[this is a ymoyl update.]

after calculating what the car cost over the life of our relationship, i decided to dig through my old cbb records, gnucash records, house settlement papers, and income tax returns, and figure out what the house has cost so far, and what the consequences would be if i sold it today.


as near as i can calculate it, in the 4.5 years that i’ve owned the house, it has cost:

1st mortgage settlement fees $3,224.00
2nd mortgage settlement fees $3,121.23
mortgage interest $21,655.21
property taxes $5,929.18
home improvements $1,150.00
homeowner’s insurance $2,083.52

these are just the expenses incurred by virtue of owning the house, not including things like utilities which would have to be paid whether i owned a place or rented one.

softened by tax savings

next comes the part that gives me a pounding headache, trying to figure out what home ownership has saved me in federal income taxes. i use turbotax to prepare my taxes, and it doesn’t spell out how much is being saved by the various itemized deductions. endless googling has just led to endless confusion; the closest i’ve found to a clear formula is this:

   tax savings = (itemized deductions - standard deductions) * 15%   

what they call “standard deductions” seems to be not what the irs calls the standard deduction, but what the 1040 calls “exemptions” (one for each self, spouse, dependents, etc.). i have no idea whether this formula is correct, but i’m going with it; please let me know if you can tell me how to calculate this part correctly.

going with it, i get:

2001 $11,365 $2,900 = $8,465 * .15 = $1,269.75
2002 $13,503 $3,000 = $10,503 * .15 = $1,575.45
2003 $11,682 $3,050 = $8,632 * .15 = $1,294.80
2004 $7,492 $3,100 = $4,392 * .15 = $658.80

2004 is different because i stopped listing it as a primary residence that year and started listing it as a rental property. i was able to reduce my taxable income by a $2,637 rental business loss, 15% of which is $395.55, so i’m going to round the total income tax savings to $5,000, and reduce the house expenses to $32,163.14.

combined with equity

finally, we’re back on surer footing. the purchase price was $108,000, and i still owe $63,201.02 on the mortgage. if i were to sell it for what i paid, i would have put $44,798.98 into equity. $44,798.98 in equity plus $32,163.14 in expenses comes to a total of $76,962.12 that i’ve put into the house. only a little more than half of what i’ve spent on the house could be recovered. i could say i’d lost 42% of my investment.

softened by appreciation

now, adding appreciation: common wisdom is that 3%/year is a reasonable rate of return to expect. (let’s consider the office of federal housing enterprise oversight’s current 5-year figure for baltimore-towson of 89.14% to be optimistic/aberrant/silly/etc. somewhere between the truth must lie, so let’s take the most conservative case.) the compounding calculator closest to me says that after 4.5 years at 3%, the house would be worth $123,364.80. that would leave me with $60,163.78 after paying off the mortgage, or a 22% loss on the $76,962.12 i’ve paid. a little better.

hardened by sale costs

now let’s take off sale costs. if i sold through a real estate agent, common wisdom is that i’d pay 6% of the sale costs, or $7,401.88, reducing my proceeds from the sale to $52,761.90. back up to a 31% loss.

and softened again by rent, the bottom line

finally, let’s add the $14,100.00 rent i’ve earned since i started renting the house. if i consider that in addition to what i’d have after the mortgage and sale costs are paid, i’d end up with $66,861.90. i’ve spent $76,962.12, so i’ve lost 13%.

it’s good to do this kind of exhaustive accounting sometimes. if i looked at it too simplistically, as i’m afraid many people would do, i’d just say i bought the house for $108,000 and sold it for $123,364.80, so i made 12%, when in truth, i actually lost a little more than that. there are endless similar miscalculations that are often made, such as how much those $300/month car payments or minimum credit card payments actually cost over the years. keeping an eye on such things is a great way to avoid coming to a rainy day and finding that you had the money you now need, but it trickled away through unnecessary, unwatched finance charges.

i’m not planning to sell the house at the moment, but my curiosity was piqued when my tenant started talking about perhaps moving on in the spring, and i thought the end of the year would be a good time to do my first summary of the house finances to date. it’s good to know where i stand and what it would take to recoup the cash i’ve put into it. now that i have these numbers, i can update them every so often, and hopefully, if i sell in a few years, i’ll have inched closer to breaking even or making a real (not just perceived) profit.

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