Actual ROI on primary residence

[Carpe Dime]

So after some back-of-the-napkin math, it looks like we could expect a roughly 7% ROI on the investment on our new primary residence (Boulder-here we come!).

The factors included:

• Rough estimates of appreciation, we used 4%/yr which was the low end of a range of 4-6% for the area.
• Equity from improvements we plan on making--material costs only, I'd be doing most, if not all the work
• Equity added from mortgage payments
• Cost of sale--6% broker fees
• Tax savings from deducting interest payments

We didn't include any estimates for maintenance since most of the improvements would address short term issues.

I tried to find some benchmark for actual ROI, but ended up finding more results based solely on profits from the initial down payment--which didn't seem realistic to me.

If that number holds up, it seems like a reasonable return. Should I expect better or worse?

Do you all know of tools/spreadsheets to calculate ROI more precisely?

[yddeyma]

I have a spreadsheet that calculates rental ROI.  Not sure what you mean by ROI on buying a new primary residence....by definition housing for your personal use is an expense.  Unless you're using the property to generate income, not sure how you would get any ROI on it.  You can use the house as leverage to do other things, but ultimately it takes money out of your pocket so it is an expense.

Now, by buying a new house you may end up with some cash in your pocket (from selling the old) and cheaper monthly expenses....but that's not ROI.

[waltworks]

If you are flipping a house, or renting it out, you can calculate an ROI. Otherwise, if you plan to live in it indefinitely, there is no ROI to calculate - lots of money going in, no money coming out. Yes, you might sell the house someday and make some money but that day is probably far off and the price it will sell for is impossible to predict. Boulder might keep going nuts (we just sold a really crappy place there for $270k that had appreciated too much to keep as a rental, things are crazy there) or it might not.

Historically house prices rise at about 1% over inflation so non-flip/non-rental primary residences aren't fantastic investments in general. Obviously you can do much better if you get lucky, or you can do much worse.

-W

[arebelspy]

If you pay yourself rent (you won't actually do this, but pretend), and pretend you're a landlord for your primary, you can calculate the theoretical yield on the investment, since it's giving you an alternative to paying rent.

[waltworks]

Yes, but running that calculation in Boulder right now will just be depressing. I should know, we sold a place I swore I'd *never* sell this year because prices went up so much in the last 5 years I just couldn't justify holding it anymore.

-W

If you pay yourself rent (you won't actually do this, but pretend), and pretend you're a landlord for your primary, you can calculate the theoretical yield on the investment, since it's giving you an alternative to paying rent.