The Thing We Never Talk About

Timothy Iseler, CFP®: Hi everyone.

Welcome to The Thing We Never
Talk About, a podcast about

personal finance for weirdos.

My name is Tim Iseler.

I'm a certified financial planner,
and I run my own independent financial

advisory business in Durham, nc, helping
musicians, creative professionals,

and other people with weird jobs take
control of their financial lives.

You can learn more at iselerfinancial.com.

And if you have a question about money
or personal finance, please send it to me

by visiting iselerfinancial.com/podcast

and I'll answer it in a future episode.

And if you enjoy this podcast and would
like to get my insights on money and more

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at Iselerfinancial.com/newsletter.

Before we get started today, I want
to take a minute to acknowledge

that this is the 26th episode of
The Thing We Never Talk About,

which means that I've been releasing
episodes every week for half a year.

am honestly really proud of
that and I don't mind giving

myself a huge pat on the back.

If you're new to the show, please
take a minute and have a look around.

I bet you'll find something
that interests you.

And of course, if you appreciate
the show, please like, subscribe

and leave a glowing review.

I super duper appreciate it.

Today we're gonna dive into a very
complex and multifaceted topic.

And I'll be honest, this one took me a
lot longer to work out than any other

solo episode I've done so far to the
point that I almost gave up a few times.

But it's an important issue and
I think there is a lot of really

great information to share, so
I'm glad that I stuck with it.

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?

I wanna 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 TLDR upfront: I
think buying a home can be an excellent

investment in the right circumstances
and with the right motivations,

and I'm gonna share with you how
and why I think that makes sense.

But there are also 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 gonna share those ideas.

And I wanna 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.

First of all, 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 writeoff, 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 home buyers.

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 anything you buy for
your own personal use, like a primary

residence, a car, a fancy vintage
microphone that you use for recording, et

cetera, 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're buying it for your own personal

use, or instead buying it to generate
income or to sell for profit later.

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
wanna 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 wanna 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.

If we want to talk about whether
something is a good investment or not,

we need to compare to something else.

Is gold a good investment?

Well, that depends on what's
happening in the gold market and

what's 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 US stock market as our option

B when it comes to deciding if
buying a house is a good investment.

And I really wanna 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 five or 10
years, then sell it and use that money to

buy a bigger and nicer house; then sell
that house in five or 10 years and buy a

bigger, nicer house", and so on 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.

By the way, if anyone is looking for
a little history lesson, check out the

chart I'm sharing in the show notes
from the New York Times, circa 2006.

This chart shows the relative
price changes in US homes, adjusted

for inflation, which is very
important, from 1890 through 2006.

It is 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
kind of consistency for about a hundred

years once inflation is factored in.

In other words, prior to the late
nineties, owning a home was not

really a surefire way to boost your
net worth the way we think of it now.

But then in the nineties, 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 led 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.

Okay, enough history lessons.

Let's dig into some nuts and bolts of how
buying a home compares as an investment.

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, et
cetera, 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 a single family three bedroom home
in a decent neighborhood in Durham is

probably gonna cost at least $500,000.

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
US housing market grew at about 5.5%

annually.

So 6% appreciation is high,
but it's not insanely high.

And as I record this episode,
average interest rates for home

purchases are in the ballpark of 6.5

to 6.7%

annual percentage rate, or
APR, for a 30 year mortgage.

Let's go ahead and say you
locked down an amazing APR of 6%.

With a 20% down payment of a hundred
thousand dollars, that puts the monthly

payment on a 30 year mortgage for a 500
K house at $2,398 and 20 cents per month.

Let's just call it 2,400 bucks.

By the way, I'm gonna be throwing around
some numbers in a second, and to avoid

getting bogged down, i'm just going to
round to the nearest convenient number

You with me so far?

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 US stock market historically returns
on average about nine to 11% per year.

So let's just split the difference and
assume a 10% average annual return.

And 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 gonna waste
time getting into it.

But let's even the odds a little.

Instead of an initial 100 K investment,
let's say that you invest $50,000 in

the stock market upfront and just spend
the rest of the money on something fun.

Treat yourself.

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 2,400 for investing.

In Durham, you can rent a pretty nice
place for $2,000 a month, so that

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 with

subsequent monthly investments of $400.

Here's a recap of the variables
we're assuming right now to do

an apples to apples comparison.

In one corner, we have buying a home,
with a $100,000 initial down payment,

$2,400 monthly mortgage payment, and a 6%
average annual property value increase.

And in the opposite corner, we have
investing in the stock market with

a $50,000 initial investment, $400
ongoing monthly investments, and

10% average annual market returns.

Using these assumptions, in 10 years
your home would be worth about $895,000.

That's pretty good, right?

That's up almost $400,000
above the purchase price.

But we have to account for the initial
down payment, and all the monthly

mortgage payments you've made, and
the amount still owed to the bank.

The down payment was a hundred K, 10
years of mortgage payments works out to

just under 288,000, and you would still
owe just under 335,000 on the mortgage.

Subtracting those from the sale price
of 895K leaves you with about $173,000,

which works out to roughly 44.6%

return on investment.

If you chose to invest in the stock
market instead, your account would be

worth about $217,000 after 10 years.

Once we subtract the amount you put
in, 50,000 initially, 48 k and ongoing

contributions over 10 years, that leaves
a gain of about $119,000 or roughly 121.7%

return on investment.

A couple of observations.

First, 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've also committed
almost $290,000 more of your own

money with the home purchase in
order to get that extra 53 k.

Secondly, 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 is over 2.7

times 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, et cetera.

There are a ton of expenses that come with
owning a home that don't ever show up on

the mortgage or 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 just can't do when you rent.

So there is a huge benefit there,
but I kind of think we have to keep

that outside of 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.

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 US stock market is open for business

six and a half 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 real time.

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 that 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.

You can touch it and use it and
live in it, regardless of whether

the price goes up and 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 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 a 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 property long enough to

outlast market ups and 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 okay.

I think my logic is sound.

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.

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.

While that's not the same as keeping
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 if you're a single filer or
up to $500,000 for married filers.

So in the example we used above the
hypothetical 172,000 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.

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 your 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 do wanna

stress that borrowing money against
investments is not something I recommend.

However, borrowing against
the equity in your home is a

fairly straightforward process.

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?

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, a place that costs
$2,000 per month to rent today will

cost about $3,600 per month in 20 years,
which is an increase of about 80%, and

about $4,800 per month in 30 years, which
works out to an increase of almost 143%.

So if you make it more than 15 or 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 monthly housing cost,
whether that's a mortgage payment

or rent, suddenly just disappeared.

You'd be able to have a much
higher standard of living for

exactly the same amount of income
if that expense was off the table.

There's also the concept of
creating generational wealth

through home ownership, 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.

We already covered how that helps you
get ahead because your cost of living

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 it's not taxed.

So let's say that it's many,
many years from now and your 500

K home is now worth 2 million.

If you sold it, your basis is
500 K 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 home ownership
to create generational wealth: a valuable

asset transfers to another generation or
family member, allowing them to access

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 and even bank

accounts, so I don't wanna 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.

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 five or 10 years, then

take that money and buy a newer, nicer,
better home, 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 and 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 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 potentially an asset that could

create generational wealth, then yes, I
still think that investment makes sense.

There's 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

can own a home for 15 to 20 plus 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
five or 10 years and buy a new house.

Okay, that's a lot to take in.

I threw a lot at you today, but I
hope that it 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.

That's it for today.

Next week I'll be talking
with musician Macie Stewart,

co-founder of the band Finom.

I first heard that band probably
close to 10 years ago, and

I think they're fantastic.

In addition to playing in
Finom, Macie is also active in

Chicago's improvised music scene.

She had a bunch of great questions for
me, so hope you'll tune in next week.

The Thing We Never Talk
About is for educational and

entertainment purposes only.

It's not legal, investment or tax advice.

People on the show, including myself,
may have interests for or against

any investments discussed, so do
yourself a favor and don't ever make

any investment decisions based on
what you hear on this or any podcast.

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if you have a money or finance question
you'd like answered in a future episode,

please visit iselerfinancial.com/podcast.

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Thank you so much for listening.

I appreciate you.