Lesson 7 of 10 · 9 min read
Buying a house, alongside investing
The biggest purchase of your life, and usually your biggest leverage too.
A house is a leveraged investment
Buy a four hundred thousand euro house with fifty thousand of your own money and you own four hundred thousand of asset on an eighth of your own capital. If the house rises ten percent, your own money has risen eighty percent. If it falls ten percent, most of it is gone. That's leverage, and it's why houses have built so much wealth for people who bought at the right moment, and why a price fall lands so hard. It's an investment — you just happen to live in it.
What it actually costs
The monthly payment isn't the cost. On top come maintenance, which over the long run runs towards one percent of the value a year, plus insurance, property taxes and the one-off costs of buying. What those one-off costs are called varies by country — transfer or registration tax, notary, agent, advice — but almost everywhere they add up to several percent of the price. Count those one-off costs into your sum, because they're the reason buying a house and selling it again within a few years almost always loses money.
In practice
A €400,000 house easily costs €4,000 a year in maintenance on top of the mortgage, plus tens of thousands one-off at purchase. That's not a detail when comparing against renting.
Repay or invest
If you have money spare alongside your mortgage, the question is: overpay or invest? Repaying earns you exactly your mortgage rate, guaranteed. Investing historically earns more, but not guaranteed and not every year. At a low mortgage rate investing usually wins over the long run; at a high rate repaying wins.
And something that isn't arithmetic plays in too: a smaller mortgage feels calmer, and people who sleep well make better decisions. And check whether mortgage interest is deductible where you live: where it is, your effective rate is below the one on your contract, and the answer shifts towards investing.
Why not to put everything into bricks
A house is one asset, in one place, in one country, bought at one moment. That's the opposite of diversification. For many people the house is eighty percent of their wealth after a few years, with the rest in a savings account. That's a concentrated position you'd never recommend if someone held it in shares. Buying a house isn't wrong; thinking it means you're done building wealth is.
Stocky says
Keep investing alongside your mortgage, even small amounts. Otherwise your entire net worth sits on one street.
Remember this
- A mortgaged house is a leveraged investment, in both directions.
- Maintenance, taxes and purchase costs belong in the sum.
- At low rates investing usually wins; at high rates repaying does.
- A house is one concentrated position — keep diversifying beside it.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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