Podcast

The Personal Finance Podcast

How to Run the Numbers When You Buy a House! (Total Cost of Ownership!)

In this episode of the Personal Finance Podcast, we’re going to talk about how to run the numbers on your personal residence.

In this episode of the Personal Finance Podcast, we're going to talk about how to run the numbers on your personal residence.

 

How Andrew Can Help You: 

  • Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here!
  • Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!
  • Watch The Master Money Youtube Channel!
  • Ask Andrew a question on Instagram or TikTok.
  • Learn how to get out of Debt by joining our Free Course 
  • Leave Feedback or Episode Requests here.

 

Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast.

  • Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp
  • Factor 75: Head to factormeals.com/pfp50 and use code pfp50 to get 50% off your first box. These are amazingly easy and nutritious meals.
  • Delete Me: Go to joindeleteme.com/PFP and use promo code PFP you’ll be able to save 20% off your DeleteMe subscription! Protect yourself online!

 

 Links Mentioned in This Episode: 

 

Connect With Andrew on Social Media: 

 

 Free Guides:  

The Stairway
To Wealth

Master Your Money with
The Stairway to Wealth

Transcript:

 

On this episode of the personal finance podcast, how to run the numbers when you buy your personal residence.

What's up everybody. And welcome to the personal finance podcast. I'm your host, Andrew founder of masterbody. co and today on the personal finance podcast, we're going to be talking about how to run the numbers. On your personal residence. If you guys have any questions, make sure you hit us up on Instagram, Tik TOK, Twitter at master money co and follow us on Spotify, Apple podcast, or whatever podcast player you love listening to this podcast on.

And if you want to help out the show, consider leaving a five star rating and review, cannot thank you guys enough. Those five star ratings and reviews. They truly mean the world to me. Now, today I am really, really pumped about this episode because we're going to be talking about how to run the numbers when it comes to buying your own personal residence.

Now, this is not how to run the numbers on a rental property. That is a very different calculation. What we're going through today is how to run. Total cost of ownership for buying your personal residence. Now, if you've never heard me talk about TCO or total cost of ownership, this is where you're actually figuring out how much money am I actually spending on a house?

When I buy it, I was first introduced to this concept years ago by Ramit Sethi in his book, I will teach you to be rich. And it is one of the most powerful lessons that you can learn when it comes to personal finance, because you have to learn how much. Total cost of ownership is when it comes to your house.

Now, this is important for a number of different things. See what the middle class do is a lot of times the middle class will think about how much is this going to cost me per month? What is my monthly payment? And can I afford that monthly payment? But what wealthy people do is they think about it in a very different way.

They think about this in total cost of ownership. And why that's important is because the monthly payment does not factor in all the other expenses that come up with any other expenditure that you purchased. This goes for your house. This goes for your car. This goes for anything else that has additional costs associated with it.

And for a lot of folks out there, specifically Americans, they put a big portion of their net worth in their personal residence. I think that's a mistake for a lot of people. And most people just don't know any better because they've been taught for years and years and years that a house is their best investment.

A house is a great asset. The baby boomer generation did this where a lot of people talk about this now where the baby boomers bought a house in 1970s or 1980s, and they bought this house for hundreds of thousands of dollars less, if not millions of dollars less than what it is worth now. And they just subtract, Hey, here's the amount that they paid for it.

And here's how much it's worth now. And this is how much money they made the difference between those two numbers. And guess what? That is not the calculation. And that isn't even close to the amount of money they made. And over time, a lot of these folks may have spent more money than you can even realize.

They might be actually breaking even, and they don't even realize it. But having the majority of your net worth in a house is not a great thing. So this is an amazing way to think about a house is thinking about it in total cost of ownership. And today we created a total cost of ownership spreadsheet. I want to give it away to you guys for free in this episode.

It is going to be linked up in the show notes that you can follow along. We're gonna be talking through this spreadsheet and what all these numbers mean in this episode also. But this total cost of ownership spreadsheet is going to help. You learn how to run the numbers on your house because I don't want you overpaying for a house that can kill your wealth building ability.

So this is incredibly valuable information for you to understand. I don't want you to get trapped buying a house that paralyzes your wealth. That is the most important thing that we are going to be talking about today. So we have that TCO spreadsheet. It's gonna be linked up down below. I want to make sure that each and every single one of you take advantage of that TCO spreadsheet completely free so that you can do this and make sure that you are running the numbers.

Now, I want to say this up front. I am a long time homeowner. I own a home, but I own a home for a very different reason. I don't own it to build financial wealth. In fact, I think a home is a different type of investment. It is not a great financial wealth builder over time. Sure. Your net worth is definitely going to go up if you own that house.

But homes historically have increased anywhere from one to 4%. When you factor in all these other expenditures. So when you look at something like the S and P 500, for example, and what that has returned over the course of the last 50 years, it has returned slightly over 10 percent to investors. It is much better to look at the differential between buy versus rent.

When you are doing this calculation and putting your extra dollars towards something like an investment to build your wealth over time. But that's not the only reason that you buy a house. The reason why you buy a house in my personal reason why I buy a house is this isn't an investment in your family, which for a lot of people is much more important than the financial side.

So there are a ton of different reasons why you would buy a house. Maybe you like to do interior design. For example, maybe you love to just do landscaping on your own yard. You don't want to invest those dollars into something else. Maybe you love the neighborhood. You love the school district for your children.

There were so many different. Amazing reasons to buy a house, but as your primary financial decision, it is not number one. And we're gonna talk about that here today. And for some people, buying a house is not a better financial decision than actually renting. And this calculator, our T C O spreadsheet, is actually gonna give you that information.

What would happen if I rented? What would happen if I bought a house? And how much is this house actually costing me in comparison to renting? We're gonna talk about all of this stuff today. Now, first, before we dive into some of these numbers, we need to talk about, you know, when can you buy a house in association to things like the stairway to wealth?

And when should you actually consider buying a house? So when it comes to this? If you don't know what the stairway to wealth is, it is the step by step guide on how to allocate your dollars and what to do with your money over time. So I want you to make sure that you check that out as well. We'll link that up in the show notes.

It is always linked up in the show notes, but when it comes to the stairway to wealth, I want you to make sure you at least are getting that employer match. If it's available for you, I want you to at least have a six month. Fully funded emergency fund before you buy a house, because as you're going to see, there's a lot of expenses that comes up.

You need six months of emergency funds if you are a homeowner. And then in addition, I also want to make sure that you don't have any high interest debt. You got to pay off that high interest debt and you're investing in retirement. Those are the qualifications prior to going out and buying a house. You need to make sure that you.

Or taking those steps because those steps are so incredibly important and they are so powerful to make sure that you are over those high interest at anything above a 6 percent interest rate. You need to have paid off outside of a standard mortgage that you already have. You need to have that paid off before you buy a house.

So that is a really, really important rule. And then looking to make sure that you buy the house right with the 2033 rule is the other rule that we have. So 20 percent down, unless you are a first time homeowner. I am okay with you putting less than 20 percent down, but if you are a second time homeowner, you need to roll that equity from the first house into that second house.

You need to have 20 percent down, avoid that PMI, which we'll talk about PMI more today. And then in addition, 30 percent or less of your income needs to be spent on that mortgage payment. I would like that much lower than 30%, but 30 percent is the cap for a lot of people. If you're in bigger cities and you are spending that much on your rent, or you're spending that much on your housing, then maybe you're spending less on transportation.

That's what the trade off is. So you just got to think about that as you go through this process. And then no more than three times your household income spent on the purchase price. Now that gets harder and harder as prices start to rise right now. But say, for example, you have a household income of 130, 000.

Maybe you work and your spouse works. Then no more than three ninety four hundred thousand somewhere in that range should be spent on the purchase price now This can be difficult in some areas Which is why when you run these numbers it is very important to understand this this number actually came from the book the millionaire next Door and they found that this is a perfect number for a lot of folks who want to become millionaires This is the number to make sure that your housing costs stay low enough I have followed this rule with every single purchase of every single house that I have Ever had over the course of my lifetime, and so I think this will work really well for me.

It can work really well for you, and sometimes you just have to wait a little longer to make sure that that purchase price is okay, but that is the number that I like to follow. Hey, you can do whatever you want, but this is the guidelines that I like to follow. People get ticked off when I talk about these guidelines a lot of times because it doesn't fit their parameters.

But sometimes you have to change your financial situation before you can make massive financial decisions. Like this housing, food, transportation are the big three that if you control these three expenses, you can build a massive amount of wealth. If you control those three expenses, just understanding that before we dive into this episode, dive into some of these numbers is really, really, really important.

It's a huge prerequisite for a lot of people. They need to know how this works and you need to know how to make sure that you buy that. And so as we go through this, I'm really, really excited for you guys to have access to the spreadsheet. And we're going to go through what some of these things on the spreadsheet means.

And then in addition, we're going to just talk through this. So even if you are going out and buying a house, maybe you don't want to utilize the spreadsheet, but you can understand what each of these expenses. Are when it's associated to a house. And maybe if you're younger, you think you're going to buy a house in 10 years.

You can look at this, or if you've already purchased a house, you're going to be shaking your head. Yes. I know those expenses pop up all the time for me and you understand what this is like. So as we do this, we're going to go through all of these different expenses. I'm going to show you how to research each one of these expenses and figure out how much they cost.

And in addition, we're going to go and. Talk about some of the averages nationally for some of these expenses as well. So if that is something you're into without further ado, let's get into it. All right. So as we go through this, uh, we're going to be talking about each and every single one of these metrics.

When you do total cost of ownership on a house, it's very, very important that over time, if you just check out this spreadsheet, you're gonna be able to run these numbers pretty quickly. It's going to do the calculations for you. So step one on the spreadsheet and number one thing obviously is to set up your currency.

So for my folks who listen in Canada, or my folks who listen. And in Great Britain, we have a ton of worldwide listeners who listen to this podcast, which I'm so incredibly grateful for. So we set up that currency piece in there for you as well, so that you can have the currency available to you and you can adjust that currency based on whatever your currency is.

And then in step two, you're going to set up your years of analysis. So between those two things, you can set up a timeline of how long you want to analyze this. Some people get a 10 year mortgage. Some people get a 15 year mortgage. Some people get 20. 30, and now there's the 40 year mortgage. So there's a lot of different factors that you want to put in there.

Uh, I defaulted this to 30 years so that you have that available, uh, for you here. So the first number we have to know obviously is the purchase price. And we just talked about purchase price recently, but I like it to be three times or less. Your annual household income. This is your gross income, not your net income, but your annual household income.

And that just comes from the book, the millionaire next door. If you haven't read the millionaire next door yet, one of my favorite books out there, it absolutely changed my life. So you put your purchase price in there. Then we have down payment. So let's talk about down payment for a second, because there's a bunch of different options when it comes to down payment.

Like I just talked about early on the 2033 rule. I like you to have 20 percent down if it's your second house and if it's your first house and you can save up enough, then 20 percent down is great. But if you cannot save up enough, guess what? On my first house, I did not put 20 percent down. That's the big secret here.

I put less down because I was just starting out. I was not making a ton of money and I wanted to get into my first house to invest in my family. So when I did this, There's a bunch of different options that you have available to you. I think I put 14 or 15 percent down if I remember correctly, even so you have things like FHA loans, or if you're in the military, you have BA loans.

And so an FHA loan is 3. 5 percent down. The VA loan is actually a 0 percent down loan. There are other loans out there like the traditional loan where you can put three, four, five, 10, 15, 20%. There's a bunch of different options that you have available to you. But as long as your numbers hit enough where you're spending less than 30 percent of your income monthly on that mortgage, then it's going to be okay.

As long as you got that emergency fund in place, you're investing some of that money, you're going to be okay. So making sure that you at least get 30 percent or less now, if you want to become financially independent really quickly, this is one other caveat to make sure that you understand is if you want to become financially independent in 10 years or less, you want to get that number much lower.

I like 20 percent monthly spent on housing so that you can really take those extra dollars, put them towards your wealth building so that you can get to that retirement number, get to that freedom number and have that freedom in your life. Really, really powerful stuff here. So those two were up front.

Then we have things like closing costs, for example. Now, closing costs can be a very long list of how to figure out what your closing cost needs to be. And this is going to be really helpful when you start to do this, when you talk to your lenders. If you are going to start looking for a house, you need to go out and you need to get pre approved.

So that means you need to go start talking to lenders first before an agent is even going to be willing to work with you. So what you do is, with this process, you're going to go get pre approved for your house. And then you're going to ask them some questions as to how much their closing cost cost based on the purchase price.

And maybe they can give you a percentage. Maybe they give you a number, they give you a rough number, and you just always go on the high end when you're running some of these numbers. So there are things out there like. Loan origination fees and loan origination fees are typically half a percent to one percent But with all of these you need to confirm because it is very specific to your lender There are things like appraisal fees where they figure out how much the house is actually worth and this can be anywhere from three hundred dollars to four hundred and fifty dollars There are things like title search fees to make sure there are no liens on the house.

And this can be anywhere from 200 to 400 title insurance. And this can vary depending on your lender as well. So title insurance is another piece of closing costs. There are surveys that may have to be done. That's another. Closing costs, which can be anywhere from 350 to 500. Then there are taxes for this transaction.

It varies by location. So check what those taxes would be. Then there are deed recording fees could be 50 to 150, sometimes even more, depending on where you are. These are just some of the closing costs that I want you to consider. We put all of these in the spreadsheet so that you can factor those in when you purchase the house.

But this can range to be a few thousand dollars, depending on how much you are spending on a house. I remember our first house, we bought it for 169, 000. And in that first house, we spent thousands and thousands of dollars on closing costs alone. So you got to make sure that you are factoring these in and try to take the high end so that if you have a couple extra bucks left over, you can use those dollars for other things.

In addition, you also on these upfront costs, these are just the upfront costs that we're talking about here. As we go through this, you want it to consider home inspection, never. Ever, ever buy a house without having a home inspection. If they try to make you waive home inspection, you tell them, Hey, why don't you go out there and you can get a vest with a bunch of pockets in it.

You can get a stick and you can go ahead and take a hike because there is no situation where you should ever, ever forego a home inspection where you were buying a house as your personal residence. That is a recipe for you to spend a ton of money on repairs that you have no idea exists. So what a home inspector does obviously is they go through the house, they make sure that everything is in proper working order and they're going to find stuff every time they find stuff, especially if this is an existing house.

That is wrong with the house. And you can use this as a negotiation tool when you go to closing and purchasing that house. So just make sure you always get a home inspection. This can cost anywhere from 300 to 500, depending on the size of the house, at least in my area, that's what it costs. Uh, and you want to make sure that you get a good home inspector.

So go out there. Research some of the best home inspectors out there. Get some recommendations because your home inspector is a very, very important part of this process. And they need to be super technical and they need to be picky. You want that home inspector to be as picky as possible. So they find every little thing.

If you have a home inspector that just kind of wallows and goes to the house and they finished that house in an hour. That's not what you want. You want your home inspector taking hours and hours coming through this house, making sure your windows are sealed properly, making sure the AC works, the roof is okay.

Making sure your foundation looks good. Everything, the sprinkler heads, your sinks are all in working order. Every little piece of this house needs to be in working order. They need to check that for you. So never ever forego home inspection. And then you want to also want to factor in initial repairs and renovation.

So initial repairs and renovation. If you see some things that you want to do, I remember our first house, there were some things that we wanted to do in those initial pairs and renovations. So we went out there, got a contractor, got some quotes. So make sure you have those as you go through this process.

Cause you're gonna want to make the house your own, I'm sure. So making sure you have those renovations there is going to be really, really. Important. So your upfront costs, your total down payment are going to be the totals of all of those different pieces. So that is the next step that you need to follow before you go through this process.

Now, what we need to do is we need to figure out what our ongoing costs are. Now, the ongoing costs are what a lot of people forget about when it comes to owning your home. Some of these you may be thinking about. But then the other pieces are things that are invisible costs that you never ever think about when you own a house and ongoing costs are really, really important for most people to make sure that they understand.

So obviously the first thing on the ongoing cost is the amount of mortgage that you took out. And your interest rate and these two things are going to factor in on what your monthly payment are going to be. So you have to know these two numbers. So say, for example, if you go out there and you have a mortgage amount of 200, 000 and your interest rate is 6.

5 percent like it is right now over the course of 30 years, you would have your mortgage payment every single year, your mortgage payment per year. Would be about 15, 169. And you can factor in that to the monthly amount and figure out how much you actually need to stay below that 30 percent of your income.

Now, when it comes to this, you have a couple of options when it comes to the loan term, you can get a 15 year mortgage. Folks like Dave Ramsey always talk about, you need to get a 15 year mortgage, pay it off as fast as possible, or you can get a 30 year mortgage and have that where you're paying it down over the longterm.

So you have a number of different. options there. If you get a 30 year mortgage, you can pay it down like a 15. And then if anything happens where you lose your job or something like that, you may not be obligated to make those payments up front, but you've got to have discipline in order to do that. So this is a personal preference, making sure to see what you can afford.

I usually do 30 year mortgages on my houses and then I just make extra payments if I want to. But typically like right now, my house. For example, has a 2. 6 percent interest rate. So I'm not paying that thing down anytime soon. I'd rather invest those dollars because they'd be much more productive being invested than paying that down.

And next is a big one is property tax. Now, property tax is going to be something that you're going to be paying every single year. And a lot of times it'll be baked into your mortgage costs, or you can separate them. You got to see if there's a savings, if you separate them, but usually your property tax is going to be baked into your mortgage costs.

How do you figure out what your property taxes are? One way is the MLS. When you're looking at houses, your agent can tell you what they are. But the second way is you can go and search your county name and property appraiser. So say you live in orange County, say orange County property appraiser. And when you do that, what's going to come up as the property appraiser.

And then you can search the address of the house that you're looking at. And it will tell you what the taxes were the last couple of years. And so you can see what those taxes are over the course of at least the last three years. And then you'll see they go up every single year. And so you want to factor that number in of what your property tax is and put that in.

Also, we have homeowners insurance. So homeowners insurance is something you have to pay every single year, especially if you have a mortgage, unless you pay all cash. So homeowners insurance is definitely something you want to have. Typically, it ranges anywhere from 300 to 1, 000 per 100, 000 spent, but there's a ton of different factors out there when it comes to your homeowner's insurance or things like the age of the home.

So for example, my first house was significantly smaller than my house is now, and my house now has cheaper insurance than my other house did because my house now we just built in 2020 and my other house, my smaller house was built in 1985. So because the age differential, my old house was much less efficient.

Meaning it is much more likely to break down than my newer house is because it's a brand new build. So all those things matter when it comes to homeowners insurance. So you want to go out there and get quotes on the properties that you are looking at. You can talk to a local insurance agent, uh, and make sure that you get those quotes and that will help you out over that timeframe.

Then you have PMI. So if you put less than 20 percent down on your down payments, you're going to have what is called private mortgage insurance or PMI, which is a monthly payment that you're going to have to pay throughout the lifetime of your loan. There are some things that you can do to get it. off of your mortgage.

Uh, we can talk about another time, but having that PMI there is something you've got to factor into that number. And so your PMI can vary from a lot of different places. When you talk to different lenders, make sure that you understand what PMI is going to cost on that loan. So you got to ask them that question.

Make sure you write that question down. Next is HOA fees. If you live in a location where there are HOAs and you got to make sure that you factor in those HOA fees, they can be anywhere from 50 to a hundred bucks a year. All the way up to hundreds of dollars per month. So making sure that you know what those HOA fees are, cause that can kill a deal really quickly if you're buying a house, uh, and can put you over that 30 percent for a lot of people, making sure you understand that is important.

Now, if you're in a new build situation, maybe you are out there and you just built a brand new house and maybe they put new roads in things like that. Another consideration that you want to think about is called C. D. D. Fees and C. D. D. Fees or developmental fees that they will bake into your taxes and your taxes are gonna go way up if you have those C.

D. D. Fees. So make sure that you know if a new development, if you're building a house, has those C. D. D. Fees because it's very, very important to know that that could change your calculations. Big time. Really, really big time. Now, let's talk about some of these phantom costs that come up. Most people, these are the things that they do not think about.

And Ramit Sethi calls these phantom costs because you really don't think about their invisible costs that you do not see. And these are going to be things that come up, for example, like maintenance and repairs. So we have a calculation on the calculator that talks about maintenance and repairs and how you can figure out some of that stuff.

And typically this is anywhere between one to 4 percent of your property value. Every single year is what you're going to spend on maintenance and repairs. Very, very important that you factor this in. Now, this is stuff like when things break down, maybe for example, you have something that breaks down and you have a leaky faucet, you got to call a plumber out to come get that, or you have to go to home Depot to get the materials to fix that leaky faucet.

Or your AC breaks down, you got to call an AC person or your refrigerator breaks. You got to call the refrigerator person or your washer and dryer break. You got to call the washer and dryer person. The list will go on and it will go on. And all the homeowners who are listening to this podcast right now are saying, amen, because the reason for this is this comes up all the stinking time.

You're going to have to repair your house. All the time. And you may be thinking, Hey, it doesn't happen that much in my apartment. It's not going to happen that much in my house. You are responsible for everything in your house. It needs to be repaired. If you don't make the repairs, a lot of times things are going to get a lot worse and more expensive for you.

So maintenance and repairs is a massive thing that you need to make sure that you are saving up for. Now, typically what I do when I am saving up for home repairs is I have two categories. I have one for maintenance and repairs like the regular everyday maintenance of little things break down. I have a savings for that and I automatically send money to my savings bucket for that.

But in addition, I automatically send money to my larger capital expenditure repairs. These are things like if my water heater breaks or if my air conditioning goes down, I'm in the middle of Florida. If my air conditioning goes down, I am not going to be a happy camper. So I have to have the money ready to fix that immediately.

In addition, if major plumbing issues happen or when you need a brand new roof, for example, or when you have to repaint your house, let me just tell you something real quick. Painting a house. You can do it yourself on the exterior, but if you have an HOA, a lot of times they won't let you, but it is a long arduous process, but if you have somebody else paint the exterior of your house, it is a very expensive process.

It is thousands and thousands and thousands of dollars, depending on the size of your house. So you have to factor in things like that, for example, and over time, you're going to have to paint your house every five to seven years on the exterior and the interior. You're probably gonna have to paint it every three years.

These are maintenance items that you have to do when it comes to maintaining a house. Let me just give you an example. I have a brand new house. And I still have maintenance items that go on here all the time. We just had to repair a big leak on the outside of our house from a plumbing fixture that was not put in properly.

So we had to do that. That cost hundreds of dollars. We had a garage door opener go down. That was hundreds of dollars. And so this kind of stuff just pops up. All the time. And this doesn't even count the next category. The next category is going to be landscaping or yard maintenance. So when it comes to landscaping or yard maintenance, this is another thing that you definitely want to be thinking about when it comes to buying a house.

This is really, really important to understand, okay? Because a, you have things like lawn care. So lawn care is going to be a big factor. How are you going to spend money on lawn care? I'll tell you how much I spend on lawn care every single month. My lawn is not that big. And we spend about 55 per month on lawn care.

That is really, really cheap in my old house. It was 140 per month. So at my house, currently we spend about 55 per month on lawn care, but that's not the. End of lawn care. We also spray the lawn so that weeds don't come in and ruin the lawn. So we also have to spray the lawn and it's about 60 bucks per month to get that lawn sprayed every single month.

I used to try to spray it myself. I messed it up every single time. So now somebody comes in, we never, ever have any issues. The lawn is always looking crispy and clean all the time. So that is just lawn care. Then you have landscaping. So in the last month alone. I've put in new mulch all the way around the house because you have to remulch two to three times every year.

So we put new mulch all the way around the house. I've added some landscaping items, some rocks, some gardens. I've spent over 500 just on adding landscaping in the last two months alone. And these expenses just continue to pop up and people don't factor these numbers. In when they are running the numbers on a house.

So all of this stuff happens all the time. You are frequently finding that you're going to be spending a few hundred dollars, if not more on maintaining your house to keep it up to date. Now, I also have a pool and when you have a pool, I'm the middle of Florida. So a lot of people have pools in Florida, then we have to have pool care.

And the thing is. I can either hire somebody to do the pool care so I can get my time back, which is my preference when it comes to a lot of these home maintenance items and or what I can do is I can go out there and do it myself. But when I do it myself, the chemicals are going to cost me about 100 bucks per month plus hours and hours of my time every single weekend.

Or I can spend what I spend now, which is 140 per month to get it maintained, to get it vacuumed, to get it brushed every single week. And they do an amazing job, a much better job than I ever would. They also maintain the filters. They make sure there's enough chemicals in the pool. They do everything for me so I don't have to worry about it.

So that is another 140 per month that I just have to spend on that. In addition, I have a cold plunge and my cold plunge is from the plunge. It is one of my Favorite things that I use every single day. It gives me a ton of energy. It has a ton of amazing health benefits. I sleep better. All of these amazing things happen with my cold plunge.

I cannot stop talking about it. I tell people all the time. And in fact, everybody that has used my cold plunge comes back over to my house and asks, can I come over and just to use the plunge? So it is an amazing, amazing tool that I have, but I have to maintain that as well. It's almost like having a little mini spa.

I'll actually link it up down below. Cause I love this thing so much. So I will link up the plunge down below. If you want to check that out is an amazing tool. Thank you to the plunge for sending me that, but it is one of my favorite things, uh, that I use, but you got to maintain that as well. So there's a ton of different things on this list.

That are really, really important for maintenance and yard maintenance and landscaping maintenance. You want to make sure that your house is presentable. You want to make sure that you upkeep on that house. You have things like bushes or trees or trimming those things. All of this stuff comes into play.

It's either going to cost you your time. Or it's going to cost you money to buy the supplies, the lawnmower, the weed, the edger, all of those things you have to purchase if you're going to do it yourself. So, so many different factors come into play here. A lot of the maintenance stuff I will do myself and then have somebody do the weekly lawn care or the weekly maintenance.

And then like, for example, the mulching, I did that over the last week in myself because it is just hundreds of dollars cheaper for me to do it instead of hiring somebody else. So, there's things like that that matter. Another piece that people don't think about or home security systems. All right. How much that's going to cost every single year or different items that you're going to be putting in your home to make sure that you have a safe, secure space.

And in addition, we're gonna talk about utilities because all the utilities are on you. Sometimes if you live in an apartment or you rent, they take care of the utilities. Sometimes they are on you, but in a house, they're always on you. And if you have more space in your house than you do, when you're renting, your utilities are going to go up.

So this is things like water, electricity, gas. Trash, sewer, all of this stuff you need to factor in. This is all in the spreadsheet. These are all ongoing costs that you definitely want to make sure that you are thinking about. And then we have a category for those major repairs that I was just talking about.

So this is roof replacement, any other major repairs, your HVAC system, bathroom upgrades, kitchen remodels. So all of your renovation and upgrades, you're going to want to upgrade at some point in time that costs thousands and thousands of dollars to do. So you got to make sure that you are factoring that in.

And then in addition on that future cost information section there in step five, we also have property value appreciation because I want you to factor in how much is going to appreciate over time. Like I said, the average home is 1 percent to 4%. Uh, so we just default to 3 percent typically on this spreadsheet, but you can put whatever you want in there to figure out what that property value appreciation is.

If you're buying a house, for example, that is just completely. in terrible condition. Maybe it's got shaggy carpets, purple walls like my first house did. Maybe you can put a little more on this appreciation because you're forcing value into that house and you could do something like a live and flip. For example, that is another calculation and live and flips.

That's a different calculation than this, by the way. So just making sure that you understand that is really, really important. Next, we're going to talk about the exit cost information because when you buy a house, eventually you're going to sell a house and those costs are going to come up no matter what.

And they hit your bottom line, no matter what. So when it comes to exit cost information, you need to make sure that you factor this in as well. So the sales amount is going to dictate what it's going to be. So the way we set this up is say, for example, you put 30 years at the top of the spreadsheet and you have a 3 percent appreciation rate, then your sales amount.

Is going to be whatever that appreciation is over those years, and so your sales amount, for example, if you had a 250, 000 house and it appreciated at 3 percent every single year for 30 years, the house would be worth about 606, 000 by the time you went out and you actually sold that house. But guess what?

Now we have real estate commissions because the seller usually pays the real estate commissions. And right now, real estate commissions are anywhere from two and a half percent to 3 percent on each side, which means it's about five to 6 percent to you of that sale price. So that is a significant expense that is going to be there.

So if you sold a house for 600, 000, you're paying that real estate agent 30, 000 to sell that house at a 5 percent commission. Then you have capital gains tax. So there are a bunch of factors that come into play when it comes to capital gains tax. So if you are a single filer, you are excluded from capital gains tax for 250, 000 for a single filer and up to 500, 000 for married couples.

As long as you have lived in the residence for the last Two of five years, but you got to make sure, you know, if you're listening to this in the future, make sure you look up the current rules to see what that is, but if you have to pay capital gains tax, we have a number in there to prep that as well.

And then we have staging and home prep costs. It costs money to prep your home, to get it to ready to sell. The expenses never end when it comes to making sure that you have your home ready. So homes are just really, really expensive things. Great family investments, not the best financial investments that you're going to see when you run these numbers.

So the exit costs, for example, the costs just to exit a house at 606, 000. In our example here, if you had a 5 percent real estate commission, if you had 15 percent capital gains and you had staging and home prep costs, it's about 84, 000 that you're going to spend that you're going to lose out on that exit cost just for exiting a house.

People don't factor this number in. It's not a number they even think about. They just try to take the purchase price from the actual price of the sales amount and it comes out to a massive amount of money over time. So This is just something you got to think about and figure out how much you have. Now, we also entered into this spreadsheet, uh, the opportunity cost and rental cost information.

Obviously opportunity cost is something I talk about in this podcast all the time. So I want you to enter some of those numbers in and think about, Hey, how much interest did I lose out on that money? How much is the total rent in my area? And then how much does rent appreciate over the course of that timeframe, whatever that timeframe is.

And then you can figure out what your total buying costs would be. And your total rent costs would be to see what the best decision is for your specific areas. Now I want you to get really specific on these numbers. This is a massive financial decision that you really want to get right. You do not want to mess this up.

And so that is why I created this for you. I want to give you as much value as we possibly can. So we created this total cost of ownership calculator so that you can learn exactly how to run the numbers on your personal residence. If you guys think there are things that I need to add to this. Things that I have missed, please give me that feedback.

Let me know. We want to make this the best possible resource for you. So just let me know. We will have the team adjust some of this stuff so that you can have this total cost of ownership calculator be the best possible thing that you have available to you. I truly appreciate each and every single one of you listening to this podcast.

You are reinvesting in yourself by listening to this podcast and thank you so much for investing in yourself. And if you're getting value out of this, or, you know, somebody who's about to buy a house. Share this episode with them or share the spreadsheet with them so that they can run these numbers.

Make sure that they are making a sound financial decision. Really, really powerful stuff. Again, I love owning a home. I've owned a home for a very long time, over a decade. Uh, we have been homeowners and it is a really great thing for us and our family. We've really enjoyed the experience, but you just want to run the numbers.

See if you're in your area, it makes more sense to rent than to buy. There was nothing wrong with renting. I want to reiterate that over and over and over again. It is not mean that you are bad with money. In fact, a lot of people who rent are good with. Money. So making sure that you run these numbers is how you become a really, really sound wealth builder and wealth builders will run the numbers just like this so that they can get to that financial independence number that they've truly, truly desired.

So listen, I appreciate every single one of you listening. Thank you so much. And we will see you on the next episode.

More Episodes You Will LOVE:

How to Start Your Millionaire Mission Wth Brian Preston

In this episode of the Personal Finance Podcast, we’re going to talk to Brian Preston about how you can be on your millionaire mission.

View Episode

How to Negotiate Your Salary and Get a Raise (The Step-By-Step System!)

In this episode of the Personal Finance Podcast, we are going to talk about the step by step guide on how to negotiate your salary.

View Episode

7 Reasons Why Job Hopping May Be Your BEST Career Move to Get Rich

In this episode of the Personal Finance Podcast, we are going to talk about the seven reasons why job hopping may be your best career move.

View Episode

Here’s What Our ListenersAre Saying

Customer Reviews 4.8• 477 Ratings

5/5
Never Too Late, And Here’s Why!

Andrew is positive, engaging, and straightforward. As someone who saw little light at the end of the tunnel, due to poor saving/spending habits, I believed I would be entirely too dependent on Social Security. Andrew shows how it’s possible to secure financial freedom, even if you’ve wasted the opportunities presented in your youth. Listened daily on drives too and from work and got through 93 episodes in theee weeks.

Bradley DH
5/5
Just What I Have Been Searching For!

This podcast has been exactly what I have been looking for. Not only does it solidify some of my current practices but helps me to understand the why and the ins-and-outs to what does work and what doesn’t work! Easy to listen to and Andrew does a great job and putting everything in context that is applicable to everyone.

M. Marlene
5/5
Simply Excellent!!!

Excellent content, practical, straight to the point, easy to follow and easy to apply! Andrew takes the confusion, complexity and fear as a result (often the biggest deterrent for most folks) out of investing and overall money matters in general, and provides valuable advice that anyone can follow and put into practice. Exactly what I’ve been looking for for quite some time and so happy that I came across this podcast. Thank you, Andrew!

Katica_KateKate
5/5
Great Information In An Understandable Way

Absolutely a must listen for anyone at any age. A+ work.

GiantsFan518
5/5
Wealth Building Magician

Absolutely love listening to this guy! He has taken all of my thoughts and questions I’ve ever had about budgeting, investing, and wealth building and slapped onto this podcast! Can’t thank him enough for what I’ve learned!

Dmoney7777
5/5
Fun Financial Literacy Experience

I discovered your podcast a few weeks ago and wanted I am learning SO MUCH! Finance is an area of my life that I’ve always overlooked and this year I am determined to make progress! I am so grateful for this podcast and wish there was something like this 18 years ago! Andrew’s work is life changing and he makes the topic fun!

mariasarchi
LOAD MORE

The StairwayTo Wealth

Master Your Money with The Stairway to Wealth

Learn to Invest and Master your Money

You know there’s power when you invest your money, but you don’t know where to start. Your journey starts here…

The Stairway To WEALTH

We will only send you awesome stuff

PRIVACY POLICY

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Semper feugiat nibh sed pulvinar proin gravida hendrerit lectus a. Sem viverra aliquet eget sit amet tellus. Pellentesque habitant morbi tristique senectus. Sem viverra aliquet eget sit amet tellus cras adipiscing. Amet justo donec enim diam vulputate ut pharetra sit. Sit amet consectetur adipiscing elit duis tristique sollicitudin nibh sit. Pulvinar etiam non quam lacus suspendisse faucibus interdum posuere. Iaculis at erat pellentesque adipiscing commodo. Aenean et tortor at risus viverra adipiscing at. Volutpat blandit aliquam etiam erat velit scelerisque in dictum. Eu augue ut lectus arcu. Lorem donec massa sapien faucibus et molestie ac. Mauris in aliquam sem fringilla ut. Ut porttitor leo a diam. Malesuada pellentesque elit eget gravida cum sociis. Lectus urna duis convallis convallis. Ipsum dolor sit amet consectetur adipiscing.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Semper feugiat nibh sed pulvinar proin gravida hendrerit lectus a. Sem viverra aliquet eget sit amet tellus. Pellentesque habitant morbi tristique senectus. Sem viverra aliquet eget sit amet tellus cras adipiscing. Amet justo donec enim diam vulputate ut pharetra sit. Sit amet consectetur adipiscing elit duis tristique sollicitudin nibh sit. Pulvinar etiam non quam lacus suspendisse faucibus interdum posuere. Iaculis at erat pellentesque adipiscing commodo. Aenean et tortor at risus viverra adipiscing at. Volutpat blandit aliquam etiam erat velit scelerisque in dictum. Eu augue ut lectus arcu. Lorem donec massa sapien faucibus et molestie ac. Mauris in aliquam sem fringilla ut. Ut porttitor leo a diam. Malesuada pellentesque elit eget gravida cum sociis. Lectus urna duis convallis convallis. Ipsum dolor sit amet consectetur adipiscing.