Buy a house or candy?

Tax time is here and there's a big question for everyone getting a rebate:

Should I buy a house or a whole bunch of candy?

First, let's see if this is a legitimate comparison. Could you actually buy a real, livable house with the money from a tax rebate?

According to CNBC first-time buyers on average earn $72,000 per year, which for a couple would be about $17 an hour. I’m not a CPA so, let's use the refund calculator fromTaxslayer.com. That shows an estimated rebate of about $4,127. Let’s assume our home buyer does not plan on downsizing, so the house would be at least as big as their current apartment. Per RentCafe the average apartment size in Knoxville is 970 sqft, and rent is about $1,073. The cost per sqft of a house in Knoxville averages $127 at that price our upfront cost to buy a 970 sqft. house would be $123,190. With a traditional FHA loan the down payment of 3.5% is $4,311.65 or just over budget, but we’ll call it close enough to compare.

Now that we know we can make the comparison let’s address the first major concern: 

Can you eat it?

All candy is sold retail in the United States is rated as safe for human consumption by the FDA. Unfortunately, houses are constructed of building materials that typically include wood, cement, aluminum or copper. None of these materials are rated by the FDA, wood is indigestible, cement and copper are toxic and should never be eaten.

Assuming our subject does not have any sugar allergies, the candy scores a clear win in the first criteria.

The second thing to compare is the monthly expense. 

Let’s take a look at how much candy our subject could buy with their rebate. We’ll use Tootsie rolls as our example candy. Amazon.com sells Tootsie rolls in bulk at $24 for a 4.4 pound box, so for a rebate of $4,127 our subject could buy 172 pounds of Tootsie rolls, or about 24,940 individual rolls, easily enough to make the neighbor kids jealous. To find the monthly cost we have to remember that Tootsie rolls are temperature sensitive and need to be stored in a climate-controlled environment. While normal storage units rent as low as $40 per month the price for a climate-controlled storage unit in the is at least $115, and that's on top of rent for their apartment. So how does the house compare? With the mortgage from our purchase example the monthly payment would actually save them about $137.79 per month compared to their current rent. Looks like the house wins this one, bringing our contest to a dead heat.

Now for the tie breaker: return on investment 

Per CandyWrapperArchive.com the price of candy over the past 30 years increased by about 3.73 compound annual growth rate. Meaning $4,127 would grow to $12,370. Sounds like a great return, but there's a catch. According to flipamzn.com the shelf life for Tootsie rolls, even stored in a climate-controlled environment, is only two years. Not looking good, but let’s give candy a fair shot.

A popular investment strategy is to own shares in a company that produces the commodity instead of holding the commodity itself. According to data from Macrotrends.net the 30 year compound annual growth rate for Tootsie Roll Industries, Inc (TR on the NYSE) was 4.83 a healthy improvement over holding the candy itself. So, the return after 30 years would increase to about $17,000.

Not bad at all, but what about the house? According to data from the U.S. Federal Housing Financing Agency the compound annual growth rate for average home prices in the Knoxville area over 30 years is 3.25. That means our subject house would then be worth $322,000 minus the original purchase price of $123,190 plus our upfront costs of $4,127 for a net return of $194,683 beating candy for a decisive win.

Candy

• You can Eat it

House

• Lowers monthly expenses
• Better return on investment

So, to summarize our comparison, with a score of 2 to 1 buying a house is a slightly better use of your tax rebate than buying a lot of candy. And the best part?

PRMG offers nothing down loans like the Chenoa Fund, so maybe you don’t have to choose after all...