House Hacking

House Hacking

If you are looking to buy a home and want to really grow your wealth, consider house hacking. Our ability to save, invest, and grow real wealth begins with a very simple premise. You have to spend less than you make. It couldn’t be more simple, but that doesn’t make it easy.

For most people, your three biggest expenses are housing, taxes, and cars. If we manage those three expenses well, you may be able to save a significant amount of your income. The more you save, the faster you grow, and the sooner you might reach your goals. Read more: Five Wealth Building Habits

The problem is that most Americans are doing the opposite and creating a lifestyle which consumes 100% of their income. And then there is nothing, zero, left to invest.

House Hacking gives you an incredible opportunity to reduce your biggest expense, in some cases, down to zero. Here’s how. Instead of buying a single family home, you buy a duplex, triplex, or four-plex. You live in one unit and rent out the rest. Your tenants will cover much or even all of your mortgage. You can live there with little or no monthly expenses.

With a house hack, you are freeing up your income so you can save and invest. You can pay off your credit cards. Maximize your 401(k) and Roth IRAs. Start saving for college in a 529. And it’s all because you were willing to live in a multi-family home rather than spending thousands every month on a single family home.

The Details

Sure, house hacking isn’t going to be for everyone. But maybe you want to ask how this might work, if you were to consider it. Although you are buying a multi-family building, you are going to use the house as your primary residence and live there. That means you can still use an FHA mortgage and not have to get a more expensive mortgage for a rental or investment property. With an FHA mortgage, you can put as little as 3.5% down with a FICO score of just 580.

Of course, if you have 20% to put down, you could also do a conventional mortgage as a primary residence. Or, if you’re a veteran, you might be eligible for a VA loan with zero down.

Once you have the property, you can split costs between the area where you live and the area which you rent. This means you can also enjoy some of the tax benefits of being a landlord. Let’s say for example, that your building is 3,000 square feet and you live in 1,200 feet and rent out the rest. You occupy 40% and have 60% as a rental.

Then you can look at your costs, such as insurance, utilities, repairs, taxes, etc. For your bills on the whole house, you can allocate 60% of those costs against your rental income on Schedule E. For the 40% where you live, you can also qualify for the Section 121 capital gains exclusion, when you sell.

Living with other people in the same building might not be your dream situation, but if you can make it work, there could be great benefits for you financially. When you manage your biggest expenses, it becomes easy to have money left over to save and invest. Put your savings on autopilot. Maximize your 401(k). Put $500 month into your Roth IRA to get to the $6,000 annual limit.

Who Can Do a House Hack

House hacking certainly makes sense for a first time home buyer, a single person, or a young couple. That’s probably the typical situation. But it could also work well for older investors who want to turbo charge their savings while they are still working. And if you could reduce your monthly housing cost from $2,000 to $200 or $0 a month, would that change when you will be able to retire? Probably. A house hack might enable you to retire at 55 versus 65. Under the 4% rule, reducing your expenses by $2,000 a month means you now need $600,000 less in your nest egg to retire.

Most of us will resist making a sacrifice to be able to save. Still, if you have an open mind, a house hack might be a brilliant way to save and invest. While your friends and colleagues are barely saving anything, you might be able to put away 50% of your income while your tenants are paying down your mortgage. If you can invest $2,000 a month for 10 years, at a 7% return, you could have $344,000. That might be worth a small sacrifice.

Housing is an expense. Your house should go up in value over time, but the expenses of interest, taxes, insurance, and upkeep are not building your wealth. What if you get someone else to pay for your house? When you reduce those expenses, you are giving yourself a tremendous opportunity to save and invest in appreciating assets. If that is important to you, look for creative ways to cut your biggest expenses!

Have you done a house hack? I’d love to hear from you about your experiences. Send me a note!

Inflation Investments

Inflation Investments

With the cost of living on the rise in 2021, many investors are asking about inflation investments. What is a good way to position your portfolio to grow and maintain its purchasing power? Where should we be positioned for 2022 if higher inflation is going to stick around?

Inflation was 5.4% for the 12 months ending in July. I share these concerns and we are going to discuss several inflation investments below. Before we do, I have to begin with a caveat. We should be cautious about placing a lot of weight in forecasts. Whether we look at predictions of stock market returns, interest rates, or inflation, these are often quite inaccurate. Market timing decisions based on these forecasts seldom add any value in hindsight.

What we do know for sure is that cash will lose its purchasing power. With interest rates near zero on most money market funds and bank accounts, it is a frustrating time to be a conservative investor. We like to consider the Real Yield – the yield minus inflation. It would be good if bonds were giving us a positive Real Yield. Today, however, the Real Yield on a 10-year Treasury bond is negative 4%. This may be the most unattractive Real Yield we have ever seen in US fixed income.

Let’s look at inflation’s impact on stocks and bonds and then discuss three alternatives: TIPs, Commodities, and Real Estate.

Inflation and Stocks

You may hear that inflation is bad for stocks. That is partially true. Rising inflation hurts companies’ profitability and consumers’ wallets. In the short-term, unexpected spikes in inflation seem correlated to below average performance in stocks.

However, when we look longer, stocks have done the better job of staying ahead of inflation than other assets. Over five or ten years, stocks have generally outpaced inflation by a wide margin. That’s true even in periods of higher inflation. There are always some down periods for stocks, but as an asset class, stocks typically have the best chance of beating inflation over a 20-30 year horizon as an investor or as a retiree.

We can’t discuss stocks and inflation without considering two important points.

First, if there is high inflation in the US, we expect that the Dollar will decline in value as a currency. If the Dollar weakens, this would be positive for foreign stocks or emerging market stocks. Because foreign stocks trade in other currencies, a falling dollar would boost their values for US investors. Our international holdings provide a hedge against a falling dollar.

Second, the Federal Reserve may act soon to slow inflation by raising interest rates. This would help slow the economy. However, if the Fed presses too hard on the brake pedal, they could crash the economy, the stock market, and send bond prices falling, too. In this scenario, cash at 0% could still outperform stocks and bonds for a year or longer! That’s why Wall Street has long said “Don’t fight the Fed.” The Fed’s mandate is to manage inflation and they are now having to figure out how to keep the economy growing. But not growing too much to cause inflation! This will prove more difficult as government spending and debt grows to walk this tightrope.

Inflation and Bonds

With Real Yields negative today, it may seem an unappealing time to own bonds, especially high quality bonds. Earning one percent while inflation is 5% is frustrating. The challenge is to maintain an appropriate risk tolerance across the whole portfolio.

If you have a 60/40 portfolio with 60% in stocks and 40% in bonds, should you sell your bonds? The stock market is at an all-time high right now and US growth stocks could be overvalued. So it is not a great buying opportunity to replace all your bonds with stocks today. Instead, consider your reason for owning bonds. We own bonds to offset the risk of stocks. This gives us an opportunity to have some stability and survive the next bear market. Bonds give us a chance to rebalance. So, I doubt that anyone who is 60/40 or 70/30 will want to go to 100% stocks in this environment today.

Still, I think we can add some value to fixed income holdings. Here are a couple of ways we have been addressing fixed income holdings for our clients:

  • Ladder 5-year Fixed Annuities. Today’s rate is 2.75%, which is below inflation, but more than double what we can find in Treasury bonds, Municipal bonds, or CDs.
  • Emerging Market Bonds. As a long-term investment, we see attractive relative yields and improving fundamentals.
  • Preferred Stocks, offering an attractive yield.

TIPS

Treasury Inflation Protected Securities are US government bonds which adjust to the CPI. These should be the perfect inflation investment. TIPS were designed to offer a return of inflation plus some small amount. In the past, these may have offered CPI plus say one percent. Then if CPI is 5.4%, you would earn 6.4% for the year.

Unfortunately, in today’s low yield environment, TIPS sell at a negative yield. For example, the yield on the Vanguard short-term TIPS ETF (VTIP) is presently negative 2.24%. That means you will earn inflation minus 2.24%. Today, TIPS are guaranteed to not keep up with inflation! I suppose if you think inflation is staying higher than 5%, TIPS could still be attractive relative to owning regular short-term Treasury Bonds. But TIPS today will not actually keep up with inflation.

Instead of TIPS, individual investors should look at I-Bonds. I-Bonds are a cousin of the old-school EE US Savings Bonds. The I-series savings bonds, however, are inflation linked. I-bonds bought today will pay CPI plus 0%. Then your investment is guaranteed to keep up with inflation, unlike TIPS. A couple of things to know about I-bonds:

  • You can only buy I-bonds directly from the US Treasury. We cannot hold I-Bonds in a brokerage account. There is no secondary market for I-bonds, you can only redeem at a bank or electronically.
  • I-Bond purchases are limited to a maximum of $10,000 a year in electronic form and $5,000 a year as paper bonds, per person. You can buy I-bonds as a gift for minors, and the annual limits are based on the recipient, not the purchaser.
  • I-bonds pay interest for 30 years. You can redeem an I-bond after 12 months. If you sell between 1 and 5 years, you lose the last three months of interest.

Commodities

Because inflation means that the cost of materials is rising, owning commodities as part of a portfolio may offer a hedge on inflation. Long-term, commodities have not performed as well as stocks, but they do have periods when they do well. While bonds are relatively stable and consistent, commodities can have a lot of volatility and risk. So, I don’t like commodities as a permanent holding in a portfolio.

The Bloomberg Commodities Index was up 22% this year through August 31. Having already had a strong performance, I don’t think that anyone buying commodities today is early to the party. That is a risk – even if we are correct about above average inflation, that does not mean we are guaranteed success by buying commodities.

Consider Gold. Gold is often thought of as a great inflation hedge and a store of value. Unfortunately, Gold has not performed well in 2021. Gold is down 4.7% year to date, even as inflation has spiked. It has underperformed broad commodities by 27%! It’s difficult to try to pick individual commodities with consistent accuracy. They are highly speculative. That’s why if you are going to invest in commodities, I would suggest a broad index fund rather than betting on a single commodity.

Real Estate

With home prices up 20% in many markets, Real Estate is certainly a popular inflation investment. And with mortgage rates at all-time lows, borrowers tend to do well when inflation ticks up. Home values grow and could even outstrip the interest rate on your mortgage, potentially. I’ve written at length about real estate and want to share a couple of my best pieces:

While I like real estate as an inflation hedge, I’d like to remind investors that the home price changes reported by the Case-Schiller Home Price Index do not reflect the return to investors. Read: Inflation and Real Estate.

Thinking about buying a rental property? Read: Should You Invest In Real Estate?

With cash at zero percent, should you pay off your mortgage? Read: Your Home Is Like A Bond

Looking at commercial Real Estate Investment Trusts, US REITs have had a strong year. The iShares US REIT ETF (IYR) is up 27% year to date, beating even the S&P 500 Index. I am concerned about the present valuations and low yields in the space. Additionally, retail, office, apartments, and senior living all face extreme challenges from the Pandemic. Many are seeing vacancies, bankrupt tenants, and people relocating away from urban development. Many businesses are rethinking their office needs as work-from-home seems here to stay. Even if we do see higher inflation moving forward, I’m not sure I want to chase REITs at these elevated levels.

Inflation Portfolio

Even with the possibility of higher inflation, I would caution investors against making radical changes to their portfolio. Stocks will continue to be the inflation investment that should offer the best chance at crushing inflation over the long-term. Include foreign stocks to add a hedge because US inflation suggests the Dollar will fall over time. Bonds are primarily to offset the risk of stocks and provide portfolio defense. We will make a few tweaks to try to reduce the impact of inflation on fixed income, but I would remind investors to avoid chasing high yield.

As satellite positions to core stock and bond holdings, we’ve looked at TIPS, Commodities, and Real Estate. Each has Pros and Cons as inflation investments. At this point, the simple fear of inflation has caused some of these investments to already have significant moves. We will continue to evaluate the inflation situation and analyze how we position our investment holdings. Our focus remains fixed on helping clients achieve their goals through prudent investment strategies and smart financial planning.

Inflation and Real Estate

Inflation and Real Estate

In recent weeks, people have become more concerned about the possibility of inflation and its impact on Real Estate. This is a complex subject, but certainly important for your financial security. With interest rates near historic lows, now is a great time to get a 15 or 30 year mortgage. And with the possibility of inflation increasing, buying a home now could lock in both today’s real estate prices and interest rates.

Globally, governments are spending at an unprecedented rate, taking on vast amounts of debt. According to the US Debt Clock, we presently owe over $224,000 per US taxpayer. Will we ever repay this debt? There’s no appetite for austerity – reducing spending – or raising taxes to payoff the debt. No, we will need to inflate our way out of debt. With 3% inflation, $1,000 in debt will “feel like” only $912 in three years. Ask someone who borrowed $250,000 twenty years ago for a house. It probably felt like a huge amount at the time, but became easier to pay over the years.

For people who don’t have a house, there is a real fear of missing out. Many are concerned that if they don’t buy right now, real estate prices may soon rise to the point where they can no longer afford a house. In densely populated parts of the country, many people are already priced out of the market. People from California, New York, Seattle, etc. are moving to Dallas, Austin, Nashville, or other places in search of better real estate prices and lower taxes.

I bought a house in January and moved to Little Rock, which is even more affordable than Dallas. We are really enjoying our new neighborhood and city. When you work from home, it’s important to have a place you love. So, I understand the feelings people are having about inflation and real estate today. Here’s my advice to first time homebuyers and to people consider their house as an investment.

Buy Versus Rent

I do think now is a great time to buy a house – at least in theory! Owning can make financial sense versus renting, but primarily with two considerations:

  1. The longer you stay in the house, the better. It takes a long time to really benefit from the impact of inflation on real estate. If you stay in the house less than five years, you may only break even, after you pay realtor fees and closing costs.
  2. Your house is still an expense. There are taxes, insurance, mortgage interest, maintenance, furnishings, etc. When I see people stretch for the most expensive house they can afford, it often means they are unable to save as much in their other accounts. Twenty years later, they have only a small 401(k). Meanwhile, their colleagues who maxed out their 401(k)s could have a million dollar nest egg.

So, if you are ready to put down roots, yes, buy a house now. However, I have a feeling that we may see these low interest rates for a while longer. If the time isn’t right for you personally, then wait. If your career may take you to another location, then wait. Growing family? Get a house you can keep and not out grow. I do think you will have plenty of chances to get in real estate in the future. Renting is not only fine, it may even allow you to grow your net worth when you invest your savings versus owning. Renting provides flexibility and fixed costs, versus the surprise expenses that come with having a home. If anything, we need to remove the stigma from renting that it is somehow a barrier to financial success.

Your House is Not an Investment

If Real Estate is such a good inflation hedge, then it would make sense for everyone to buy a million dollar mansion and get rich off their home, right? Should you buy the most expensive house you can afford? Let’s consider this carefully.

Increasing house prices is not the same as an investment return. To measure inflation of real estate, many people refer to the Case-Shiller Home Price Index. It is great data, but flawed if you are trying to use it for an investment rationale. It simply measures the selling price of a house compared to that house’s previous sale. That’s what your return would be as a homeowner, right? No, the homeowner makes much, much less.

While the Index shows what it costs to buy a house, it does not reflect the return to owners. The index does not include: transaction costs (6% realtor commissions are egregious today, really), ongoing expenses (property taxes, insurance, etc.), or improvements. Taxes and Insurance can run 2.5% to 3% a year. Someone who puts in $100,000 in renovations to a house and adds two rooms? Case-Shiller doesn’t consider any of these costs that may occur between sales of a house.

As of 12/31/2020, the Case-Shiller 20-City Composite shows a 10-year price increase of 5.39%. That’s impressive, but that’s not the net return to home owners. So, let’s not think this data is saying that a house is the same as a mutual fund that returned 5.39% over the past 10 years. (By the way, over that same 10 year period, an investment in the Vanguard 500 ETF (VOO) had a return of 13.84%.) Past performance is no guarantee of future results, but I just want people to understand that comparing the Case-Shiller index to an investment return is flawed and not the purpose of that data.

Remodels and Affordability

Planning to remodel? That’s fine to enjoy your home, improve its usability, and to save you from having to move. However, is it a good investment? According to Remodeling Magazine’s 2020 National Data, no type of remodeling recouped 100% of its cost. The top 10 types of remodels recouped 66.8% to 95.6% as a National Average. It’s fine to improve and update your home, but let’s not try to rationalize that decision by thinking that we are making a great investment. The data suggests this is unlikely.

Home affordability: House prices are based on supply and demand. Demand depends on affordability. With years of slow home building, the supply of houses is tight – at least in states with population growth. In areas of population decline, there may be an oversupply. When there are more buyers than sellers, prices rise. In the long run, however, house prices reflect what people can afford.

We’ve had thirty years of falling interest rates. I think my parents’ first mortgage was at 16%. Today, that would be under 3%. That’s one reason why home prices have grown so much. Affordability isn’t based on the home selling price, it’s based on the monthly payment. And since mortgage eligibility is based on your debt to income ratio, home prices cannot increase faster than income in the long run, without falling interest rates. So, I don’t think we are going to see house prices going up by 10% every year if wages only increase by 2%. Who will be the buyers?

Taxes and Investing

It used to be that home ownership came with a nice tax break. That’s no longer the case. I know it seems unfair, but economists finally got through to Washington that the tax benefits were disproportionally helping the ultra wealthy and not the average home owner. For 2021, the standard deduction for a married couple is $25,100. Very few people will itemize. Your itemized deductions include mortgage interest, state and local taxes (with a cap of $10,000), and charitable donations. You probably will not have more than $25,100 in these deductions. That means that you are getting zero tax benefit for your home’s taxes and interest, compared to being a renter. In 2017, I wrote about this change: Home Tax Deductions: Overrated and Getting Worse.

Don’t think of your home as an investment, but as a cost. It’s probably your largest cost. Treat it as a expense to be managed. Your ability to save in a 401(k), IRA, HSA, 529 Plan, Brokerage Account, etc., depends on your preserving the cash flow to fund those accounts. Buy the most expensive house you can and you will be house rich and cash poor. I don’t think that there will be enough inflation in real estate to make that a winning bet.

Your home equity is part of your net worth, but at best consider it like a bond. In spite of today’s inflation concerns and fear of missing out, your home is not likely to make you rich. I remain a fan of the 15-year mortgage and find that my wealthiest clients usually want to be debt-free rather than use leverage to get the biggest house possible. Read: The 15-Year Mortgage, Myth and Reality. Even as home prices increase, please recognize that inflation in real estate is higher than your return on investment once you include all the costs of ownership.

Thinking Long Term

If you are ready to buy a home, now may be a good time. Low interest rates and rising home prices are going to help you. Buying can build your net worth versus renting, if you are ready to stay in one place. Think of your house as an expense and not an investment, and you will enjoy it more and have realistic expectations. Real estate and inflation are linked, but hopefully you now realize that home prices do not equate to return on investment. Build your wealth elsewhere – through investing, creating a business, and growing your career and earnings.

Don’t be afraid of missing out, supply will catch up to demand eventually. And the rise of remote working in the past year means that more people can work from anywhere. People can move to the location they want and can afford. This will help equalize prices nationally, as more workers move from high-cost areas to places with better value.

Low interest rates should cause inflation to pick up. This is government planned financial repression, and it will penalize savers, like grandparents who want to just park their money in CDs. Those will be Certificates of Depreciation – guaranteed to not maintain their purchasing power and keep up with inflation. Low interest rates will benefit debtors, especially when that debt is used to buy appreciating assets and not depreciating things, like cars. Use leverage wisely and it can help grow your net worth. Financial planning is more than just investments, and my goal is to help you succeed in defining and creating your own version of The Good Life.

Your Home Is Like A Bond

You’re doing well. You’ve got your emergency fund, you’re maxing out your 401(k), and you don’t have any credit card debt. At this point, a common question is: Should I send extra payments to my mortgage? And with markets near their highs, maybe you’re even wondering, Should I pay off my mortgage?

There are a lot of emotional reasons to pay off your mortgage. You could own your house free and clear and never have to worry about a mortgage again. You could reduce your bills in retirement. Investments carry uncertainty, whereas paying down a debt is a sure thing. Those are typical thoughts, but that’s not necessarily a rational answer.

Maximize Your Net Worth

In financial planning, our goal is to determine the solution which maximizes utility. Will I have a higher net worth if I pay off my mortgage or invest the money?

The answer, then, is it depends. It depends on the rate of return on your investments compared to the rate you are paying on your mortgage. If your mortgage is 3% but your cash is earning 0.5%, you would be better off paying down the mortgage. (Assuming you still kept sufficient liquidity for emergencies). On the other hand, what if your mortgage is 3% and you could be making 7%? Then, you would maximize your net worth by staying invested and not pre-paying your mortgage.

Most people would prefer to be debt free. However, if you can invest at a higher return than you borrow, you will grow your net worth faster. I don’t think of a home as being a great investment. Houses generally keep up with inflation, but have returns similar to bonds, or slightly less.

Home Versus Bonds

Looking at the Case-Shiller 20 City Home Price Index (which includes Dallas), the overall rate of return since 2000 was 4.02%. Let’s look at an actual bond fund, not just hypothetical indexes. An investor could have earned 5.15% a year in the Vanguard Intermediate Term Bond Index fund, since fund inception in 2001. 

The money you put into your house, will likely behave like a bond, although possibly with more volatility. Over a long period, it should keep up with inflation, or if you’re lucky, a little better than inflation. (See below for my concerns about home prices, or thinking of a home as an investment.)

I do believe it is realistic, based both on historical returns and projected returns, to anticipate a return of 5-8% from a diversified portfolio containing 60% or more in stocks. That’s not guaranteed, but if your time horizon is twenty or thirty years (i.e. same as a mortgage), it’s a reasonable assumption. And the longer the time period we consider, the greater likelihood of a positive outcome from stocks.

While it is important to consider the overall levels of risk and return of your portfolio, a portfolio is made up of specific segments. Today, the yields on high quality bonds are very low. With the 10-year treasury yielding only 1.25%, there’s not much return to be had in bonds.

Using Cash or Bonds to Pay Down Mortgage

Let’s consider an example, using round numbers for simplicity. Let’s say you have a $1 million portfolio in a 60/40 portfolio: $600,000 in stocks and $400,000 in bonds. You also have a $200,000 mortgage at 3.5%. The expected returns (hypothetical) for stocks is 7% and for bonds 2.5% today. That would give the overall portfolio an expected return of 5.2%, which is higher than your mortgage rate.

On the bonds, though, the expected return of 2.5% is less than your mortgage cost of 3.5%. If you believe that today’s low yield environment is likely to persist for a long time, it might make sense to take $200,000 from your bonds to pay off the mortgage. That would leave you with a portfolio containing $600,000 of equities and $200,000 in bonds, a 75/25 portfolio. 

The new portfolio would be more volatile than the original 60/40 portfolio, but the dollar value of your stock holdings would remain the same. And your net worth will grow faster, since we paid off debt at 3.5% with bonds that would have yielded only 2.5%.

Provided you are comfortable with having a more volatile portfolio, you might maximize your net worth by withdrawing from bonds but not from your equities. This means increasing your equity percentage allocation. However, I wouldn’t sell stocks to pay down a long dated mortgage. Consider the math on that decision carefully.

Additional Considerations

There’s a lot to evaluate here, so it is important we discuss your individual situation and not try to simplify this to some type of universal advice or rule of thumb.

  1. If your choices are to send in extra mortgage payments or do nothing, then yes, send in extra payments. That’s better than spending it!
  2. Are you choosing between extra payments versus another investment? Then, consider the long-term expected rate of return of the investment versus the interest rate of the mortgage.
  3. While bond yields are low today, it is possible they could rise in the future. If you have short-term bonds you might gradually reset your yields to higher levels. A fixed mortgage, however, will stay at the same rate for the full term of 15 to 30 years. Now is a great time to borrow very cheaply. If we have higher inflation in the future, it will benefit borrowers and penalize savers.
  4. You can invest outside of a retirement account. In fact, if your goal is to retire early, become a millionaire, or create a family trust, you need to do more than just a 401(k). Some people stop after funding a 401(k) and think they don’t need to make any additional investments. Paying down a mortgage is not your only option; consider a taxable account.
  5. A mortgage is a form of forced savings. If you have a monthly mortgage of $1,500, maybe $500 of that is interest and the remaining $1,000 is building equity in your home. If you pay off your mortgage from investments, you will save $1,500 a month. You will feel wealthier because you improved your cash flow. But if you don’t invest that $1,500 a month going forward, you will likely just increase your discretionary spending. Be careful to not miss that opportunity to increase your saving.

On Home Values

  • Your home value will increase the same whether you have a mortgage or own it free and clear.
  • There are significant expenses in being a home owner which make it a poor investment, including property taxes, insurance, utilities, and repairs or improvements. These costs are not included in a home price index. Read more: Inflation and Real Estate
  • Selling costs can also be significant, such as a 6% realtor commission. I bought a house for $375,000 in 2006 and sold it in 2017. After paying closing expenses, I received $376,000. That’s not a good return, and those amounts don’t include the improvements I made to the house. 
  • If your primary goal is to grow your net worth, consider your home an expense and not an investment. If you aren’t going to stay for at least five years, rent.
  • After the Tax Cuts and Jobs Act, most people cannot deduct their property taxes and mortgage interest. This is especially true for married couples. So, forget about having a home as a great tax deduction; most taxpayers will take the standard deduction.

At best, you might consider home equity to be a substitute for a bond investment. Given today’s very low yields, you could reduce bond holdings to pay off a mortgage. Your home is significant part of your net worth statement. It’s often one of your biggest assets, liabilities, and expenses. Think carefully about how you manage those costs. Genuinely analyze how different decisions could impact your net worth over ten or more years. That’s the approach we want to use when asking, Should I pay off my mortgage?