Saw the post a couple days discussing why home buying may not be the best investment (https://www.reddit.com/r/investing/comments/8e9zp0/buying_a_home_it_may_not_be_your_best_investment/) and decided to do a deep dive on my experience. Figured I'd share and get some feedback.
Right out of college I bought a condo as a family member (realtor) convinced me it was the best investment I could make. I was able to do this as my parents paid for my education, I worked part time throughout, and I'm a pretty good saver. Below are my calculations for how its played out over the past 3 years. Not sure the best way to format this so apologizing in advance. Also there is some rounding from the excel sheet so things may not add up perfectly as I pull the numbers over. About the property: USA, 2/2 condo in an area that is experiencing a lot of growth. I've been renting one room out to a friend.
Purchase Price: $439k
Down Payment: $88k
Loan: $351k
Rate: 3.875%
Closing Costs: $13k
Yearly expense (avg):
Mortgage: $19836
Property Tax: $5393
HOA: $3084
Insurance: $792
Rent: -$11400
Tax:
Deduction brings me into a lower tax bracket. Difference between income tax w/ vs w/o deduction is $3960
Additional "reinvestment" per year: (Expenses total -tax delta - yearly rent to live in an equivalent property)
17856-3960-12000 = ~$1896 per year
Based on comps (which there are a lot of because there are several units in my complex with the same sqft, layout, etc. that have sold in the past 6 months) I would conservatively say the unit would sell for $540k. Realtor commission is about 6% ($32,400), fee to pay outstanding mortgage($331k) is $100. There may be other costs that I haven't considered but these are the only ones I'm aware of.
So lets add it all up
Invested= down +closing costs+ yearly expense x3 years = 106.7k
Return= Sale - pay off mortgage - closing costs = 176.5k
Compound Annual Growth rate:
(176.5/106.7)1/3-1 = 18.3%
So with my calculations things have gone pretty well. If my math has issues or there are things I missed let me know and I'll update.
Some other things to consider with respect to owning this property:
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I'm living in an area that wouldn't be my first choice.
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I'm kinda tied to the region with respect to work. There have been opportunities I've been interested in pursuing but selling the house has made it not worth it.
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I had a big insurance claim my first year which although was only a few hundred out of pocket (included in insurance average), it was a huge headache and really sucked to deal with.
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Not having to deal with a landlord is nice. I've have had landlords who are difficult and making decisions for myself is nice.
Thanks for reading, your feedback is appreciated!
Submitted April 25, 2018 at 11:16AM by IamTacoSuprem https://ift.tt/2HrN5FJ
