{"id":1,"date":"2025-12-19T17:08:04","date_gmt":"2025-12-19T17:08:04","guid":{"rendered":"https:\/\/myceolifestyle.com\/?p=1"},"modified":"2026-01-16T19:23:55","modified_gmt":"2026-01-16T19:23:55","slug":"why-a-house-is-consumption-and-not-a-retirement-plan","status":"publish","type":"post","link":"https:\/\/myceolifestyle.com\/index.php\/2025\/12\/19\/why-a-house-is-consumption-and-not-a-retirement-plan\/","title":{"rendered":"Why a House is Consumption and not a Retirement Plan"},"content":{"rendered":"\n

A Home does not<\/strong> produce cash-flow<\/strong>, it demands it. <\/em><\/p>\n\n\n\n

You cannot sell pieces of your Italian marble floor to pay for groceries<\/strong>.<\/em><\/p>\n\n\n\n

Key Takeaways:<\/strong><\/h2>\n\n\n\n
\n
    \n
  • Taking the maximum mortgage the bank will give you for a primary residence will leave you financially fragile<\/strong>.<\/li>\n\n\n\n
  • Maintenance<\/strong> and property taxes<\/strong> typically costs<\/strong> 2-4%<\/strong> of the home value annually.<\/li>\n\n\n\n
  • To access the wealth<\/strong> in your home, you must either sell<\/strong> it (you are left homeless) or borrow<\/strong> against it with a Home Equity Line of Credit “HELOC”), creating a new monthly liability.<\/li>\n\n\n\n
  • Selling<\/strong> costs 6-10% <\/strong>of the home value (agent fees, closing costs, transfer taxes), destroying<\/strong> a significant part of the returns upon exit.<\/li>\n\n\n\n
  • People underestimate the emotional cost of downsizing<\/strong> in their golden years. Moving from a 3 bedroom home to a 1 bedroom condo feels like a loss, not a victory.<\/li>\n<\/ul>\n<\/div>\n\n\n\n

    Invert, Always Invert<\/strong><\/h2>\n\n\n\n

    There is a problem of human misjudgment I see everywhere:<\/p>\n\n\n\n

    People look at their primary residence and see a retirement plan.<\/strong><\/em><\/p>\n\n\n\n

    If I wanted a life<\/strong> of mediocre<\/strong> returns and full of stress<\/strong>, here is what I would do:<\/p>\n\n\n\n

    I would take all my liquidity, leverage it 4:1<\/strong> (20% downpayment and borrow the remaining 80%), put it into a single asset<\/strong> that cannot be sold in pieces, requires constant maintenance, and generates no cash flow.<\/span><\/p>\n\n\n\n

    This is exactly what a personal residence is – yet, the world is convinced it is the holy grail of wealth.<\/p>\n\n\n\n

    Home Rich, Cash Poor <\/strong><\/h2>\n\n\n\n

    On paper, households look richer than ever: the median net worth of those aged 35-44 stands at $135K<\/strong> and rising to $247K in those aged 45-54.<\/strong><\/p>\n\n\n\n

    However, there is an ominous truth behind these figures:<\/p>\n\n\n\n

    The composition of this wealth is overwhelmingly concentrated<\/strong> in two inaccessible<\/strong> silos: residential real estate and retirement accounts.<\/strong><\/p>\n\n\n\n

    For the median household, home equity<\/strong> represents between 60% to 80%<\/strong> of net worth, while liquid assets<\/strong> (cash, checking, savings) represent less than 5%<\/strong> of the portfolio.<\/p>\n\n\n\n

    5% of $135K is less than $7,000<\/strong>.<\/p>\n\n\n\n

    As of Q1 2025, the average credit card debt in the U.S. is $6K<\/strong> and a staggering $24K in auto loans<\/strong>, according to Experian<\/a>.<\/p>\n\n\n\n

    <\/p>\n\n\n\n

    In other words, most households are dependent on living paycheck<\/strong> to paycheck to meet their monthly financial obligations and are one medical bill away from taking on more debt, digging themselves deeper into the hole.<\/p>\n\n\n\n

    Because the drywalls of your $500K home will not pay the hospital bills<\/strong>.<\/p>\n\n\n\n

    To pay for bills, you need cashflow.<\/p>\n\n\n\n

    Your home does not generate cashflows.<\/p>\n\n\n\n

    In fact, it requires cashflows to maintain it.<\/p>\n\n\n\n

    The Real Opportunity Cost<\/strong><\/h2>\n\n\n\n

    When you buy a house, every dollar trapped in your home’s equity is a dollar that is not<\/strong> <\/em> working for you in great businesses (Microsoft, Apple, Costco, etc.).<\/p>\n\n\n\n

    Historically, real estate barely tracks inflation, while the stock market has outperformed by orders of magnitude.<\/p>\n\n\n\n

    You see, true wealth is created<\/strong> not in the buying or selling, but in the waiting<\/strong>.<\/p>\n\n\n\n

    In real estate<\/strong>, “waiting<\/strong>” costs<\/span><\/strong> you<\/strong> money<\/strong> (property taxes, insurance, maintenance, etc.).<\/p>\n\n\n\n

    In the stock market<\/strong>, “waiting<\/strong>” pays<\/span> you dividends<\/strong>.<\/p>\n\n\n\n

    You do not have to believe me, but here are the hard facts:<\/p>\n\n\n\n

    \n
    \"\"<\/figure>\n<\/div>\n\n\n\n

    Source: New York University Stern School of Business<\/a><\/strong> <\/em>via Investopedia.<\/p>\n\n\n\n\n\n\n\n

    Basically, the NYU Stern shows that $100 invested in Real Estate<\/strong> back in 1970<\/strong>, would be worth $1,500 in 2023<\/strong> (a 15x return or 5.24% CAGR “Compounded Annual Growth Rate”) over a period of 53 years.<\/p>\n\n\n\n

    In contrast, those $100 invested in the S&P500<\/strong> (the stock market), would be worth $22,400<\/strong> – a 224x return or 10.75% CAGR.<\/p>\n\n\n\n\n\n\n\n

    Year<\/strong><\/td>Real Estate<\/strong><\/td>S&P500<\/strong><\/td><\/tr>
    1970<\/td>$100<\/td>$100<\/td><\/tr>
    2000<\/td>$536<\/td>$4,100<\/td><\/tr>
    2023<\/strong><\/td>$1,500<\/strong><\/td>$22,400<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n\n\n\n\n

    A picture is worth a thousand words.<\/p>\n\n\n\n

    A home is where you rest. The stock market is where you grow.<\/p>\n\n\n\n

    The Hidden Friction (Carry Costs)<\/strong><\/h2>\n\n\n\n

    People ignore friction. It is psychologically easier to deny it.<\/p>\n\n\n\n

    They will say they bought a house for $500,000 and sold it for $800,000 – “I made $300,000!” they say.<\/p>\n\n\n\n

    But they conveniently forget:<\/p>\n\n\n\n

      \n
    • The 2-5% closing costs paid at the time of purchase.<\/li>\n\n\n\n
    • The interest paid to the bank over 10 years.<\/li>\n\n\n\n
    • The 1-2% property tax and another 1-2% maintenance costs paid yearly.<\/li>\n\n\n\n
    • The 6% agent fee when they sold.<\/li>\n<\/ul>\n\n\n\n

      Subtract all this friction and the real returns are even lower than the one showed in the previous graph.<\/p>\n\n\n\n

      Putting the same down payment into a low-cost S&P 500 index fund like “VOO”<\/em> would have most likely provided much higher returns, less fees (“VOO<\/em>” has an expense ratio of 0.03%<\/em>), liquidity (you can pretty much buy and sell shares of this ETF anytime) and with zero leaky faucets to fix.<\/p>\n\n\n\n

      So, are you saying I should Never Buy a Home?<\/strong><\/h2>\n\n\n\n

      No. We can all agree that buying your own home may improve your quality of life in ways stocks cannot buy: the sense of belonging, memories created with your spouse and kids, etc.<\/p>\n\n\n\n

      But – there is a gap between this and being asinine.<\/p>\n\n\n\n\n\n\n\n

      Remember, the secret to exceptional wealth is consistently avoiding stupidity for a long period of time.<\/strong><\/p>\n\n\n\n\n\n\n\n

      And what does stupidity<\/em><\/strong> look like in this case?<\/p>\n\n\n\n

      Taking the maximum mortgage the bank offers you.<\/em><\/strong><\/p>\n\n\n\n

      It’s psychological, many homeowners do not buy the house that fits their needs, but the one that signals status<\/strong>.<\/p>\n\n\n\n

      They buy the biggest house their bank will lent them money for, in turn increasing the amount of taxes, maintenance and utility costs, draining the capital<\/strong> that could have been used to invest<\/strong> in productive assets.<\/p>\n\n\n\n

      People will complain investing $100 a month in the stock market is out of their possibilities but have no problem buying on credit the latest iPhone every year.<\/p>\n\n\n\n

      And don’t even get me started on car loans.<\/p>\n\n\n\n\n\n\n\n

      Conclusion<\/strong><\/h2>\n\n\n\n

      There is nothing wrong in buying a home that will really improve your quality of life in a material, psychological or emotional way.<\/p>\n\n\n\n

      But buying more home than you should<\/strong> will make you dependent<\/strong> on a paycheck<\/strong> to meet the monthly payments, leaving you financially fragile.<\/p>\n\n\n\n

      When you are financially fragile, you lose the freedom<\/strong> to choose wisely, you stop making decisions based on logic and start making decision based on scarcity<\/span><\/strong>.<\/p>\n\n\n\n

      And scarcity is a terrible advisor<\/strong>, it pushes you into situations you hate, with people you don’t respect for outcomes that barely move your life forward<\/strong>.<\/p>\n\n\n\n

      Because when you live paycheck to paycheck or barely keep your head above water, you accept deals you know are bad.<\/p>\n\n\n\n

      You take jobs that drain the life out of you because you need the paycheck.<\/p>\n\n\n\n

      You attach to people that exploit you because you cannot afford the luxury of saying “No”.<\/p>\n\n\n\n

      You compromise on ethics, dignity and long term vision because the threat of the short term feels too urgent<\/strong>.<\/p>\n\n\n\n\n\n\n\n

      The truly<\/strong> wealthy<\/strong> people follow the same pattern:<\/p>\n\n\n\n

        \n
      • They buy modest homes relative to their income<\/li>\n\n\n\n
      • They avoid lifestyle inflation like the plague<\/li>\n\n\n\n
      • They save aggressively and invest relentlessly<\/li>\n\n\n\n
      • And they keep their living costs predictable<\/li>\n<\/ul>\n\n\n\n

        This is the “magic formula” that everyone seem to walk over and miss.<\/p>\n\n\n\n\n\n\n\n

        Wealth comes by endurance, not brilliance.<\/strong><\/p>\n\n\n\n

        And endurance means consistently avoiding stupidity for long periods of time, while you keep saving and investing in productive assets.<\/p>\n\n\n\n\n\n\n\n

        <\/p>\n\n\n\n

        Stay consistent,<\/p>\n\n\n\n

        – My CEO Lifestyle.<\/strong><\/em><\/p>\n\n\n\n\n\n\n\n

        Disclaimer: <\/em><\/p>\n\n\n\n

        The content provided on My CEO Lifestyle is for informational and educational purposes only and should not be construed as professional financial advice. I am not a financial advisor, and you should always do your own research or consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results.<\/p>\n\n\n\n

        <\/p>\n","protected":false},"excerpt":{"rendered":"

        A Home does not produce cash-flow, it demands it. You cannot sell pieces of your Italian marble floor to pay for groceries. Key Takeaways: Invert, Always Invert There is a problem of human misjudgment I see everywhere: People look at their primary residence and see a retirement plan. If I wanted a life of mediocre […]<\/p>\n","protected":false},"author":1,"featured_media":79,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing"],"_links":{"self":[{"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/posts\/1","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/comments?post=1"}],"version-history":[{"count":205,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/posts\/1\/revisions"}],"predecessor-version":[{"id":1025,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/posts\/1\/revisions\/1025"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/media\/79"}],"wp:attachment":[{"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/media?parent=1"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/categories?post=1"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myceolifestyle.com\/index.php\/wp-json\/wp\/v2\/tags?post=1"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}