The not so hidden costs of home ownership

I can’t count how many times I have seen or heard someone say: “I bought my home for $400,000, and sold it for $700,000. We made $300,000”.

On the surface, it looks like a fantastic result for the homeowner and it may well be, but it is not the whole story. What is the story missing?



Mortgage interest
How much was paid in interest payments over the term of the mortgage?

Repairs, maintenance and upgrades
This cost is often under-estimated. There are a lot of things that can go wrong with houses and they often do. Things break. Roofs, windows, plumbing. We also like to upgrade things as well. Kitchens, bathrooms, decks. I heavily underestimated this cost with my own home.

Council rates are only a cost borne by homeowners. Not renters.

House insurance
Another cost that only homeowners need.

Opportunity cost
f you invested your house down payment and other purchase related costs in an investment how much could you have made? This is a cost that is often not considered but it is very real.

The cost of rates, insurance and repairs increase over time as the cost of goods and services increase.

Purchase costs
Costs of buying the house. Includes any lawyer and bank fees. Building, LIM and valuation reports. Moving costs and any new furnishings needed.

Selling costs
Any costs associated with selling the house. Usually real estate fees, staging costs and moving costs.


Our bandit who took off with a $300,000 profit didn’t include these. What if he did? How would he be looking?



First let’s make a couple of assumptions so we can input our figures:

  • They made a $80,000 (20%) down payment on $400,000 house

  • $320,000 loan @ 6% interest rate over 20 years

  • They sell the house after 7 years

  • Purchase costs of $10,000

  • Selling costs of $35,000 (5% of selling price)

  • Inflation rate 2%

  • Repairs and maintenance of $6,000 per annum increasing each year with inflation

  • Rates of $2,000 per annum increasing each year with inflation

  • House insurance of $2,000 per annum increasing each year with inflation

  • Investment returns of opportunity cost: 5% after inflation.


In this example, the homeowner has not made $300,000 at all. After 7 years they have actually lost $56,480 even though the house price appreciated by a very high 10.7% per annum. It is not a physical loss of money because the opportunity cost is not physical money. Just because it is not physical though, it doesn’t make it any less real. That is still money that could have been used elsewhere.

If we remove the opportunity cost, then the monetary gain is $70,159. Sounds better than a real loss of $56,480, but for a full picture we must go with the real figure. Even still, a $70,000 return from a $90,000 investment over 7 years is minus 3.5% return per year. Worse than storing your money in a shoe.

It is also important to bear in mind what you will be doing after you sell your house? If your house price has increased, chances are the cost of other houses have also increased, making it more expensive for you to buy in the current market. The only way to avoid this is by downsizing or renting.



I am not anti-housing. Not at all. I own a home myself. This is just a cautionary tale to please do your own numbers before making such a big life-changing decision of purchasing a house.

Stories get circulated all the time of people selling houses for $300,000 profit or more but as you can see, these numbers that get bandied about are nowhere near the truth and only help to fuel the already over-heated fire that is the NZ housing market.

All our lives we have been told that owning a home is the ultimate goal. The dream. I believed all the hype. Why wouldn’t I? It’s all I knew. It’s all anyone had ever told me.

My advice is do not take owning a home as a given. As the right thing to do. Sometimes it is not the right thing. Sometimes it is. Calculate all the costs or get some financial advice and don’t rush. If housing is overvalued and you are a good saver it can be financially better to wait until the market is more in line with reality.

The biggest determinant of whether you will financially benefit from owning a home or not is the length of time you choose to live there and whether you move up or down the ladder afterwards. If you are constantly moving up the ladder, you are not getting anywhere until you decide to eventually downsize. If you live in the same house for 20 years or so, then owning a home will often be a wise financial decision. Less than 10 years not so much.

Don’t think of your own home as an investment either – unless you plan to rent it out at a later date. The returns from home ownership are so low that they barely beat inflation. It should be a place to live that you can call your own. A place to raise the family. A place to retire. Not a place you think you will make a massive profit from. The numbers still need to be run though so you don’t make too much of a loss.

Buying a house requires both a financial analysis and an emotional one. For one person, a small financial loss when compared to not owning may be ok if it means they have a place they can call their own. For them this is a good decision. The financial loss is made up for by the fact they know they won’t be kicked out of their house. For someone else, a mortgage may serve as a forced savings plan because they are not good savers. Again, good decision to buy.

There is no one solution that fits all, or one easy answer. Everyone’s situations are unique and deserve individualised attention.


Keep an eye out for my upcoming article which will focus on the question of whether we should rent or own.



The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here


Share your thoughts below. Have you spent more on your house than you thought you would? Are you a renter who is saving some good money? Any rental horror stories? How often do you move homes?