Homeownership- A case study

Ah homeownership

Today I am happy to feature a guest post from a friend. We have no financial relationships except that we buy each other beers when we are together. I recently discussed the real cost of homeownership since buying my million dollar plus home. It’s not pretty. The point of the article was that a lot of money goes to things other than principal and interest. Thus, when buying a home consideration should be given for the true cost of maintenance.

In talking to the author of this post, he agreed. He lived in Longmont, CO (the home of the famous Mr. Money Mustache), which by all costs has a reasonable  cost of living. He lived in the same home for 14 years and recently sold it as the Longmont market has become more “hot”. Him and his family have since moved to Seattle where they will not be purchasing a home partly due to being empty nesters now and also the crazy housing market there.

So how did it go for someone who owned a home the “right way”, meaning for more than 10 years in a market that appreciated? Is it worth the purchase? Here is the post. He gave me the source material and I have edited it some. Enjoy and let me know your thoughts.

Homeownership a real case review

I bought a home in 2003 for $330,000 (the home was built in 2000). I recently sold it in 2017 for $519,000. My first reaction was – WOW! – that is a profit of $189,000 I just made from this house. (ed. Money in the bank yo!) But it isn’t that simple.

Since I put $75K down initially in 2003, and the amount owed to the bank was about $175,000 I did end up with a cash payoff of about $335,000 from the bank. I know that the $335,000 comes with some financial baggage, but I wasn’t really sure how much until I ran some numbers. (ed. I call the baggage “maintenance drag”, much like tax drag for stocks.)

For me, the true profit should be determined by how much money I put into the house minus the final cash I got back.

Money put into the house:


  • Down payment: $75,000
  • 14 years of financed payment of about $1900 times 168 payments (principal mortgage and interest, taxes, and insurance. No mortgage insurance since I surpassed the required down payment threshold.): $319,200 over 14 years
  • Kitchen renovation: $22,000
  • Hardwood flooring: $25,000
  • Miscellaneous. replacement/renovations and overall maintenance – very hard to measure but let’s guess conservatively (low): $30,000

Total cost of money into the house: $75,000 + $319,200 + $22,000 + $25,000 + $30,000 = $471,200

(ed. Sounds right to me. Homes have a way of sucking up money in renovations and maintenance ($77,000 in this case) and then there are taxes to be paid too.)

Financial setback of a home

So, forgetting the fact that I had a nice roof over my head for the past 14 years, the financial set back from owning a house during that period was my final cash payout from the bank ($335,000) minus the actual money I put into the house ($471,200). That means I ended up spending $136,200 more in 14 years than the final cash I got back at closing. Now that $335,000 at closing doesn’t look as great as it did before I started running the numbers

Renting and investing

Now that isn’t terrible if you consider a comparable home’s rental cost. I would expect to have rented something in the range of about $2000/month in rent (less in the beginning and more in the end) for 168 months. So the cost of renting would have been $336,000 for a comparable place over the 14 years.

The $336,000 I would have spent on hypothetical rent versus the actual $136,200 out of pocket that I spent after the sale of the house is a savings of $199,800 by owning the home. (ed. Not too bad. Seems worth the hassles of homeownership thus far).

But what about that $75K that I lost to the bank on buying the home on day 1. Could I have recouped that in 14 years to make up the nearly $200K? At an expected 6% growth in 14 years on $75K I would expect something around $170K by now. (ed. I used the Physician on Fire calculator and get closer to $151,000 with the tax drag and investment fees)  


What that tells me is that, yes, in theory I could have made up that $200K or who knows even surpassed it. It certainly is not black and white, but in my mind, the “home as an investment” is a wash versus “renting and investing”. In 2003 I was more than happy to take on home projects and I needed to fulfill the American dream of home ownership. After 20 years of that (including my other home purchase) I’m willing to rent townhomes (with no yard) and enjoy the new found freedom of not having any yard work or maintenance to deal with.

Ed. So at the end of the day he saved $199,800 by owning this home instead of renting. If he had invested the $75,000 downpayment 14 years ago he could have had $151,000 in growth. Homeownership wins out by almost $49,000. Plus there is the mortgage interest deduction, but I never think that should be the only reason to buy a home.

Thanks to my friend for laying out the numbers here. I found this very insightful because he did all of the right things. He bought a reasonable home in a nice neighborhood with good public schools. Raised his kids there. Sold as the market became hot and when he could downsize. At the end of the day, he netted a profit of $49,000, but with the added cost of time for maintenance, renovations, etc. 

This is one case, some people will do better and some (like me) will do worse. What is your story? Any thoughts on this?  

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I am a Dad and Doctor trying to find financial freedom by owning my dollars and debts. Helping dads with their finances so they can focus on the family.

2 thoughts on “Homeownership- A case study

  • September 3, 2017 at 5:44 pm

    We’ve started the process of looking at buying a house so this was great to read right now. Home ownership is obviously the biggest financial decision most people make, but I think it’s also the most emotional one. There’s pressure from family, expectations based on status and place in life, and owning property as being a core part of the American Dream.

    While most of us on the FI path are finding a new way forward, there’s still a lot of people attached to that original ideal. At the end of the day it’s about putting the math before the emotion. And while we can’t predict the future, I think it’s better to have planned and lost than to have never planned at all.

    • September 3, 2017 at 7:57 pm

      Thanks for reading Matt. It is a tough decision for sure. I often get emotional about this decision too as I have bought 3 homes in my life. Best of luck for figuring out the home ownership.

      Our families also gave us expectations of home ownership, kids, cars, etc. It is tough saying no to their ideas of success, but we are trying to set up our own.


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