The Return on Home: The Math and Meaning of Homeownership

Yeah.

And so we're operating under the assumption, right, that most pharmacists are purchasing with typically a 30-year fixed rate interest loan.

Some might do 15 or 20.

And so we're assuming that that principal and interest is a fixed payment.

That's right.

For many pharmacists, income is going to go up throughout their career.

So as a percentage of your income, that should get you know, better over time as your income goes up versus where you started.

Of course, there's other costs involved that aren't necessarily fixed, but compared to rent, you know, you look at it as a snapshot today, there are situations certainly where maybe that monthly payment, you know, today may be more favorable rent, but that's not fixed, right? That's not fixed over, you know, a period of time as you articulated, typically at least a 3% depending on the market.

And of course, That lives on, right? There is a future day, we hope, on the home purchase that that mortgage will be paid off and there's no more, at least on the principal and interest side.

I'm so glad you said time in market, right? Because we talk about this a lot on the investing side.

It's not timing the market, but it's time in the market.

And I think the same is true with the home buying purchase.

I mean, some people get lucky.

You mentioned the example right there, right? With the football coach and right timing, right place, even in a less than ideal situation where you could argue textbook answer is they should rent, they're in a state of transition.

It was the right timing, but you only know that in hindsight, right? And so that's the sentiments I was making a little bit earlier of like, if this is a goal and we've clearly defined it as a goal and we've evaluated it, assuming that we, at least for what we know, we're going to have a long time in the market, that's where we want to begin to evaluate that as a broader part of the plan.

Now, just to reemphasize what you said, there are certain situations where renting may make sense.

I see this in some areas that are very, very, very high cost of living where home ownership may be unaffordable, right? I live in New York City or I live in San Fran or, you know, it is what it is.

And the purchase of the home may be out of reach.

And then, of course, the state of transition, right? We see this a lot with, you know, pharmacists that maybe are going through a transition from like a residency or a fellowship into their early working careers or even in that first or second job.

And they're still not quite landed on where they may be, you know, location wise.

And Just given the costs of the turnover, that becomes harder to have a long term return on investment.

And so just like just like with any other part of the financial plan, it comes down to your unique circumstances.

But assuming we have a long time run in the market, I think you articulated really well what the value of that is, you know, for the long run, financially speaking.

You did mention 4% to 6% is kind of a broad rule of thumb I think you're using for like annual appreciation of homes.

Of course, market specific, but is that what you just generally think of when you think about home appreciation?