The Foolish Thing About Real Estate: Why So Many Homeowners Leave Money (and Happiness) on the Table

There’s a baffling mistake I see time and again in the residential real estate market, especially in major U.S. cities. It’s so common that it barely registers as odd. But it is. It’s foolish.

Here’s what happens:

Someone buys a house, often a lovely single family home, and then proceeds to do nothing. For years. The kitchen stays frozen in 1975. The carpet frays into oblivion. The bathroom tile cracks and yellows. Meanwhile, the market moves on. Tastes evolve. Standards rise. But the house stays stuck in a time capsule.

Eventually, they decide to sell. And here’s the punchline: the house lingers on the market and sells for 5 to 10 percent, sometimes more, below the going rate for comparable homes. Why? Because buyers mentally subtract the cost and hassle of bringing the home up to modern standards, and they usually over-discount for it. In some cases, the home becomes so dated and rundown that it can’t rent or sell at any reasonable price. It becomes functionally obsolete.

What’s strange is that this underinvestment hurts the owner twice.

First, they get less enjoyment from the home while living in it.

Second, they get less money when they sell it.

It’s like owning a beautiful garden and never watering it, then wondering why no one wants to buy your wilted flowers.

Now, I’m not saying you need to rip out your kitchen every ten years. But as a rule of thumb, investing one to one and a half percent of your home’s value annually into maintenance and improvements will usually pay for itself in resale value and quality of life. It keeps the home attractive, functional, and liquid when you eventually want to sell or rent.

The Case for Underinvestment (And Why It Usually Fails)

To be fair, there is a logic behind underinvesting.

In theory, if you are a phenomenal investor, and you can consistently generate returns far above what home improvements would yield, then deferring maintenance might make sense. Skip the new kitchen. Put that money into a startup or fund that earns 25 percent a year. On paper, that math can work.

But that scenario rests on two shaky assumptions.

First, that you actually have access to those kinds of opportunities.

Second, that you can execute on them without missteps or distractions.

Even among elite investors, this is rare. And even when they do exist, they almost always keep their homes in good condition. Not because it’s the highest returning asset, but because it’s where life happens. The return on time matters too.

There’s also risk asymmetry. If you overinvest a little, maybe you shave a few basis points off your returns. If you underinvest by a lot, you may destroy value, lose optionality, and diminish your own experience in the space.

Most of the time, it’s a bad trade. The returns from a well-maintained home are modest, but reliable. The losses from neglect are lumpy, unpredictable, and severe.

Full Circle

So we come back to the original puzzle.

Why do so many people let their homes slide into disrepair?

Maybe it’s inertia. Maybe it’s a false sense of frugality. Or maybe it’s the mistaken belief that upkeep is just a cosmetic luxury instead of a form of capital preservation.

But whatever the reason, it’s worth recognizing this for what it is. A surprisingly common, surprisingly costly mistake. One that leaves money and happiness on the table.

In real estate, you don’t need to be a genius to get ahead. You just need to avoid being foolish.