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A few years ago, I was searching for a house to rent.  The realtor that we used mentioned several times that for the same price for a rent house you could buy a home.  He further said, “The house would be your biggest asset.”  You hear it time and time again.  You might have even said it yourself.  But, is it true? Is your house your biggest asset?


Yes, Your Home Value Will Appreciate

On average homes will appreciate 3%* year.  A home that was purchased for $300,000, would appreciate to an estimated $728,000 over 30 years.  If after 30 years you decide to sell your beautiful house, you would might have figured that your gain would be $428,000.  That is a nice cash deposit that could put towards retirement or debt.  But, there are some other numbers we should consider before we get too excited.  


Mortgage Cost

When purchase a home or even now that you might be paying on a mortgage, what does your monthly payments usually consider of, yes, principal and interest.  From our original analogy above, if we estimated an interest rate of 4% on a 30-year mortgage, your cost would be 216,000 in interest over the life of the loan. So, over those 30 years, you would pay principal and interest of $516,000.  Now, the gain you thought you had of $428,000 goes down to $212,000 ($728,000 subtract $516,000).   Not looking as great as you thought, but hey, that 41% return is nothing to squawk at.  We are not just done yet.  Let’s consider a few other items.


Cost of Taxes and Insurance

At times included within your monthly mortgage is property taxes and home insurance.  A cost that we may overlook at times because we may not really see them as a cost that we count towards our home if we sell it.  The reality is that property taxes and home insurance are standard expenses that come with owning a home.


Now back to our illustration above, let’s consider that we pay property taxes of $3,500 a year.   If we assume you pay taxes every year for 30 years and assume property taxes will increase an estimated 2% because inflation is a factor; after 30 years, we would have paid an estimated $142,000.  


The other cost that must be paid is the homeowner’s insurance.  On average, let’s say insurance is an estimated $1,500 a year.  Now over the next 30 years and assuming an estimated 2% increase for inflation, we would have paid $61,000 in insurance premiums. 


Now let is put this all together. Looking back at our original analogy, let’s consider not only the cost for the principal and interest paid, but also add in taxes and insurance during that 30-year period.

is my home an asset


Taking the $516,000 P&I payments plus $142,000 in property taxes, plus $61,000 in homeowner’s insurance, and we come to a total cost of $719,000 for owning that home.  In our original analogy, we estimated that the home value after 30 years totaled $728,000.  Considering the cost mentioned above again the value of the home after 30 years, the return on this investment would total 1.25%.  Let me pause a minute and let that sink in…


I think it is worth noting that a home does bring a lot of appreciated value, but it also brings ongoing costs that should be factored in.  After all, upon closer inspection, a 41% return dwindled down to a mere 1.25% return does seem deflating.  The reality is that when you sell your home, you will receive a check (maybe even a bank wire) for the amount it sold for.  That could be a nice check to put towards a retirement goal or debt repayment.  Understand that if you plan to measure a return on your home, you might want to consider more than the principal and interest you paid on it.   I hope this gives you a different point of view the next time you hear someone say a house is your biggest asset. 


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*Based on a blending of both of two sources: & /

1.        Average annual home price from 1900-2012 was only 3.1%. (

2.        Average inflation of 4.8% vs average home price of 6.4% from 1968-2004. ( &


Securities and investment advisory services offered through Royal Alliance Associates, Inc. (RAA) member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA.

This hypothetical example is for illustration purposes only, does not represent the performance of any specific investment, and is not a guarantee of future results.  This material is intended for informational purposes only and should only be relied upon when coordinated with individual professional advice, as individual situations will vary.