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Homeownership Isn’t A Short-Term Investment

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Don’t buy a home to make money because you won’t.

At the end of May, my wife and I will have owned our home for three years. It was a home that we purchased six months behind the burst of the housing boom and one that has still appreciated in the time since, a testament to the strength of the housing market in the area between Baltimore and Washington D.C. In our little development, similarly designed homes have been selling in the $310k-$320k, or about $15k-$25k more than what we paid for our home. Some of those don’t have the full basement renovation ours has, some don’t have new windows (which means they’re 25 years old), and so one might be tempted to say that those homes would sell for a couple thousand more if they did have some of those amenities. Even so, does that mean we “made” $15k-$25k on paper on our home investment?

Nope. We’ve spent $7,000 on new windows and sliding doors (a great deal I think), about $900 to carpet the basement, and will soon spend approximately $5,000 on a new roof. Total those up and you have yourself ~$14k of expenses. Okay, so deduct that from the $15k-$25k and you have an appreciation of $1k-$11k, not bad right? Then consider that we’ve paid nearly $35k in interest payments to the bank (of which a third is returned at tax time) and you see how this “investment” has actually lost us money.

Homeownership isn’t a short-term investment. Not only isn’t it a short-term investment, the majority of the “reward” derived from homeownership has more to do with living a better life than having more zeros in your bank account. Even though we have “lost” money (granted, we would’ve “lost” more had we been renting), we’ve made lots of great memories in the short time we’ve been in this house and had the pride of homeownership.

Life isn’t always about $$$.

{ 14 comments, please add your thoughts now! }

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14 Responses to “Homeownership Isn’t A Short-Term Investment”

  1. Sheila says:

    True – Life is not always about the money!

    I don’t know if this stat is true or not, but I’ve heard that in general, a homeowner needs to stay in their home for at least 4 years in order to make money. Have you heard that? I wonder if their is any proof behind it.

  2. Meoip says:

    Depending on where you live you shouldn’t need to buy a new roof. If you your area has had a significant hail or wind storm in the past year (sometimes 2) you can file a claim with your insurance company and they will replace the roof. If you choose to file the claim and hire a roofer instead of a roofing company that is an insurance claims specialists make sure to bill your insurance company for depreciation (a insurance claim specialist company will do this for you). If you get the claim and bid the job right you will be able to upgrade your roof (from 25 to 30 year shingles) for free or nearly free.

  3. jim says:

    Sheila: I think 4-5 years is one of those “rules of thumb” that is hard to prove or disprove. I think you have to look at the other things with a home, not just the $, to justify it in the short term.

    meoip: A good idea but we haven’t had much in the way of hail or windstorm damage, but that’s a good idea.

  4. Brian says:

    If you were to sell this house not you would have most likely been better off renting. I agree houses are for long term investment and piece of mind, but short term ownership is dangerous.

  5. Garrett says:

    Compare home ownership to its alternatives, renting or sleeping in a tent, and I’ll bet you haven’t “lost” anything at all.

    Unless you could have gotten an apartment that you loved for less than $667-945 a month (depending on how much you could get for your home(35kminus1-11k=24-34k/36months), you win.

  6. Llama Money says:

    I like the point you made. We bought our house so we could have a backyard, and a place for our son to play. He’s made tons of friends in the neighborhood ( something you don’t get in an apartment ), and loves it here. Hopefully we’ll “make” some money whenever we sell… but that sure wasn’t the reason we bought.

  7. Al says:

    For most of us, the purchase of a home is just that….a purchase, not an investment. (Hence my arguement about paying off your mortgage as quick as you can but that’s fodder for another post!) I’m no big fan of Robert Kiyosaki but he did peg one thing, the home you live in takes money out of your pocket whereas an investment is supposed to put money in your pocket. There’s an old joke about the man who bought his wife a huge diamond ring for their anniversary “as an investment.” When asked how much money he would take to sell the ring, he was said his wife would never sell the ring. Then, the buyer said, it isn’t an investment but a purchase. True, if you live in your home for many years and sell, the chances are, you’ll make a profit, but that is secondary to the fact that your primary residence is to provide shelter services which, over time, end up costing less and less especially after the mortgage is retired.

  8. This was one of the most sensible posts I’ve read on BFP. A home is a place to live. Hopefully, you’ll have many, many years of enjoyment in it.

    BTW, in your calculations about how much money you may or may not have made since you bought the home, don’t forget to add in the cost of selling the house. Even if you were to do the FSBO thing there are still State and County transfer and recordation fees, the fee to release the Deed of Trust registered in the County land records, the title company prep fees and, depending on the market, and Seller Credit to the Buyer (i.e., buyer closing costs) you want to give up to help with an expeditious sale.

    Being a Realtor I wouldn’t necessarily suggest the FSBO thing but it is successful for some folks. Eliminating the Realtor fee doesn’t eliminate the other costs.

    Bottom line: buying a house with an eye toward moving on in the short term is not a winning proposition and “flipping” takes money, patience and financial acumen.

  9. MonkeyMonk says:

    I agree with what other’s have said about treating your home as a purchase, not as an investment. Buy a home because you want the freedom and perks of homeownership, not because you think you’re going to make a lot of money off it (although you may if the market’s go way up like they did over the past decade before the bubble popped).

  10. Jay says:

    This is an argument I have made many times: Homeownership is for those ready to own a home, who are willing to commit longterm to the [many] hassles, financial and otherwise, as well as benefits. Frankly, I think this is at the core of all the foreclosures in the last few years. Clearly many, many, many people were not ready to own, and they could have waited; there is nothing intrinsically wrong with renting. Oh well.

  11. Nick says:

    I agree with Ken and would go a step further. Generally, across the country, owning a home is going to cost less than renting a similar property. If this weren’t true, landlords would go broke.

    The major costs to owning property are transactional during the purchase and sale. The 4-5 year rule of thumb is the estimated number of years it takes for the savings of owning a home to make up for the costs of buying and selling it.

  12. I have to agree with you. I think of homeownership as less of an investment than as a living expense. It’s one of the three basic needs (food, shelter, clothing), after all. Having said that, though, I also have to admit I do include our home in our net worth calculations – just because it makes me feel good 😉

  13. This definition of a home will become the norm over the next few years, as everyone realizes the bubble was an abnormality.

    There are other costs like closing costs, insurance costs and taxes that will eat into any potential profit on the sale of a house.

    Also, the 4 year rule of thumb is just plain useless. In some places it works out to be earlier, and in others, you will never see a gain on your house. Do the calculations yourself. Never let a “rule of thumb” decide how you spend a couple hundred thousand.

  14. JimmyDaGeek says:

    Since you have to live somewhere, you should compare the final mortgage cost with the cost of renting something with similar amenities

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