Is buying a house a good investment? Don’t forget to add these costs to your calculation

A home can be both a gift and a curse, says Matt Brannon, a data writer at St. Louis-based Clever Real Estate. All too often, homeowners — especially first-time buyers — significantly underestimate what they have to spend on costs beyond the principal and interest on their mortgages. I recently spoke with Brannon about the true cost of homeownership.

“A lot of people, unfortunately, end up purchasing a home that ends up to be more than they can really afford,” he said. “Almost 90% of the homeowners we talked to underestimated the cost of affording their home.”

Things that you don’t always think of right away — things like taxes, insurance, improvements, maintenance, utilities — are the culprits. A Clever Real Estate survey of 1,000 U.S. homeowners asked respondents how they spent on those sorts of items. The average response: $10,000 a year. But when researches asked more specific questions related to those costs, they found owners actually spent $18,000.

“That means that after a little under six years, you would have already spent an extra $100 ,000 on your house, Brannon said. “Over a 30-year mortgage, that’s more than $500,000. So basically enough to buy a second house.”

That drain on the budget can lead to a lot of buyers remorse. Half the homeowners in the survey had second thoughts about their purchase and a high percentage felt they had overpaid for their home, especially in the post-Covid era.

“You hear the term house poor getting thrown around a lot. And unfortunately, it’s very common, you know, people, especially maybe former renters who are buying their first home when they’re trying to budget, they don’t really know what to expect in terms of other hidden costs. They might think, oh, I spent this much on utilities in my apartment, so it’ll probably be about the same in my house.

“But in reality, homeowners spend 80 percent more on utilities than renters do. So there are a lot of things that people aren’t necessarily thinking about when they get ready to buy a home. And that’s setting them back financially in a lot of different ways,” he said.

Learn more about the hidden costs of homeownership. Listen to the full Money Life interview with Matt Brannon.

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