Buying A Home Isn’t An Investment

🔍 Deep Dive: Buying a Primary Residence is Not an Investment

This might be my most controversial financial opinion:

👉 Buying a primary residence is an expensive lifestyle choice that most people confuse for building wealth.

Owning a home sounds great. You’re building up equity, it’s an appreciating asset, and you’re not wasting money on rent…right? Well, in reality it’s not so simple. Let’s take a look.

The Hidden Costs Nobody Calculates

When most people talk about the financial benefits of homeownership, they focus on building equity. The argument is that rent is a 100% sunk cost (which is always true), and that homes appreciate in value (which is often true).

But many people forget to calculate the ongoing cost of ownership that makes any home far more expensive than it appears:

• Property taxes: 1-2% of your home’s value every year

• Homeowners insurance: $2,110 per year on average (according to NerdWallet)

• Maintenance: 1-3% of home value per year for repairs and upkeep

• Mortgage Interest: Currently averages 6.81%

These are all sunk costs.

Let’s Break Down an Example

Here’s a scenario:

• You buy a home at the current average price of $508,300.

• You put down 20%, so your mortgage is $406,640.

• You lock in the average interest rate of 6.81%.

Sunk Costs Over 30 Years

• Mortgage interest paid: $543,833

• Property Taxes (1% per year): $151,140*

• Homeowners insurance: $63,300

• Maintenance (1% per year): $151,140*

*Based on 1%—the low end of the spectrum for these numbers.

That’s a total of $909,413 in sunk costs.

Appreciation Value of the Home

The average home appreciates 4.27% year-over-year.

Your $508,300 home would be worth $1,766,197 after 30 years—great!

This looks good on the surface, but let’s do more math…

• $1,766,197 new home value

• Minus $508,300 paid toward mortgage principal (original purchase price)

• Minus $909,413 in sunk costs (including mortgage interest)

This means you profited $348,484 over those 30 years as an “investment return”.

Now let’s take a look at your opportunity cost. Take that $909,413 in sunk costs and split it up over 30 years. That’s $30,313 per year you could have invested into the stock market.

Here’s what that could look like after 30 years, assuming various rates of return:

• 6% return rate → $2.54M

• 7% return rate → $3M

• 10% return rate → $5.48M

What Does This Mean?

Let’s be clear: I’m not talking about real estate investing or rental properties. This is solely about purchasing a home as a primary residence.

For the average person, purchasing a primary home is not an investment.

When you add up all the sunk costs, plus the opportunity cost of owning a home, you’re often “throwing away” just as much as renters do.

Real estate can be an excellent investment, if you’re actually investing in real estate. Rental properties, REITs, real estate development—these are all investments.

For most people, living in a house as a primary residence and calling it an investment is wishful thinking.

When It Makes Sense to Buy a Home

The average person buying one home to live in forever is making a lifestyle choice, not an investment decision.

And that’s perfectly fine—as long as you don’t confuse the two situations.

Buy a home when:

• You want the stability and control that comes with ownership.

• You’re confident you’ll stay put for at least 7-10 years.

• The total monthly cost fits comfortably in your budget.

• You genuinely desire the homeowner lifestyle.

• You value the intangible benefits more than financial optimization.

Don’t buy because:

• You’re afraid of “throwing away money” as a renter.

• You think “real estate always goes up.”

• “It’s a great investment.” (compared to what?)

• Everyone else is doing it.

Put It Into Practice

If you’ve been thinking about purchasing a home, here is your challenge this week:

1️⃣ Take some time to think about your motivations for purchasing a home. Does it actually make sense for you?

2️⃣ Run the numbers on the cost of homeownership based on the prices in your area. Does the math make sense?

Or are the lifestyle factors making more sense?

💵 Budget Breakdown: The Cost of Pet Ownership

Today we’re taking a look at this video from Navy McKee on TikTok. She asked her audience an interesting question: “Is pet insurance worth it?” The comments contained mixed responses.

Here are the quick stats:

• She pays $120 per month to insure a 10-year-old French bulldog.

• She has a $250 deductible with 50% coverage.

Her question: Is she better off putting that $120 into a savings account for pet expenses each month?

Here are some factors to consider:

• Pet insurance tends to rise in cost as pets get older.

• The average pet insurance rate for a dog is $62/month.

• Assuming a 10-year lifespan and no change in rate, that’s $7,440 in insurance costs.

• One emergency trip to the vet could run you up to $8,000 (based on estimates from The Zebra).

If you have a pet, ask yourself: Is the risk of one emergency vet visit, over the entire lifespan of your pet’s life, worth not having pet insurance?

If you’re actively saving cash each month for pet expenses, you might come out net positive without insurance. But it’s still a risk.

🔗 Quick Links

🍕 How to save on groceries amidst food price inflation.

🏠 How much house can you afford?

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