Your home is not an investment

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We are incredibly lucky. We bought our first house in December 2012 for $ 163,500 and sold it in July 2016 for $ 232,000. In 42 months, our house has earned $ 68,500, an increase of nearly 42% in three and a half years. Our house grew by almost 12% per year and despite this, our house was not a good "investment".

To be clear: I'm not complaining. This stroke of luck has played a significant role in our lives in recent years. I'm thankful for what it has allowed us to do financially, so do not get me wrong by saying it was not a good investment for me, because it did not allow us to do things that we might not have done. to be able to do otherwise.

How is it that an annual increase of 12% is not a good investment? The calculation above excludes all current costs related to the ownership of the house. Once you have taken into account everything we have paid down the road, we have almost reached the breakeven point.

We have (almost) everything

We bought a house that required little work. We were lucky enough to buy at a time when interest rates were historically low and we were able to get a mortgage rate of only 3.375%. We paid a 20% down payment on the house, which reduced the amount borrowed and eliminated the cost of private mortgage insurance. & Nbsp; We bought a very small house of only 1,000 square feet. It was therefore an ideal accommodation.

Costs of ownership

To buy the house, we paid a deposit of $ 32,700. We paid extra $ 8,519 in closing costs, ranging from inspections to assessments to title insurance, etc.

Total cost to enter the house: $ 41,219.

Monthly costs

Each month, we paid $ 1,003 to cover the mortgage, property taxes, homeowners' insurance and flood insurance. We had paid $ 750 to rent a one bedroom apartment, which represents a substantial increase in our living expenses.

Total cost over 42 months: $ 41,206

Maintenance and repair

Our house was in pretty good shape and we did not have much work to do. During the purchase process, we discovered that the main drainage pipe had not been replaced since the 1930s. So it was an immediate cost that we had to pay. You will find below other repair and maintenance costs during our stay there:

Selling fees:

We bought a new house (long story) and initially thought we would keep our first house for rent. After being a homeowner for three months, we hated the project. So we sold the house for a purchase price of $ 232,000.

Closing costs of the seller: $ 11,837

That brings the total amount spent at home during our 42-month life there at $ 109,795.

Summarize everything

We sold the house for $ 232,000 and had to repay the remaining $ 118,314 of our mortgage. The difference: & nbsp;$ 113,686.& nbsp;That's the amount with which we left on the day of closing.

The difference between what we invested and what we got: $ 3,891.

In percentage, this means that we "made" about 1% profit every year we lived in our house. (Technically, that's not quite right, I should use a Internal rate of return calculation to account for the timing of repair expenses and inflation, but you have the idea.)

We have practically lived for free over time, which is amazing, but it's not the same as having generated a 12% return on a real investment. & Nbsp;I repeat, I am not complaining, but it is not the rosy picture that the initial figures with which I had begun were given to you. & Nbsp;

What millennia can learn from our experience

All around, we were lucky. There is hardly any advance when you sell a house after only three and a half years. There are too many fixed costs to come in and out of a house for it to work, and it has barely worked in our case.

If interest rates had been higher, we would have paid a lot more on our mortgage. & Nbsp; If we had borrowed today and obtained a 4.75% mortgage over 30 years, our monthly payment would have been $ 104 higher. & Nbsp; red for our time at home.

If we had not put 20% less, our mortgage would have been higher, and we would have paid for private mortgage insurance, and we would have been in the red.

Had we had some really big repairs, like a brand new roof, we would have been in the red.

If we had not managed to get the buyer to cover $ 6,500 of our closing costs, we would have been in the red.

Before you make fun of my breakdown, here are 5 other paid financial planners who wrote a version of this article:

Do not buy a house in San Diego – Rent instead

Sorry, your house is not an investment

Do not fall for these myths about home ownership

Do you want to buy a house? Do not forget the excessive maintenance costs. Welcome to My trip as an owner.

I'm a financial planner – here's why I'm not going to buy a house

Why I am always happy to have bought the house

My intention is not to convince you to never buy a house. Despite the calculations above, I'm still happy to have bought it. Stephanie and I started our life together in this house. We got engaged there. We lived there when we got married. We organized a vacation. I've learned a lot about home repairs and I've built a deck, which far exceeds what I thought was my handyman skills.

We customized it to our liking, but honestly, we have not changed much. We have a dog, something we could not have done without the yard. We learned that two bathrooms were a major asset to the happiness of our relationship and decided never to share a bathroom again.

Homeownership also has psychological benefits. You feel that you have accomplished that you have worked for something and that you have achieved it. Knowing that you are in control and that you will not suddenly see a rent increase of 30%, as many of our friends do over the years, are safe.

& nbsp; My advice on whether or not you should buy a house

Do not ever feel obliged to buy a house. There is so much social pressure to do so, but it should be behind a lot of other priorities in your financial life. Get an emergency fund built. Save at least 10% of your income for retirement. Have your student loans under control and with a plan to repay them. No credit card debt. Once all these tasks are completed, consider accessing the property.

If you do not live there for at least 5 years, rent it. The situation I described above is incredibly fortunate and probably can not be replicated to 95%, considering interest rates, soaring prices and relatively low maintenance costs. We would lose tens of thousands if we sold our current home today, almost three years after we bought it. & Nbsp;

If you choose to rent, be sure to save enough elsewhere. Many Americans rely on their homes to save forcibly. Although I do not like it, it's at least cost savings. Without this, you must be disciplined to save yourself in other investment accounts.

There is no good decision for everyone on the subject, but buying a house is not the slam dunk that many people claim to be. Make your own decision.

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We are incredibly lucky. We bought our first house in December 2012 for $ 163,500 and sold it in July 2016 for $ 232,000. In 42 months, our house has earned $ 68,500, an increase of nearly 42% in three and a half years. Our house grew by almost 12% per year and despite this, our house was not a good "investment".

To be clear: I'm not complaining. This stroke of luck has played a significant role in our lives in recent years. I'm thankful for what it has allowed us to do financially, so do not get me wrong by saying it was not a good investment for me, because it did not allow us to do things that we might not have done. to be able to do otherwise.

How is it that an annual increase of 12% is not a good investment? The calculation above excludes all current costs related to the ownership of the house. Once you have taken into account everything we have paid down the road, we have almost reached the breakeven point.

We have (almost) everything

We bought a house that required little work. We were lucky enough to buy at a time when interest rates were historically low and we were able to get a mortgage rate of only 3.375%. We paid a 20% down payment on the house, reducing the amount borrowed and eliminating the cost of private mortgage loan insurance. We bought a very small house of only 1,000 square feet. It was therefore a "reasonable" home of departure.

Costs of ownership

To buy the house, we paid a deposit of $ 32,700. We paid extra $ 8,519 in closing costs, ranging from inspections to assessments to title insurance, etc.

Total cost to enter the house: $ 41,219.

Monthly costs

Each month, we paid $ 1,003 to cover the mortgage, property taxes, homeowners' insurance and flood insurance. We had paid $ 750 to rent a one bedroom apartment, which represents a substantial increase in our living expenses.

Total cost over 42 months: $ 41,206

Maintenance and repair

Our house was in pretty good shape and we did not have much work to do. During the purchase process, we discovered that the main drainage pipe had not been replaced since the 1930s. So it was an immediate cost that we had to pay. You will find below other repair and maintenance costs during our stay there:

Selling fees:

We bought a new house (long story) and initially thought we would keep our first house for rent. After being a homeowner for three months, we hated the project. So we sold the house for a purchase price of $ 232,000.

Closing costs of the seller: $ 11,837

That brings the total amount spent at home during our 42-month life there at $ 109,795.

Summarize everything

We sold the house for $ 232,000 and had to repay the remaining $ 118,314 of our mortgage. The difference: $ 113,686. That's the amount with which we left on the day of closing.

The difference between what we invested and what we got: $ 3,891.

In percentage terms, this means that we "made" about 1% of profits each year we lived with us. (Technically, that's not entirely correct, because I should use an internal rate of return calculation to adjust the repair and inflation expense schedule, but you see the idea.)

We have basically lived for free over time, which is amazing, but it's not the same as having generated a 12% return on a real investment. I repeat, I am not complaining, but it is not the rosy picture that the initial figures I had begun had provided you with.

What millennia can learn from our experience

All around, we were lucky. There is hardly any advance when you sell a house after only three and a half years. There are too many fixed costs to come in and out of a house for it to work, and it has barely worked in our case.

If interest rates had been higher, we would have paid a lot more for our mortgage. If we had borrowed today and got a 4.75% mortgage over 30 years, our monthly payment would have been $ 104 higher. It puts us in the red for our time at home.

If we had not put 20% less, our mortgage would have been higher, and we would have paid for private mortgage insurance, and we would have been in the red.

Had we had some really big repairs, like a brand new roof, we would have been in the red.

If we had not managed to get the buyer to cover $ 6,500 of our closing costs, we would have been in the red.

Before you make fun of my breakdown, here are 5 other paid financial planners who wrote a version of this article:

Do not buy a house in San Diego – Rent instead

Sorry, your house is not an investment

Do not fall for these myths about home ownership

Do you want to buy a house? Do not forget the excessive maintenance costs. Welcome to My trip as an owner.

I'm a financial planner – here's why I'm not going to buy a house

Why I am always happy to have bought the house

My intention is not to convince you to never buy a house. Despite the calculations above, I'm still happy to have bought it. Stephanie and I started our life together in this house. We got engaged there. We lived there when we got married. We organized a vacation. I've learned a lot about home repairs and I've built a deck, which far exceeds what I thought was my handyman skills.

We customized it to our liking, but honestly, we have not changed much. We have a dog, something we could not have done without the yard. We learned that two bathrooms were a major asset to the happiness of our relationship and decided never to share a bathroom again.

Homeownership also has psychological benefits. You feel that you have accomplished that you have worked for something and that you have achieved it. Knowing that you are in control and that you will not suddenly see a rent increase of 30%, as many of our friends do over the years, are safe.

My advice on whether or not you should buy a house

Do not ever feel obliged to buy a house. There is so much social pressure to do so, but it should be behind a lot of other priorities in your financial life. Get an emergency fund built. Save at least 10% of your income for retirement. Have your student loans under control and with a plan to repay them. No credit card debt. Once all these tasks are completed, consider accessing the property.

If you do not live there for at least 5 years, rent it. The situation I described above is incredibly fortunate and probably can not be replicated to 95%, considering interest rates, soaring prices and relatively low maintenance costs. We would lose tens of thousands of people if we were going to sell our current home today, nearly 3 years after we bought it.

If you choose to rent, be sure to save enough elsewhere. Many Americans rely on their homes to save forcibly. Although I do not like it, it's at least cost savings. Without this, you must be disciplined to save yourself in other investment accounts.

There is no good decision for everyone on the subject, but buying a house is not the slam dunk that many people claim to be. Make your own decision.