No, your house is not an investment

Eduardo Gruener is co-founder of GFG Capital.
Eduardo Gruener is co-founder of GFG Capital.

Whether an investor is a millennial looking to ditch their roommate, or a retiree making sure all of their ducks are in a row, there seems to be one constant variable: the tendency to include one’s home in their investment portfolio. In Miami, this might be even more tempting, given the affinity for the real estate market.

But let’s make one thing abundantly clear: Your house is NOT an investment.

This does not mean that REITs and calculated real estate investments with a planned maturity date should not be counted as investments. We want to explain why your home is different.

In the mid-2000s, homeowners and investors were lured into a market of assets that carried a tangible aspect that many traditional investments lack. Perhaps this physicality resonated with investors who viewed stocks and bonds as nothing more than letters on a screen or at the most, pieces of paper. While the housing crisis might have represented the apex of this philosophy, it certainly was not a new phenomenon. Individual investors have long included their personal homes as part of the investment portfolio. Convincing themselves that they have achieved great diversification through the use of real estate “assets.” In fact, even after housing prices bottomed in 2012, investors’ loyalty remained strong.

In a poll conducted by Gallup in 2012, nearly 20 percent of investors believed real estate was the best long-term investment for their capital — only behind gold, and ahead of stocks, bonds and CDs.

Fast-forward to 2017, and the same survey shows 34 percent of investors believe their home is the best long-term investment for their capital and rank it as No. 1 on the list, still 8 percent above stocks.

Why is this?

There is little to no evidence that would help prop up this perception held by investors. We would even go so far as to say your home carries a closer resemblance to a liability than it does an asset.

Let’s start with the real returns. And by real we mean not perceived, as well as adjusted for inflation. Credit Suisse provided the long-term (1900-2017) returns of traditional asset classes as well as “collectibles” such as art, cars and wine.

On a real return basis, stocks led the way providing approximately 5 percent of real return over this 117 year period, annually. Second place? Wine. Even more bizarre is that stamps and violins finished third and fourth, respectively. Notably absent from the list: homes.

How could the perceived value generation of one’s home be so far removed from the real return on the asset?

Some housing-specific data can help bring some clarity to this a bit. Nobel Prize winning Yale economist Robert Shiller asked the same question a few years ago, and here is his conclusion. Since 1890 through 2017, the price of U.S. homes has risen 70 percent in real terms (after adjustment for inflation). Over the 127-year period, that is an annual real return of 0.42 percent. The S&P 500 returned 6.57 percent annually in real returns in comparison.

So if the prices of U.S. homes have barely kept pace with inflation, what about the rest of the perceived value of one’s home? To classify as an asset, an object must be a source of future positive cash flows. If the object is more likely to require the use of cash flows (incur expenses) throughout its life, then it should be categorized as a liability. The costs involved in owning a home between the purchase and sale date are most commonly ignored by investors who believe they’ve returned astronomical amounts upon the sale of a home. Factor in ongoing expenses such as property tax, insurance, interest payments and normal maintenance, and you’re looking at a liability.

Watch a lot of HGTV? Well the complete gut job you’ve gotten yourself into was actually a wolf in sheep’s clothing. This is a serious risk, investors in Florida and across the U.S., pose to themselves. Tying up significant portions of your wealth into your home is a mistake as old as time.

We feel this is a message that needs to continue to be passed onto existing homeowners and the wave of buyers coming into the market today.

Eduardo Gruener is co-founder of GFG Capital. He can be reached at This presentation is solely for informational purposes and should not be taken as investment advice. For further information, please contact one of our investment adviser representatives. Data provided by Bloomberg, Gallup, Credit Suisse and Riobert Shiller.

▪ This is an opinion piece written for Business Monday’s “My View” space in the Miami Herald. The views expressed do not necessarily reflect those of the newspaper.

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