It is crucial to end up with this non-sense idea that your house (primary residence) is an asset, probably the only one you will ever own and therefore all your savings shall go into that one asset. Work, ask for a mortgage, pay your house and then retire.
If a house is taking money out of your pocket (insurance, taxes, miscellaneous, etc.) then it is not an asset. Not only you are actually spending money but also you have to consider the opportunity costs of having our money invested into that house, which you wrongly perceive as an investment, whereas you could have invested the same amount of money in another house or investment that could actually yield at least 5%. In a hypothetical example of a 100k house with an average of 2000 per year on expenses, you are actually spending, per year, 7000 = 2000 + 5 000 (5% of 100k). You have to consider the money you actually spend plus the opportunity cost of not using the 100k in another more profitable investment. Here I have assumed that the other profitable investment would yield an average annual return of 5%, which is very conservative if we consider real estate investment.
In addition, there are also two (hidden) costs which I consider very relevant when you buy the house you live in:
1 – You loose flexibility. Either you assume it or not, it is more difficult to move into another city or country if you know you bought the house you are “supposed” to be living in, not only because you are emotionally attached to it and you probably end up more expensive things for your house, in particular furniture, but also because it is really not that simple to rent a house, get a property manager, etc. from one day to another.
2 – You end up of not making the most rational decisions when you invest in a house with the purpose of living in it. You take into account variables that are important to you and not to the market, like being near your family. Or you are willing to accept living in a area which is not as recognized by the market, like the fact that it is near a highway or a factory, because you prefer to pay a bit less. However, those decisions can make this house a very difficult one to sell or rent to a third party and therefore would not yield any cash flow, in case you decide to rent/sell. In sum, it is a very bad investment.
According to Frank Gallinelli there are 2 rules of real estate investing that we should follow: do not hold any sentimental attachment to any of the properties you invest in and if you think it will be difficult to sell/rent, then it is not worth buying.
Another sentence I loved in his book What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures which highly reflects my approach on real estate investing is the following:
You are not buying a properly, you are exchanging a fixed price for an income stream.