First Person: We're Not Looking to Make Money on Our Home

Yahoo Contributor Network

We bought our first home just before the bottom fell out of the housing market. Needless to say, we lost a bundle ($65,000 on the purchase vs. sales price, and even more when agent commission, closing costs, and buyer-requested repairs were factored in) on that property when it sold. However, even back then, we weren't looking to make money on our home as so many people hope to. In fact, we'd have been happy just not to lose money on the property. And this continues to be out outlook on homes, hoping just to break even on our investment when it comes to comparable forms of living such as renting. With property taxes, maintenance, repairs, and all the other costs that go into living in a home, even just breaking even can be hard to do though.

We have to live somewhere

We tend to compare our housing situation to what it would cost us to rent in order to determine whether we've made a good or bad buy. Since we could rent in an upscale neighborhood of the Chicagoland area for relatively cheap, this makes it hard to justify many of the costs related to a home.

This is one of the reasons we recently purchased a condo versus a standard single-family home. The costs of renting a similar-sized apartment would be about $1,200 a month. However, being able to buy a small condo outright, we're left with the following costs:

  • Association fee: $300/month
  • Property taxes: $250/month
  • Repairs/maintenance/upkeep: $50/month

With a $600 difference between what it costs us to buy outright versus rent, everything looks like it's coming up roses. But there is more to consider in the renting versus buying argument that can affect whether we can break even on a purchase.

Determining a breakeven point

Let's say we sold our condo after only being here two years. Well, then we'd have agent commission, closing costs, and the repairs or adjustments involved in actually selling the property, costs that would likely come to around $10,000. Plus, our home value has fallen while we've been here, and our condo would likely sell for about $10,000 or so less than we paid initially. Therefore, we're looking at a hit of at least $20,000 in addition to that $600 a month (or $14,400 over the 2-year period). So our total costs to live in our condo would actually be $34,400 versus $28,800 to rent -- a difference of $5,600.

The longer we're in our condo, the better chances we have of negating that difference. I've determined a timeline of about four years in which even with selling at a loss and after all sale costs and fees are factored in we'd hit our breakeven point compared to renting.

Appreciation is not guaranteed

Some people assume that appreciation of a home will stick to the standard 2 percent a year or so range. And while a national average might provide a general starting point for appreciation, it's not necessarily the norm based upon specific area and location-specific trends.

Our first home depreciated by an average of about 7 percent a year during the 3-year timeframe between when we bought and when we sold. Of course this was during the housing market collapse, but even now, in a supposed "market recovery", the value of our new home (according to estimates) has come down about 16 percent.

Therefore, we find that we don't even factor any sort of home appreciation into our estimates when we buy. We prefer to hope that by the time we sell, our property is worth what we paid for it…and even that's a stretch.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

More From This Contributor:

5 Websites that Could Save You Money

How I Differentiate My Blog

Preparing to Publish My First E-book


The author is not a licensed financial or real estate professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


View Comments (4)