[Nathans_Dad]

True, 5 years is not really the investment timeframe I am talking about, I just used 5 years as an example. If you take the strategy to its end, you end up taking out a mortgage for as much of the sale price as you can, investing the leftover profits from the sale of your prior home in the market. That money stays there for the long term. If you sell the house in the future, then whatever profits you make on that house then go into the market as well and you get a new mortgage for the new house. The other option is to re-finance and cash out the equity in the house every 10-15 years and again invest that money. It isn't a short term strategy.

And you are correct, I assume a positive return in the market. I assume that because that is what the market has done since its inception. If you give the market time, you make money. You are right in that people lose money in the markets, mostly in the short term. Long term players will almost always make money. Now whether you will meet that 10% per year goal is uncertain.

Of course there is risk in the strategy. You take the risk of investing in the market, namely that the market will crash and not recover. That hasn't happened in the history of the market but it is possible. The risk of the housing market is equal across both strategies though. If you pay $200k cash and sell the house later for $150k you lost $50k. Houses aren't any safer places to put your money than any other investment. Ask the people in California who are sweating out the bubble bursting right now. In fact, real estate has a higher volatility over its life than the markets.

I just tend to not look at a house as an investment vehicle. It is a dwelling. I choose not to sink a bunch of money into my dwelling if I can avoid it. I think there are better places to put my money if I want to invest it. That's my opinion, yours may differ. I consider the interest I pay on the house as the fee I assume for living in that dwelling. The nice thing is, that fee is tax deductible so I get some of it back each year.