Buy a home they say. It will be fun they say.
Three years ago, Mrs. TVM & I purchased our first (and probably last) home.
There have been a lot of highs and and lows since then. Regular readers of this website will know that our home was the primary driver behind our -14% savings rate last year. Since then, I have been curious on what our home’s personal “return on investment” has been.
As a result, I spent hours putting together this real-life homeownership case study examining every single cent that we have spent on our home to answer the question: Is our house a money pit or is it a decent investment?
My hope is that this candid and unfiltered homeownership case study will give potential homebuyers a look into the actual nuts and bolts of running and maintaining a home.
With that being said, let’s dive in!
Homeownership Case Study Assumptions
In this case study, we’ll be making the following two assumptions:
Assumption 1 – The “unrealized gains” on our house will be calculated by subtracting the purchase price of the home from the current ‘Zillow Zestimate’ of the home.
- Note: While the ‘Zillow Zestimate’ is far from perfect, it has been a surprisingly decent proxy for homes that have recently sold in our particular neighborhood.
Assumption 2 – When calculating how much money that we’ve spent on the house, we are only including money that we have spent ONLY AS A RESULT OF OWNING THE HOME.
- As an example, I am not including items like food, toilet paper, cleaning supplies, cell phone bills, or any other thing that we would have bought regardless of owning a home, with the exception of utilities (i.e. water, electricity, internet etc.)
- Home projects, tools for projects, HOA expenses, property taxes, landscaping, or anything else that is needed to maintain a home are all fair game.
- Note: I grow a lot of tropical fruit trees as a hobby. As a result, I did not include the cost of these trees as well as the associated costs with maintaining these trees. That is because most people aren’t growing 40+ fruit trees on a 0.15 acre of land 🙂 All other landscaping costs (mulch, pest control, etc.) are included.
State of Our Home Prior to Purchase
Here are some high-level facts about the state of our home prior to purchase:
- We purchased our home in 2020
- Our house is located in South Florida (2 bed, 2 bath) and was built in the 1980’s
- We paid the previous owner’s insurance deductible to get a brand new roof (this cost is included in our spending)
- Most appliances were all original to the house (foreshadowing)
- The previous owners installed a new water heater and flooring in 2017, but nevertheless neglected to do basic maintenance on the house (more foreshadowing)
Now that we have a better idea on what the state of house was, let’s now dive into how much it has appreciated since we purchased it.
Crunching The Numbers
Home Appreciation
The value of our home has appreciated by a grand total of $123,500.
This translates to a gross rate of return of 61%.
Here is the month-to-month appreciation over the last 40 months:
Costs of Homeownership
In that same 40 month time frame, we have spent $153,344.04 maintaining our home.
This translates to an average monthly spend of $3,833.60 / month.
Below is a sankey diagram categorizing every single cent that we have spent:
Now let’s go over the major drivers (and rants) for each budget category:
- Mortgage
- No surprises here; just the “cost of doing business.”
- Siding
- We invested in impact resistant vinyl siding, brand new wood paneling, and a moisture barrier substrate to prevent moisture from getting into the bones of the house. The new siding comes with a lifetime warranty!
- Our previous siding was comprised of poorly installed Hardie Siding. Because it wasn’t properly maintained, the siding absorbed a ton of moisture. This resulted in the old siding crumbling at the bottom of the house/around the doors/windows.
- While our siding was being replaced, we found a ton of moisture/mold damage that we had to have remediated and replaced… this 100% confirmed to us that the money was well spent.
- To make matters worse, there were no substrate behind the original siding! It was a thin layer of cardboard that was keeping the insulation in! Our siding contractor said they never saw anything like it and mentioned this was probably due to the original builders trying to cut costs 😡
- Decor
- The majority of these costs consisted of new furniture that replaced very old sofas/mattresses, new patio furniture and furbishing a nursery for our first born.
- The rest of this money went to general furnishings (i.e. home decorations etc.), building much needed storage areas, and refurbishing the backyard patio.
- Appliances
- Within a month of moving in, the refrigerator died (ironically while we were out buying food for the week). That was fun 😅
- A month later, our ancient dishwasher died. We had to get this replaced because every time we used the kitchen sink, the dishwasher would flood the kitchen… good times!
- The huge expense in this category was the brand new AC unit and insulation. I can write an entire post complaining about our woes with the previous unit including the previous unit dying multiple times every summer (in Florida) and when Mrs. TVM was 8 months pregnant and again when the newborn baby was only 2-3 months old…
- As a result, we invested in the “Tesla of AC” – a Daikan Fit. While we had to take out a small loan to cover the cost, it has been worth every penny. No regrets at all.
- Utilities
- Out out all our utilities, our electricity has been the largest expense. This was largely due to the house not being energy efficient in combination with us preferring a lower setting on the thermostat (72 / Day, 68 / Night).
- Despite having a ton of trees to water, we’ve been able to keep our water bill in check due to our artesian well (free water) as well as setting up some rain barrels to catch a large amount of water from our house.
- Home Purchase
- This includes the down payment, mortgage application fee, wind mitigation study, appraisal and all the other fun overhead associated with buying a house.
- Windows
- Aside from the AC, the windows were also worth every penny. Not only are they impact resistant up to 250 mph, but you can stand in front of them with your eyes closed and not feel any of that brutal Florida afternoon sun… they are cold to the touch!
- Furthermore, these windows enable us to spend less time prepping our house in the event of a hurricane (don’t have to put any wood up) and more time on other important activities like monitoring the storm or making sure we have enough food.
- Finally, the windows have a lifetime warranty! So if one were to ever crack, we would get a brand new one to replace it.
- Maintenance & Repairs
- The majority of this category is comprised of emergency calls that we’ve had to make to AC folks, electricians & plumbers. You know, things like:
- The air conditioner failing (multiple times)
- Blocked main water line resulting in our house flooding
- Getting the house’s wiring up to code
- Replacing torn patio screening from hurricanes / critters
- Replacing glass patio doors that may have smashed when a certain someone (me) was tapping the glass too hard to get squirrels off recently repaired patio screens that took days to do… 😅
- The rest of the money in this category went to buying supplies for projects, tools for projects, and other recurring maintenance items (changing our AC filters, vinegar for flushing the AC system, replacing batteries in smoke alarms, etc.).
- The majority of this category is comprised of emergency calls that we’ve had to make to AC folks, electricians & plumbers. You know, things like:
- Home Insurance
- As homeowners in Florida, this is one of the biggest irks that we have.
- Our premiums have consistently increased +50% YoY.
- Yes, I am fully aware that we live in an area that may very well be underwater in the next century and that there are regular hurricanes.
- Not to sound too political, but I wish our state government addressed this very real issue that many homeowners are facing, instead of well you know, what they are currently doing now 🙄
- Landscaping
- The majority of this money went to brand new seamless gutters because the original home builders thought it was acceptable to only have gutters on 40% of the house 🙄
- We invested in xeriscaping (rock beds) around the house to cut down on water use.
- We also had several large trees removed (sago palms, cabbage palms, crape myrtles) to make room for my hobby of growing tropical fruit trees.
- Finally, we also invested in a new irrigation system. This included a new pump that is capable of reaching our well water as well as some additional rain catchment systems that we’ve put into place.
- Property Taxes
- Similar to our mortgage, this is just the “cost of doing business”
- HOA
- While we’ve had a few issues with the HOA, they haven’t been terribly burdensome.
- Our HOA fees are very low relative to other HOAs in our general area.
Homeownership Rate of Return
When combining our current home value with our costs of homeownership, our net rate of return drops down to -19%.
Below is a visualization showing the cumulative net return (cumulative appreciation – cumulative costs) of our home on a monthly basis:
What we find funny is that our rate of return could have easily been positive if we chose to continue the previous owners’ mantra of doing the absolute bare necessities in the cheapest ways possible.
However, Mrs. TVM & I are not ones to “half ass” projects. Because we plan on being in this house for a very long time, we have deliberately spent the extra time and money investing in quality long-term solutions that will last.
As an example, we didn’t have to get a new AC system… we could have just accepted that our AC will die multiple times a year (mostly in the Florida summers) and paid those maintenance bills. Additionally, we could have stuck with our 1980’s builder grade windows and rolled the dice on whether a hurricane inevitably broke a window. We could go on and on with examples.
At the end of the day, a lot of our larger costs are very likely ‘one-time’ expenses. As a result, we believe that our home’s value will continue to appreciate and eventually offset those costs.
The Verdict – Final Thoughts
When Mrs. TVM & I purchased this home, we were fully aware of the amount of work that was needed in order to get the house back into a fully-functional condition.
However, the house also checked all our most important boxes:
- The house was in our price range
- The house’s location is zoned for the best schools in the county
- The house is located in a very safe, quiet and established neighborhood
- And most importantly of all, it had a larger lot size to grow all my trees 😉
Despite our house currently having a negative rate of return, we didn’t buy this house as an investment property. We bought it for it’s intangible qualities and to raise our family.
So while this exercise produced an interesting data point, it only really matters if we plan on selling the house in the future… which as of this writing, we don’t 😄
I hope this homeownership case study provided those who are considering purchasing a home with some insights and glimpses into real-life “actual costs” of homeownership.
Thank you for reading! 🙂
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Full Disclosure: Nothing on this site should ever be considered advice, research or an invitation to buy or sell securities, please see my ‘Terms & Conditions’ page for a full disclaimer.
Only one questioned – did you reduced the comparable cost of having to pay rent in lieu of owning?
Yes, over the same time period it would have made more sense to rent.
The siding/appliances/home purchase/windows/home insurance/landscaping/property taxes/HOA would not have been applicable in the renting scenario.
Nice breakdown of the home ownership study. We sold our house in Feb 2023 and moved into a luxury apartment. We lived in the house for 23.5 years and never looked at it as an investment. We raised two children and have many memories of the house.
We bought it for $189K and sold for $679K. We paid off house in 9 years and lived mortgage free for 14.5 years. We renovated the two bathrooms, kitchen, and backyard during the time we lived there. Always something to work and buy around the house. It may look like we made out like a bandit on house sale, but with time and money spent on home ownership, I think it all came even.
So far we have enjoyed the apartment life with just the two of us.
We are in the same boat – we view the residence as a home first and an investment second.
Wow! That’s a massive payday! It would be interesting to see what your total net return has been in that same period.
We haven’t even gotten to the “sexy” projects yet… mostly just making sure everything we have a solid foundation to build off of (vs. a house like in money pit).