What do you think? Will your home generate a return on its investment? This can be a controversial topic and many people have different opinions on the subject. Let’s play it out. I’ll put the numbers together for you so you can decide for yourself. Your home is a place to live and not an investment. Think about all of the cost and time that is associated with your home.
Home Investment Analysis
There is mortgage interest, property taxes, roof replacements, renovations, painting, landscaping, lawn care and all of the other tasks involved with owning a home. Have you done all of the numbers to determine what your costs would be? Let’s take a $200,000 house over 20 years as an example…
| Item | Costs |
| Purchase (3% Equity) | ($6,000) |
| Renovations / Cap Ex | ($20,000) |
| Maintenance (Lawn, Snow, Landscape, etc) | ($22,000) |
| Utilities (Gas, Water, Electric) | ($50,400) |
| Property Taxes | ($200,000) |
| Mortgage Interest ($160,000 Balance) | ($87,000) |
| Mortgage Balance | ($84,704) |
| Income | $0 |
| Sale (20 years later) | $475,000 |
| Closing Costs / Realtor | ($26,000) |
| Total | ($21,104) |
As you can see through the analysis, buying a $200,000 house actually had a cost of $21,104 over a 20 year span of time. I broke everything down from the 3% equity injection upon closing, renovations that amounted to $1,000 per year, which is a very low number, standard maintenance, property taxes, mortgage interest of 3% on a 30 year amortization schedule for 30 years, the final sale price after 20 years of appreciation, and closing costs and broker fees. As you can see our model lost $21,104.
Renovation Budget
You know you’ll need to spend all of that renovation budget or more. It is very difficult to keep a house in its current level of finishes for 20 years and sell it at a premium, without doing any work. Everything will be dated and need updated finishes to compete in the marketplace again.
The percentage of people buying houses has decreased and has been at some of the lowest levels in history over the past several years. Since the economy has been good, the percentage did increase. However, I’m sure the number will decrease again due to the effects of the economy shutting down for the covid-19 virus.
I’m not saying you shouldn’t buy a home to live in, that is up to you and your preferences. After all, you shouldn’t look at your home as a pure investment. There are ways to make money on house investments, such as house flipping, or finding foreclosure homes that you can purchase for a good deal, but it takes money and hard work to improve the value. Your home is a place to live. Invest your money into buildings that generate passive income such as apartment buildings. Apartments and townhouses that you can rent to tenants generates income to cover all expenses and provide an adjusted return on invested capital for the work involved in managing the property.
Moreover, there may be some limited benefits for tax write offs depending on your state but it shouldn’t be the main reason you buy a house. If you want to make money investing into houses, purchase properties you can fix up, hold and rent or flip.
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