We are incredibly lucky. We bought our first home in December 2012 for $163,500 and sold it in July of 2016 for $232,000. In 42 months, our home appreciated by $68,500, an increase of nearly 42% in three and a half years. Our home went up by nearly 12% annually, and despite this, our home was not a good “investment.”
To be clear: I am not complaining. This stroke of luck played no small part in our lives the past few years. I’m grateful for what it allowed us to do financially, so don’t mistake me saying it wasn’t a good investment for me saying it hasn’t enabled us to do things we otherwise may not have been able to.
How can it be that a 12% annual increase isn’t a good investment? The math above leaves out all of the ongoing costs to own the home. Once you factor in everything we paid along the way, we basically broke even.
We Did (almost) Everything Right
We bought a home that needed minimal work for us to live in. We were lucky enough to be buying at a time with historically low interest rates, and were able to have a mortgage rate of just 3.375%. We put down a 20% down payment on the house, reducing the amount borrowed and eliminating the cost of Private Mortgage Insurance. We bought a very small home, only 1,000 square feet, so it was certainly a reasonable “starter” home.
Costs of Home Ownership
To purchase the home, we put down a down payment of $32,700. We paid an additional $8,519 in closing related costs, from inspections to appraisals to title insurance, etc.