One of the harder concepts for home owners to understand is the carrying costs of a home – especially after they have moved out and listed the home for sale. This is an important calculation because it helps you understand what the home is costing you per month and while it is pretty straightforward to understand the ‘hard costs’ (such as a mortgage, insurance, etc) there are also ‘soft costs’ (such as your time) that need to be calculated.
To get an understanding, let’s dive into an example. (NOTE: This example is for illustrative purposes only. You should consult your mortgage agent, accountant, and lawyer before making personal financial decisions.)
Let’s say that 10 years ago you purchased your home for $450,000, put 20% down and have a 4.5% interest rate. Additionally, you pay $1,800 per year for homeowners insurance and another $4,500 per year for real estate taxes.
Let’s see how this breaks down:
$2,349 – monthly mortgage, interest, tax, and insurance payment
$80 – water bill
$80 – sewer bill
$40 – trash bill
$150 – electrical
$70 – gas
= $2,769 in total monthly bills.
To ensure we are calculating this fairly, you can credit yourself about $745 because you are paying down your mortgage every month. So with the credit for paying down your principal mortgage amount, you have a monthly bill of $2,024.
Now think about having your home sit on the market because you have it priced wrong (see my article: What’s in a price?). 3 months * $2,024 = $6,072 of ‘Hard Cash’ bills that you are going to have to pay and that doesn’t even include the ‘Soft costs’ that you should factor in.
What is a ‘Soft Cost’? These are items that you may not be able to assign a specific financial amount too, but are costs nonetheless. Some examples could be:
Depending on how you value your time and peace of mind, these costs can easily add up to be another $3,500 over the course of three months! And, while it is true that only you can determine the value of these Soft Costs – you should add some amount of Soft Costs to your monthly calculation.
With Soft Costs added, your monthly expense is now between $2,024/mo to $3,190/mo. And holding your home for three months puts your total holding costs between $6,072 – $9,572! That’s a lot of money to sink into a home you do not want anymore and it is the reason a good Realtor will work with you to price the home quickly for a quick sale. No one is making money (other than the bank and insurance companies) when you hold your home when you are not living in it.
About the author
Michelle Göetzinger is a full time, top Realtor in the Pittsburgh metro market. She’s the wife of a technology executive, the mother of two young adults, and an animal lover. Michelle loves to downhill ski, kayak, ride horses, travel the world, and create art. For the past 15 years she built her expertise by personally flipping homes and creating a rental portfolio that lead her to developing the Stage It. Shoot It. Sell It. methodology that she is now sharing with you. You can reach Michelle at via text at (724) 504-0070 or www.MichelleGoetzinger.com