fancy term that essentially means “how much you paid for it”. And it really only matters when you want to sell something. Since your basis represents what you paid for an asset, that amount of money is not considered profit when you sell it, and therefore is not taxed.
So let’s say that it’s many, many years from now and your $500k home is now worth $2 million. If you sold it, your basis is $500k and the remaining $1.5 million is subject to whatever the current tax rules for capital gains happen to be at that time. But if someone else inherits that house from you after you die, now their basis resets to the current market value of $2 million. So if they turn around and sell it, there are absolutely no taxes owed on the first $2 million in profit.
This is what it means for homeownership to create generational wealth: a valuable asset transfers to another generation or a family member, allowing them access to potentially life-changing amounts of money with no additional tax burden. I’m sure you can understand why that might be a really great thing to do for your kids or family members. Of course, this also applies to inherited investment accounts, so I don’t want to make it sound like only real estate gets this treatment. But it is a big advantage to owning a home for a very long time.
Conclusions
So let’s circle back to that question of whether buying a home is still a good investment. I have two very different answers, depending on what mindset and timeline resonate with you.
If your motivation is “I'll buy this house now, sell it in 5 or 10 years, then take that money and buy a nicer, newer, better house,” then no: I don’t particularly think that’s a good investment. Not only does your ongoing housing cost get reset to whatever the new mortgage requires, but you’re also trading in one 30-year mortgage for another. In other words, the desire to keep getting bigger & better homes means that you’re kind of stuck in a permanent cycle of debt.
On the other hand, if your mindset is more like how home ownership was viewed up until really the late 1990s—that you would buy a place, own it for a really, really long time, then have a very low cost of living and an asset that could potentially create generational wealth—then yes: I still think that investment makes sense.
There is a reason why a mortgage lasts for 30 years: it’s an inherently long-term commitment, and, in my opinion, the concept of owning a home as an investment only starts to make sense on that scale.
You only get that cost of living advantage or generational wealth potential if you own a home for 15-20+ years. And if you manage to pay off a mortgage completely, it radically changes the amount of money you need to live a comfortable life. And obviously, you don’t get to enjoy any of those long-term advantages if your plan is to sell your house after 5 or 10 years and buy a new house.
Ok, that’s a lot to take in. But I hope that helps give you some context if you’re thinking about buying a home or, if you already own a home, how to think about it in investment and personal finance terms. I think buying a home can be an amazing investment, but it’s not the guaranteed home run that a lot of people think it is.
If you want to have a conversation about your financial health or investing for the long-term, hit me up. This email address is always checked by yours truly.
Thanks,
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial lives. We'll help identify current your strengths and weaknesses, clarify and refine your long-term goals, and prioritize decisions to improve your financial well-being now and later. Reach out today to take the first step.
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