Quote:
Originally Posted by AlpineWhite_SJ
Bought at 599k, sold at 1.15M. Put roughly 100k into it while owning it for capital improvements (roof, hvac and some foundation work). No tax benefits for the improvements, No HOA, and very little maintenance since I did a lot of it myself instead of hiring people, outside of big projects in the capital improvement area.
To clarify, my numbers were napkin math on the raw appreciation of the asset, since I think some think that the Bay Area real estate market is solid gold but fail to realize just how much a passive investment can appreciate. A more thoughtful analysis takes into account tax bracket, barrier to entry (ie 20% down), tax savings for deductions, tax outlay for property tax, how much you spend on maintenance, loan interest rate, insurance expense, and more. Also, our gain was under the taxable threshold so you’d also have to compare to long term gain on the index. All in, we made much more than the numbers I put up, so likely better than the same amount placed in an index. But it’s tough to communicate in simplistic terms to someone who doesn’t have the same variables.
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AlpineWhite_SJ Spot on.
Total return for me means:
Purchase price gain (price sold - price purchased)
Less: interest on loans, whether mortgage or otherwise
Less: property taxes
Less: capital improvements (remodelling, additions, etc.)
Less: maintenance expense
Less: HOA or other site-related fees
Add: tax benefit, if any
Total: Return
Total Return = Return / initial investment (down payment, if any)
Then do a CAGR calculation and compare it to the S&P over the same time frame including dividend reinvestment.
Subjective benefits have already been mentioned, mainly that owning offers the potential to have a higher quality environment for raising at-home children.
One of the main subjective disadvantages of owning a home is illiquidity (boat anchor effect) of the asset.
If a person:
a. does not have at-home children, and
b. seeks maximum net present value, then
owning a home does not appear to be in the best financial interest of said person.