Episode Overview

Podcast: Optimal Finance Daily
Host: Diania Merriam
Episode: 3387: "Why Your House Is A Terrible Investment" by JL Collins
Release Date: December 14, 2025

This episode features Diania Merriam reading JL Collins’ provocative essay on why homeownership, often viewed as the “American dream,” may actually be an exceptionally poor investment. Through an engaging thought experiment, Collins dissects the pitfalls of treating a primary residence as a wealth-building tool, challenging long-held societal beliefs. Diania follows the reading with her personal reflections, separating the lifestyle aspects of homeownership from its financial realities, and touches on the nuances of real estate as a true investment.

Key Discussion Points & Insights

1. Deconstructing the Homeownership Myth (00:41 – 08:12)

• Thought Experiment: The Worst Investment

  • JL Collins suggests imagining the worst possible investment by compiling a list of characteristics, many of which match homeownership:

    • Recurring costs draining cash reserves
    • Illiquidity: Significant time and effort required to buy or sell
    • High transaction costs: Notably steep commissions
    • Complexity: Legal and administrative barriers, extra fees
    • Low or inflation-tracking returns
    • Leverage: Risks amplified by mortgages, often misunderstood by buyers
    • Unproductivity: No dividends or regular income
    • Geographic immobility: Ties owners to a single location, exposing them to local risk
    • Disproportionate share of net worth, reducing diversification
    • Fragility: High maintenance, subject to damage, requiring insurance
    • Heavily taxed: Annual property taxes, capital gains on sale, but limited tax deduction on losses

  • Quote (JL Collins, 02:50):

    "To be really terrible, it should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner."

• Psychological and Social Dynamics

  • Despite these drawbacks, homeownership is sold as a fundamental rite—"the fulfillment of a dream, indeed, a national birthright"—through clever societal messaging.

• User Quotes Illustrating Additional Risks

  • From Mr. Risky Startup:

    "It should increase stress, lead to more divorces, but then be impossible to divide." (07:09)

  • From DM Dave:

    "You only need one motivated, read desperate, seller to set the price for the whole neighborhood. Imagine your so-called investment suddenly gets scuttled when your neighbor decided to sell his particle board mansion at 20% below assessment." (07:22)

2. Real-Life Encounters & Societal Pressures (07:29 – 08:12)

• Collins recounts a dinner table conversation where societal expectations around homeownership surface—a mother insists her son must buy a home to stop "throwing away money on rent," highlighting the emotional and cultural weight of the homeownership narrative.

  • Quote (JL Collins, 07:50):

    "...she was encouraging her young son to buy a house. You know, stop throwing away money on rent and start building equity. I suggested...maybe he should just consider some alternatives instead. Or at least run the numbers first. This didn’t sit well and it was a short conversation."

Diania Merriam’s Commentary & Reflections (08:56 – End)

3. Host’s Analysis: Lifestyle vs. Investment (08:56 – 10:10)

• Acknowledgement of Ruffled Feathers

  • Diania recognizes Collins' viewpoint may challenge listeners' deeply held beliefs:

    "While I’m sure he has ruffled some feathers, I think JL points out some very valid reasons why a house isn’t a good investment." (08:56)

• Separation of Lifestyle from Investment

  • Diania clarifies that, although she owns a house, she does not see it as an investment but as a lifestyle choice because housing costs are unavoidable whether renting or buying.

    "I see it as a lifestyle decision...owning is riskier from a financial perspective, I was in the financial position to take that risk and I bought a home well below my means." (09:09)

• True Real Estate Investment is Rental Property

  • She distinguishes between buying a home to live in versus rental property as a true investment (because rentals generate cash flow but come with significant risks and responsibilities).

    "In order for real estate to be an investment, it needs to create cash flow through renting out the properties. I’m convinced that true real estate investing, where you rent out your properties, is the fast track to financial independence...But those high rewards come with substantial risks." (09:21)

  • Diania remains cautious about becoming a landlord given the learning curve and work involved.

Notable Quotes and Memorable Moments

• "It should be illiquid. We’ll make it something that takes weeks, no wait, even better, months of time and effort to buy or sell."
  JL Collins, 01:36

• "We could have an investment that not only crushes its owner’s net worth, but does so even as they’re losing their job and income."
  JL Collins, 04:10

• "You can never really own. Since we’re going to give the government the power to tax this investment every year, owning it will be just like sharecropping."
  JL Collins, 06:34

Timestamps for Key Segments

• 00:41 – 08:12: Reading of JL Collins’ essay
• 02:50: “Relentlessly ongoing drain on the cash reserves of the owner” (major point)
• 04:10: Commentary on neighborhood and local risk
• 07:09: Additional “worst investment” features from listeners
• 07:29 – 08:12: Collins recounts societal pressure around buying a home
• 08:56 – 10:10: Diania Merriam’s reflection on homeownership vs. real estate investing

Tone and Flow

JL Collins approaches the subject with wit and a dose of sarcasm, using a “thought experiment” to disarm the defensiveness commonly associated with critiques of homeownership. Diania’s follow-up is empathetic and practical, acknowledging emotional realities while reinforcing evidence-based personal finance advice.

Summary Takeaway

The episode provokes reflection on how personal residences are positioned in American money culture, urging listeners to scrutinize the true financial costs versus the societal script. While homeownership may have personal or emotional benefits, its risks and relatively meager financial returns (compared to stock investing or rental property ownership) suggest it’s not the wealth-building machine it’s marketed to be. Diania advocates for approaching homeownership as a personal choice rather than an investment and encourages listeners to “run the numbers” before making such a significant financial decision.