Is buying a single family home a good investment?
By Emilio DiSpirito Real Estate expert and radio show host of The Round Table Real Estate Simplified
We all need a place to live, right? So when choosing to buy a home, the question hits everyone the same; "is buying a home right for me?". "What are the pros, cons and long-term benefits or pitfalls of owning a home?" we ask ourselves! Well, the math does not lie.. so let's take some basic numbers and see if buying that single family home is a good investment!
Let's assume that we own a home and will hold on to it for 30 years, basically the length of our mortgage. We are on time with our payments each month and let's also assume that the cost of taxes and insurance won't increase over time 😅
- The median sale price for a single-family home is $287,700.
- An estimated property tax per year would be $4,000 per year
- Approximate insurance cost $1000 per year
- 4.5% rate with 20% down on a 30-year mortgage
- $189,667 over the life of the loan
- Maintenance? Roof, furnace, upgrades/cosmetics, etc.
- Heat, Hot Water, Electricity at $2400 per year
- Water and Sewer
By taking this simple calculation, your home you thought you had purchased for $287,700 had really cost you $782,367 or $26,079 per year and $2173 per month.
Keep in mind that real estate increases in value roughly 3.5% per year when averaged over time. When you use a compounding growth of 3.5% year over year to $287,700 you get $807,515 sale price 30 years down the road!!
$807,515 (sale price) - $782,367 (cost) = $25,148! Roughly a 9% return on your original investment or a 3% take from the homes value.
Needless to say the following benefits are not taken into consideration:
- Mortgage interest rate deduction savings
- You have to spend money to live somewhere anyway
- Living comfortably in your own domain
Buying a single-family home in 2017 and holding on to it for 30 years is NOT a good investment, however, it's more or less an opportunity to break even and live for free in the end.
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