Buying a Home May not be As Good as an Investment As You Think

Realtors are always promoting real estate as a great investment, but it's not always the case not even here in the Silicon Valley.

I meet a lot of buyers who are in the financial position to purchase a home, and while the media and most agents will lead you to believe it’s a great investment it does not always work out that way.

A few months back a homeowner contacted me about selling his condo.

While working with another agent, he purchased a 2 bedroom condo in Sunnyvale in 2018 when the market was high. A few years later he got married and had a baby and realized the space was not sufficient for his new family. They needed to move into a larger place.

He thought about renting the home but the rent wouldn’t come close to covering his expenses, and it would affect his ability to qualify for a new home. There were not many options but to sell the home and move.

Here is a quick breakdown of his financial situation in relation to the condo.

$1,000,000 Purchase Price

$200,000 Down Payment

$5,000 Estimated Closing Costs

$800,000 loan at a 3% Interest Rate

Monthly Costs:

$3,400 Mortgage, $500 HOA, $1000 Property Tax

Total Home Carrying Costs:

$4900 Per Month. Rent in that Area for a comparable condo is around $3500.

48 months of paying $1400 more for owning versus renting: $67,200.

Principle paid in 4 years is roughly $70,000.

The principal amount still due on the loan is $730,000.

As you can see from the chart above the value of a condo in 2018 is roughly around the same value in 2022.

Condos and townhomes, especially with only 2 bedrooms have not appreciated well in the last 4 years.

When the homeowner sold his condo he was able to sell it for roughly the same price as he paid for it, around $1,000,000.

Selling Costs: $50,000 (Commissions and Closing Costs)

So let's do the math here.

Condo sells for $1,000,000.

Minus $50,000 in selling costs. ($950,000)

Subtract the $67,200 difference in Rental Cost versus Home Payment ($882,800)

Subtract $5000 from closing cost when purchasing. ($877,800)

Subtract the $730,000 remaining loan. ($147,800)

Original $200,000 investment is now $147,800 a 26% drop in 4 years.

This doesn’t factor in any cost of the improvements and repairs the owner made to the home in the last 4 years and improvements to get the home listed and sold.

"My wife and I recently bought our first house with Vinicius. We met him by chance when we stepped into a house he was selling. We were so impressed by his honesty that we decided we want to work with him as our agent.
Vinicius is one of the most honest persons I have ever met. We saw dozens of houses with him and spent long hours during long night phone calls trying to make up our mind whether to buy a specific house or not. Each conversation with him was a pleasure and educational since he knows so much about the bay area and the different neighborhoods in each city. Other than that he is also very knowledgeable regarding renovations fixes and costs that might come to play after you buy a house. And he always considers those things before giving his candid opinion on a house. We looked for the right house with him for close to 5 months and he was always very patient and never tried to push us to a deal. Vinicius was always (and still is:-) available during the whole process and I see him today much more as my friend then a realtor. Vinicius is highly regarded (from my experience) by other realtors in the area. I have already recommended him to friends of mine and definitely will recommend him to anyone else!!!"

Nir Frenkel

930 Rancho Pl, San Jose

I just closed on my very first home purchase. I was not really sure what the home buying process was going to be like and I have heard from others that it can be a quite long and arduous process. However, I feel like Vinicius made it as simple as it could possibly be. Vinicius listened to the things that I was looking for in a home and was also able to ask questions to help fill in the gaps of the things that I had not thought of. There were times where I was "trigger happy" and just wanted to put an offer in, but he reminded me the magnitude of this decision and and to think about the decision more thoroughly before we go through with an offer. I ended up decided to wait, and we ended up getting the perfect home for me. He had truly listened to what I was looking for so when I wanted to put an offer for a home that wasn't actually right for me he was able to advocate In helping me make the best decision. I believe this speaks to his character and his willingness/desire to put his clients first.

Adam M

470 Muriel Court, Santa Clara

We first met Vinicius at the Santa Clara Art and Wine festival in 2019. We had been looking for a house for over 2 years, so we were getting desperate and looked for others to help. We started talking with him and described our situation and what we were looking for. He agreed to help us and we signed up for his mailing list. This wasn't the first time we talked to a real estate agent, but this was the first one who actually asked us more detailed questions outside of the size of the home. This extra level of service allowed him to understand our family better. While, at his initiative, he had sent out hundreds of flyers trying to find us a home, none of those turned to work. A few months later, we get an email that he had found the house we were lookign for. Vinicius through a personal connection found an off-market house that would be perfect for us. It didn't fit all of our needs, but Vinicius explained the area and how some minor changes to the house could happen. We had lots of detailed discussions on both the macro and micro economic forces involved and what the right price was. Despite the seller and us not initially agreeing on terms, Vinicius worked with everyone involved to help close the deal. His vision on the house, where the market was, and where it was going was spot on. He helped us tremendously buy at the right time, and my kids love the house, the yard, and the neighborhood.

Hitomi V

8343 Kaula Dr, Fair Oaks

If you want to buy or sell your property, I cannot recommend anybody else except for Vinicius and his team. He sold our nearly 70 year old home after just one weekend showing for over what we asked. The whole process was terrifying but Vinicius and his team took the reigns and made the process more easy to understand and went way beyond our expectations. They also helped facilitate the purchase of our new house out of the area. And again, all the fear was wiped away by the help provided. I have nothing bad to say as we are happy with everything. He does his job well and his track record proves it. He'll get you the best price for your sale in whatever condition you have. He has all the resources to get your goal accomplished and will work closely with you to make sure you are comfortable and understand every step of the process. It's a lot of work and I fully recommend his services, Thank you for helping and changing my family's life's.

Tony W

Now here is the S&P 500 from July 2018 ($2800) to July 2022 ($3800). Increase of 36%.

Had the buyer just invested his $200,000 in an index fund that followed the S&P 500 he would have earned $272,000 instead of $147,800.

This example is not to discourage you from buying a home. The main purpose is to understand that buying real estate in our area doesn’t automatically mean a good investment.

In order to avoid the situation above a buyer should be cognizant of the risks associated with the type of property they are buying and the current market conditions.

If your reasons for buying a home are not purely investment then it may not matter, but if your main reason to buy a home is you expect it to be a good investment, we should talk.

In full disclosure had this buyer's timing been a bit better, for instance, if he purchased the property in 2019 when the market was lower than in 2018 maybe and sold in the Spring of 2022 then there is a chance that he would have made a small return.

However, I still feel he would have been better off not purchasing that home.

When home buyers contact me I make it a point to understand their motivations for buying a property, and where they are in their life.

We have a long discussion about their expectations, we discuss the different options available to them and the advantages and disadvantages. Of course the topic of the current market and what to expect in the future.

All these factors are important to deciding whether entering the market is a good move.

I see my job as not one to promote or discourage the buyer on their decision to buy a home or not, but rather one of advising them on the realities of real estate so that they can make a more informed decision.

As you can see depending on your situation, the type of home you are considering, and the timing of the market the goal of buying a home may not be so obvious.

If you are curious and want to set up a call to discuss your options, send me an email or schedule a call.