There’s no getting around the fact that buying a home is a huge investment. Between the down payment and closing costs, today’s buyers need to show up to settlement prepared to pay thousands of dollars upfront. Plus, they have to be prepared to carry the ongoing costs of home ownership. New research by Betterment looks at how long it takes for homeowners to break even on their home purchase.
The data shows that, on average, it takes people four years to recoup the upfront costs of buying their own home. It also says that homeowners can expect the rate of return from their purchase to fall between 8% and 10% per year. Interestingly, according the the report, that rate of return is very similar to investing in stock.
As far as what would-be buyers can take from these statistics, Nick Holeman, a Certified Financial Planner with Betterment and the creator of the research had this to say:
“Buying a home can be a great investment, but there’s a few things to keep in mind. Since it takes four years to recoup your initial investment after buying, you have to make sure that you live there long enough for the move to make sense. If you don’t plan on being in the home for at least four to five years, it might not be the best investment for you.”
As far as how soon-to-be homeowners can try to maximize their rate of return, Holeman cautions against stretching your budget to buy your dream home. “Don’t buy too much house,” he advises. “Otherwise [paying for your home] is going to limit your monthly cash flow and your ability to meet other financial goals you may have.”
To Holeman, his research is about giving homeowners the power to decide whether or not buying a home will be a good investment for them. Ultimately, this research gives buyers another tool to use as they make one of the biggest decisions of their lives.