Smart On Money

One of the cool tools offered by CNN Money right now is a calculator that lets you see whether or not your home has been a good investment. You enter information on when you bought your home, as well as how much it cost. Then you enter how much it is worth right now. The results display your total return and your annual return. You can also see how your home’s value has fared in comparison to investments like stocks and bonds.

I entered my information in the field, and found that my annual return is 1.0% on my home. This isn’t surprising, since the appraisal associated with the refinance I completed indicates that our home has increased in value a little bit since we bought in 2007. CNN Money’s calculator indicates that the average U.S. home has seen an annual loss of 4.7% in the same period of time.

But how does my home’s value compare with the performances of stocks and bonds since September 2007?

Well, to tell the truth, I wasn’t surprised to see that stocks have returned 3.1% annualized since then. With the recent gains in the market completely erasing the disappointing years just following the financial crisis, it’s not hard to understand why stocks have seen better returns than residential real estate. Bond have done even better, offering a 5.6% annualized return, according to the CNN Money calculator.

What the Calculator Doesn’t Account For

Of course, the calculator is quite simple, and doesn’t account for some of the costs associated with home ownership. Your home is one of those assets that has potential, but can really cost you over the long term. That 1.0% annualized return calculated by CNN Money doesn’t take into account the amount of interest I’ve paid on the home in the last 5 1/2 years. Even after I account for the tax deduction associated with the taxes, that 1.0% annualized return is basically erased. And that doesn’t include the cost of property taxes (even with offsetting tax deductions), utilities, landscaping, and maintenance.

Once all of those things are added into the equation, I’ve been losing money on the house.

The calculator also doesn’t take into account the reality of trying to sell a home. Even though the appraisal says one thing, I know that we won’t get that much back for it. To sell a home in my neighborhood, where there are for-sale signs everywhere and others are lopping $15,000 to $20,000 off their original buying prices to sell quickly, we’re going to be stuck paying to discharge our mortgage when all is said and done (assuming we end up moving in the next 12 months).

Of course, the return on investment on a home isn’t all financial. Some of it is emotional. My family has enjoyed living in this house. We have been able to landscape it how we want, and we have been able to arrange matters as we prefer. Additionally, there’s something nice about a home that we can’t be kicked out of when the lease is up (happened to us once when the owner decided she wanted the house for her grandkids). Being able to call someplace “home” and give our son a secure place to return to has its charms.

So, even though the home hasn’t been a solid financial investment, it’s been worth it to us in other ways.

What do you think makes a home a good investment?

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