Register for a free 1 hour beginner crash course!

HOW TO INVEST IN INDEX FUNDS!

Thursday July 8th, 5PM PT

We'll be giving away free copies of our signature investing course!

(427 reviews)
4.9/5
July Webinar How to invest in index funds
Days
Hours
Minutes
Seconds

Why you didn’t profit from your primary residence

Often I have a conversation like this with one my friends:

My friend: My home is killing it. Six years ago I paid $300,000 for it and now it’s worth $380,000! That’s a profit of $80,000!
Me: But if you sell it, wouldn’t you have to pay 6% realtor fees off the top?
My friend: Well, yeah, but everyone has to pay that.
Me: And haven’t you been paying $1,288/month to the bank for the last six years ($92,736 total)?
My friend: Yeah, I’m building equity!!!
Me: And haven’t you been paying $3,600/year in property taxes?
My friend: Of course. You know Uncle Sam is gonna get his!
Me: And over the last six years didn’t you spend $20,000 replacing the hot water heater, landscaping, carpet, driveway and bathroom remodel?
My friend: Sure, but gotta maintain the investment bro!!!
Me: Well it’s not really a “profit” of $80,000 then? Profit is what you get after you take out the expenses.
My former friend: RENTING IS THROWING MONEY AWAY!!! [runs away crying]

Let’s see how he actually did:

Down Payment: $60,000
Mortgage Payments: $92,736
Taxes: $21,600
Maintenance: $20,000
Realtor Fees: $22,800
Total money spent: $217,136

Sale price: $380,000
minus remaining balance on $240K mortgage mortgage after six years of payments: $215,844
Total proceeds from sale: 164,156

Proceeds – Expenses = Profit
$164,156 – $217,136 = -$52,980

That’s losing $8,830 per year. As a percent of the money invested in the home, it’s like a savings account that pays -4% interest. Not so great. And definitely not profit!

And yes, renting costs money too. But with renting you don’t need to put $60,000 down. That could be in an investment working for you. The price of a modest rental could also be significantly less than the big house you bought. So if you limit your costs on a rental and invest the difference you could end up way ahead.

As always, the message isn’t “renting is always better.” It’s not. The message is “don’t buy too much house because you expect it to be a great investment.” It’s not.

TAKE THE COURSE!

How to invest course

LET'S CONNECT

ABOUT

Jeremy Circle

Hi, I’m Jeremy! I retired at 36 and currently have a net worth of over $4 million. 

Personal Finance Club is here to give simple, unbiased information on how to win with money and become a multi-millionaire!

MORE BLOG POSTS

The Trump Bump

Trump vs Biden post-election stock market returns

Our current president tweets a lot about how the stock market is doing exceptionally well, implying that it is his doing. I posted in past comparing the stock market return over recent presidential terms and it turns out President Trump’s term ranks 7th out of the last 10.

Read more →