IS HOMEOWNERSHIP REALLY WORTH IT?
Before You Sign a Thirty-Year Mortgage, Take Out a Calculator
Introduction
For generations, Americans have been sold a dream.
Buy a house.
Put down roots.
Build equity.
Stop throwing your money away on rent.
Own something.
Create wealth.
Leave something behind for your children.
We have heard these statements so many times and for so many years that most of us no longer question them. Homeownership has become more than a financial decision. It has become a symbol of success. We look at the person who owns a home and assume that person is building wealth. We look at the person who rents and sometimes assume that person is wasting money.
But what if we have been looking at the equation incorrectly?
What if homeownership is not always the incredible financial investment we have been led to believe it is?
What if, for millions of people, owning a home is actually an extraordinarily expensive luxury disguised as an investment?
I want you to think about this differently.
I am not telling you that no one should ever buy a home. I am not telling you that real estate cannot appreciate. I am not telling you that people have not made tremendous amounts of money owning property. Of course they have.
What I am asking you to do is something remarkably simple.
Take out a calculator.
Stop looking only at what you paid for your house and what you believe it is worth today.
Instead, calculate what you have actually spent to own it.
Every dollar.
Your down payment.
Your mortgage payments.
Your mortgage interest.
Your property taxes.
Your homeowners insurance.
Your lawn service.
Your pool service.
Your pest control.
Your homeowners association fees.
Your roof.
Your air conditioning system.
Your water heater.
Your appliances.
Your plumbing repairs.
Your electrical repairs.
Your painting.
Your flooring.
Your landscaping.
Your tree removal.
Your pressure washing.
Your windows.
Your doors.
Your irrigation system.
Your fence.
Your driveway.
Your closing costs when you purchased the home.
And then, when you finally decide to sell, calculate the cost of selling it.
Now ask yourself a question.
Did you really make as much money as you think you did?
We love to hear someone say, “I bought my house for $400,000 and sold it for $600,000. I made $200,000.”
Did you?
Did you really make $200,000?
Or did you simply sell the house for $200,000 more than you originally paid for it?
Those are two entirely different statements.
If you owned that home for ten, fifteen, or twenty years, how much money did you pour into that property during those years?
How much did you pay in interest?
How much did you pay in taxes?
How much did you pay in insurance?
How much did you pay to maintain it?
How much did you spend updating it so someone would eventually want to buy it?
How much did you pay to sell it?
And perhaps one of the most overlooked questions of all, what could the money you used for your down payment and continuing ownership expenses have earned somewhere else?
This is called opportunity cost.
If you put $80,000 down on a house, that $80,000 did not disappear. It became part of the property. But it was also no longer available for another investment.
What might $80,000 have become over twenty years if it had been invested?
What might the thousands of additional dollars you spent every year maintaining your home have become if they had been invested?
These are uncomfortable questions because they challenge one of America's most deeply rooted financial beliefs.
The belief that buying a home is always financially superior to renting.
It is not.
Sometimes it is.
Sometimes it is not.
And sometimes, when you calculate every expense honestly, homeownership may be one of the most expensive financial commitments you will ever make.
So before you sign a mortgage, before you empty your savings account for a down payment, and before you tell yourself that renting is throwing money away, I want you to consider another possibility.
Maybe homeownership is not everything it is cracked up to be.
Maybe the American dream comes with a very expensive invoice.
And maybe it is time we actually read the invoice.
THE $2,000 A MONTH MORTGAGE
Let us begin with a very simple example.
Suppose your mortgage payment is $2,000 a month.
That is $24,000 a year.
Over ten years, you will have made $240,000 in mortgage payments.
Over twenty years, you will have made $480,000 in mortgage payments.
Now, I need to be fair.
Not every dollar of that mortgage payment is an expense in the traditional sense. Depending on the loan, part of the payment goes toward principal. That principal reduction increases your equity.
But a significant portion, particularly during the earlier years of a traditional mortgage, can go toward interest.
That is money paid for the privilege of borrowing money.
Look at an amortization schedule sometime.
You may be shocked.
People proudly say, “I own my home.”
Do you?
Or do you own a percentage of it while a financial institution has a very significant financial interest in the rest?
Miss enough payments, and you may quickly discover the difference between feeling like an owner and having a lender with a secured interest in your property.
The $2,000 monthly payment also creates another financial reality.
That money must be paid every month.
Good month or bad month.
Healthy or sick.
Employed or unemployed.
Business booming or business struggling.
The mortgage does not care.
Twenty-four thousand dollars a year.
Two hundred forty thousand dollars over ten years.
Four hundred eighty thousand dollars over twenty years.
Again, some of that builds equity.
But when people calculate their home investment, they often conveniently ignore the total cash that flowed out of their bank account to maintain that ownership.
Why?
Because if we included everything, the numbers might not look nearly as exciting.
NOW LET US CUT THE GRASS AND CLEAN THE POOL
Let us say you pay $150 a month for lawn service.
That is $1,800 a year.
Now let us say you have a pool and pay another $150 a month for pool service.
That is another $1,800 a year.
Combined, that is $3,600 every year.
Over ten years, you have spent $36,000.
Over twenty years, you have spent $72,000.
Seventy-two thousand dollars.
To cut the grass and maintain the pool.
Of course, someone will say, “Bill, I cut my own grass.”
Wonderful.
Someone else will say, “I maintain my own pool.”
Wonderful.
But your time has value.
You bought the lawn mower.
You bought the gasoline or paid for electricity.
You bought the trimmer.
You bought the blower.
You bought the chemicals.
You bought the pool equipment.
You replaced the pool pump.
You replaced the filter.
There is almost always a cost.
The question is whether we are willing to calculate it.
Homeowners have an interesting habit of mentally erasing small recurring expenses.
One hundred fifty dollars does not sound like much.
Another $150 does not sound like much.
But multiply those numbers by twelve months.
Then multiply them by ten years.
Then multiply them by twenty years.
Suddenly, the little expenses are not little anymore.
They have become tens of thousands of dollars.
THE HOUSE IS ALWAYS HUNGRY
A house eats money.
There. I said it.
The older the house becomes, the hungrier it can become.
One month, it is the air conditioner.
The next month, it is the refrigerator.
Then the dishwasher starts leaking.
The water heater goes out.
The roof needs attention.
A toilet runs.
A pipe leaks.
The garage door stops working.
The irrigation system breaks.
A tree needs to be removed.
The exterior needs painting.
The interior needs painting.
The carpet needs replacing.
The floors look old.
The kitchen looks dated.
The bathroom needs remodeling.
The windows need attention.
The fence begins leaning.
Something is always aging.
Something is always wearing out.
Something is always one strange noise away from costing you money.
Let us use your example and estimate $10,000 a year for repairs, maintenance, replacement, and updating on an older family home.
Some years you may spend $2,000.
Another year you may spend $25,000.
The point is to look at a long-term average.
At $10,000 a year, you have spent $100,000 over ten years.
Over twenty years?
$200,000.
Two hundred thousand dollars.
Now tell me again how much money you made when you sold your house.
This is where the homeownership mythology begins to collide with financial reality.
You cannot simply say, “I paid $400,000 and sold it for $600,000, so I made $200,000.”
What did the house cost you while you owned it?
If you spent $200,000 maintaining, repairing, replacing, and improving the property over twenty years, shouldn't that money be part of your calculation?
Of course it should.
But most people do not calculate it that way.
Why?
Because the truth may ruin the story.
PROPERTY TAXES NEVER STOP KNOCKING
Now let us add property taxes.
Suppose property taxes average $5,000 a year.
Over ten years, that is $50,000.
Over twenty years, that is $100,000.
And depending on where you live and the value of your property, $5,000 may sound wonderfully inexpensive.
Some homeowners pay substantially more.
People sometimes talk about paying off their home and living “mortgage free.”
Mortgage-free does not mean cost-free.
The tax bill still arrives.
The insurance bill still arrives.
The roof still ages.
The air conditioner still breaks.
The lawn still grows.
The pool still needs chemicals.
The house still requires money.
You may own the property outright, but ownership continues to carry an annual cost.
That is the reality we rarely put on the real estate brochure.
LET US ADD UP OUR SIMPLE EXAMPLE
Now let us use only the numbers we have discussed.
Mortgage payments: $24,000 a year.
Lawn and pool service: $3,600 a year.
Repairs, maintenance, replacements, and improvements: $10,000 a year.
Property taxes: $5,000 a year.
Total annual cash outflow in our simplified example?
$42,600.
Over ten years?
$426,000.
Over twenty years?
$852,000.
Read that number again.
Eight hundred fifty-two thousand dollars.
Now, before someone jumps out of their chair, let me repeat something extremely important.
The $852,000 is gross cash outflow under our hypothetical assumptions. It is not the same as saying the homeowner lost $852,000. Part of the mortgage payments may have built equity. Some improvements may have added value. The property may have appreciated significantly.
But that is exactly my point.
We need an honest accounting.
We cannot count every dollar of appreciation as profit while pretending the dollars spent achieving and maintaining ownership never existed.
And we have not even included homeowners insurance.
We have not included closing costs.
We have not included homeowners association fees.
We have not included pest control.
We have not included major storm repairs.
We have not included furniture purchased specifically for the home.
We have not included the cost of moving.
We have not included the opportunity cost of the down payment.
We have not included the cost of selling.
The true cash commitment could be considerably higher.
So I ask again.
Is homeownership really worth it?
THE DOWN PAYMENT NOBODY TALKS ABOUT
Suppose you purchase a $400,000 home and put $80,000 down.
People say, “The $80,000 is in the house. It is equity.”
Correct.
But where else could that $80,000 have been?
Suppose, purely as an illustration, that $80,000 earned an average annual return of 7 percent over twenty years.
Without adding another dollar, it could theoretically grow to approximately $309,000.
That is not a guarantee.
Markets rise and fall.
Investments carry risk.
Taxes and fees matter.
But the example demonstrates opportunity cost.
Your down payment has a cost beyond the check you write.
It is capital.
Once committed to the house, it is not simultaneously invested somewhere else.
Now imagine that a renter also invested part of the money he or she did not spend on major home repairs, property taxes, lawn care, pool care, and other ownership expenses.
Would every renter do that?
Absolutely not.
That is one of the strongest arguments for homeownership.
A mortgage can act like forced savings.
Many homeowners gradually build equity because they are required to make payments.
Many renters will not invest the difference. They will spend it.
But for the financially disciplined person, the rent versus buy equation may look dramatically different.
If you rent and aggressively invest your savings, renting may not be throwing money away.
It may simply be a different financial strategy.
“BUT MY HOUSE WENT UP $200,000!”
Wonderful.
Now show me the entire ledger.
What did you pay in interest?
What did you pay in property taxes?
What did you pay in insurance?
What did you pay in maintenance?
What did you pay for the roof?
What did you pay for the air conditioners?
What did you pay for the new kitchen?
What did you pay for the bathrooms?
What did you pay for the flooring?
What did you pay for landscaping?
What did you pay for the pool?
What did you pay in closing costs?
What did you pay to sell the property?
And what return did you give up on the money you invested in the house?
Then we can talk about profit.
The problem is that homeowners frequently confuse appreciation with profit.
If an asset increases in value by $200,000 but costs you an enormous amount of money to finance, carry, maintain, and sell, your true financial gain is not simply $200,000.
You have to look at the entire financial picture.
A business owner understands this.
If my company sells $1 million worth of products, I cannot walk around saying, “I made $1 million.”
What were my expenses?
What did the products cost?
What did I pay employees?
What did I pay in rent?
What did I pay in insurance?
What did I pay in taxes?
Revenue is not profit.
Increased home value is not automatically profit.
Why don't we analyze our homes with the same financial discipline?
AND THEN YOU DECIDE TO SELL
Now comes one of my favorite parts of the homeownership financial adventure.
You decide to sell.
Suddenly, a parade of people may have their hands out.
Depending on how the sale is structured, you may face real estate agent commissions, closing costs, concessions, repairs, staging expenses, cleaning expenses, photography expenses, moving costs, and other transaction-related expenses.
The traditional 6 percent real estate commission model has long been one of my greatest frustrations.
Six percent?
Think about that.
On a $500,000 home, 6 percent is $30,000.
On a $750,000 home, 6 percent is $45,000.
On a $1 million home, 6 percent is $60,000.
Now, commissions are negotiable, compensation structures can vary, and sellers should carefully review exactly what they are agreeing to pay.
But I want to ask a simple question.
Why should the cost of selling necessarily rise so dramatically simply because the value of the house rises?
Does selling a $1 million house automatically require twice the labor of selling a $500,000 house?
Sometimes a higher-priced property may require specialized marketing, additional expertise, and a more complex sales strategy.
I understand that.
Good real estate professionals provide genuine value.
They understand contracts.
They coordinate transactions.
They negotiate.
They market property.
They manage deadlines.
They deal with buyers, sellers, inspectors, appraisers, lenders, and mountains of details.
I am not saying real estate professionals should work for free.
I am saying consumers should question the numbers.
If you have spent twenty years building equity, why should you casually surrender tens of thousands of dollars without scrutinizing the fee structure?
That is your equity.
That is your money.
That is your asset.
A $60,000 transaction cost can represent years of savings for the average American family.
Do not just shrug your shoulders and say, “That is what real estate agents charge.”
Ask questions.
Negotiate.
Compare services.
Understand exactly what you are paying and exactly what you are receiving.
Because after twenty years of feeding the house, the last thing you should do is blindly hand away a significant portion of your equity simply because no one told you to question the bill.
RENTING IS NOT FREE, BUT NEITHER IS OWNING
Now we need to be fair to the other side.
Renting costs money.
A renter may pay $2,000, $3,000, or $4,000 a month and build no direct equity in the property.
Rent can increase.
A landlord may decide not to renew a lease.
A renter may have restrictions.
You may not be able to renovate the property.
You may not have the same sense of permanence.
You are living in someone else's asset.
These are legitimate disadvantages.
But the renter also has advantages.
The roof is generally not the renter's financial responsibility.
The property's tax bill is not directly written by the renter.
The building's insurance is not the renter's policy, although renters should generally carry renters insurance for their own belongings and liability needs.
The air conditioning system may be the landlord's responsibility.
The water heater may be the landlord's responsibility.
Major plumbing repairs may be the landlord's responsibility.
The renter may have flexibility.
A job opportunity appears in another state?
Move.
The neighborhood changes?
Move.
The family grows?
Rent something larger.
The children leave home?
Rent something smaller.
You are not required to sell a major asset before changing your life.
That flexibility has value.
We talk constantly about the equity a homeowner builds.
We rarely talk about the freedom a renter may retain.
Freedom has value too.
THE TWENTY YEAR QUESTION
I want you to imagine two people.
One buys a home.
The other rents.
The homeowner says, “In twenty years, I will have equity.”
The renter says, “In twenty years, I will have investments.”
Who wins?
The answer is not automatically the homeowner.
It depends.
How quickly did the home appreciate?
What interest rate did the homeowner pay?
How much was the down payment?
How much did property taxes increase?
How much did insurance cost?
How many major repairs occurred?
How much was spent renovating?
What were the selling costs?
What did comparable rent cost?
Did the renter invest the financial difference?
What return did those investments earn?
How long did each person remain in the same property?
These questions matter.
If our hypothetical homeowner experiences $852,000 in gross cash outflow over twenty years using our simplified assumptions, we have to compare that with the value of the property and the equity accumulated at the end of the period.
Maybe the homeowner comes out far ahead.
Maybe the homeowner does not.
The answer cannot be found in a slogan.
“Renting is throwing money away” is a slogan.
“Real estate always goes up” is a slogan.
“Your home is your greatest investment” is a slogan.
Financial decisions should not be made with slogans.
They should be made with numbers.
YOUR HOME MAY BE A LUXURY, AND THAT IS OKAY
Perhaps we need to stop pretending that every home purchase must be justified as a brilliant investment.
Maybe you want a home because you love owning a home.
Wonderful.
Maybe you want a backyard.
Maybe you want a pool.
Maybe you want a garden.
Maybe you want to paint every room bright purple.
Maybe you want five dogs.
Maybe you want your grandchildren to visit the same house for twenty years.
Maybe you want stability.
Maybe you want memories.
Maybe you want to sit on your porch every evening and know that this is your place.
There is value in that.
Enormous value.
But emotional value and investment return are not the same thing.
A luxury automobile may bring someone tremendous happiness.
A boat may create unforgettable family memories.
A vacation home may become the gathering place for generations.
Not every purchase has to generate a financial return.
The problem begins when we convince ourselves that an expensive lifestyle decision is automatically an exceptional investment.
Your home may be one of the greatest joys of your life.
It may also be incredibly expensive.
Both things can be true.
Conclusion
So, is homeownership really worth it?
Maybe.
That may not be the answer the real estate industry wants you to hear.
It may not be the answer your parents taught you.
It may not be the answer your friends expect.
But it is the answer that requires you to think.
Maybe.
For some people, buying a home will be one of the greatest financial decisions they ever make.
They will buy in the right location.
They will purchase at the right price.
They will secure favorable financing.
They will remain in the property for many years.
The home will appreciate.
They will maintain it wisely.
They will build substantial equity.
They will eventually sell it and walk away with significant wealth.
That happens.
But it does not happen simply because someone signs a mortgage.
For other people, the home becomes a financial vacuum.
They stretch to make the down payment.
They stretch to make the monthly payment.
Then the insurance increases.
The property taxes increase.
The homeowners association increases its fees.
The air conditioner breaks.
The roof needs replacing.
The pool needs work.
The plumbing develops a problem.
The kitchen looks old.
The bathroom looks old.
The flooring needs replacing.
The neighborhood changes.
Then they need to move.
They sell.
They pay transaction expenses.
And after all the money, all the stress, all the repairs, and all the years, they discover that their supposed incredible investment was not nearly as profitable as they imagined.
The mistake is not necessarily buying the house.
The mistake is buying the mythology without calculating the mathematics.
Using the simple hypothetical numbers in this article, we found $426,000 in gross cash outflow over ten years.
Over twenty years, $852,000.
Again, I am not claiming that $852,000 vanished.
Part of the mortgage payments may have created equity.
The home may have increased significantly in value.
Some improvements may have added to the property's marketability and value.
But $852,000 moved out of the homeowner's bank account under our assumptions.
That matters.
And remember, our simplified example did not include every possible ownership expense.
Now compare that with the purchase price of the house.
Compare it with the eventual selling price.
Compare it with the remaining mortgage balance.
Compare it with what you paid to sell.
Then compare the final result with what your down payment and additional invested savings might have become over the same twenty years.
That is a real comparison.
That is financial thinking.
The next time someone tells you, “You are throwing your money away on rent,” ask them a question.
How much did you spend owning your house last year?
Watch what happens.
Most people do not know.
They know their mortgage payment.
Maybe they know their property taxes.
But ask them how much they have spent over the past ten years on interest, insurance, taxes, repairs, maintenance, improvements, landscaping, pool service, pest control, appliances, and everything else associated with the property.
Most people have never calculated it.
Then ask them how much their home increased in value.
That number they probably know.
Isn't that interesting?
We remember the gain.
We forget the expenses.
We celebrate the appreciation.
We ignore the carrying costs.
We brag about the selling price.
We forget the thousands and thousands of dollars we fed into the property along the way.
This is not how we evaluate any other investment.
If you owned a business, you would calculate expenses.
If you owned stocks, you would calculate your cost basis.
If you owned an investment property, you would calculate income and expenses.
Why should your personal residence be exempt from honest mathematics?
Before you buy your next home, sit down.
Take out a piece of paper.
Or better yet, open a spreadsheet.
Calculate the down payment.
Calculate the mortgage payment.
Separate estimated principal from interest.
Estimate property taxes.
Estimate insurance.
Estimate maintenance.
Estimate major replacements.
Estimate homeowners association fees.
Estimate lawn and pool costs.
Estimate transaction costs.
Estimate how long you realistically expect to live there.
Then create a second column.
Rent.
Calculate the cost of renting a comparable property.
Estimate rent increases.
Then calculate what you could invest if renting requires less total cash.
Be honest.
Would you actually invest the difference?
If the answer is no, admit it.
If the answer is yes, calculate the possible long-term outcome using several reasonable investment return assumptions.
Do not manipulate the numbers to prove what you already want to believe.
Let the numbers speak.
You may discover that buying is clearly better.
Buy the house.
You may discover that renting is clearly better.
Rent.
You may discover that the financial difference is close and your emotional desire to own a home makes buying worthwhile.
Wonderful.
But make the decision consciously.
A home is not automatically an investment miracle.
A mortgage is not automatically a wealth building machine.
Rent is not automatically wasted money.
And homeownership is not automatically the American dream for every person at every stage of life.
Sometimes the smartest thing you can own is freedom.
Freedom from a roof replacement.
Freedom from a $15,000 air conditioning disaster.
Freedom from rising property taxes.
Freedom from expensive insurance.
Freedom from constant repairs.
Freedom to move.
Freedom to downsize.
Freedom to invest your capital elsewhere.
Freedom to change your life without first putting a sign in the front yard and hoping someone buys your house.
Think again before you buy.
Run the numbers.
Calculate ten years.
Calculate twenty years.
Calculate the value of your down payment.
Calculate the cost of maintaining the property.
Calculate the cost of selling it.
Calculate everything.
Then ask yourself one final question.
Is homeownership really worth it?
You may be surprised by the answer.
Bill Conley
America's Favorite Life Coach
