Should you have a home gym or gym membership?

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My partner and I were recently in the market for a new home in the East Bay. With a hot market and limited budget, we didn’t expect to find a house in the sub 900k range with our dream specifications; namely four bedrooms (or three and a den) in a good school district without extensive rehab. However, we were lucky enough to have a gem of a place fall into our laps that checked all our boxes. With four bedrooms and a den we were living large!

All this space. What to do?

With all this space to spare our den was left wide open for numerous possibilities. If we were to combine the second floor bedroom as both a guest room and office then we could use the lower den as a home exercise area. But would it make sense financially?

Let’s first start with a few assumptions:

• Maintenance costs for the home gym will be zero over a 5 year period
• The additional home maintenance for the space dedicated to the gym will be calculated as zero since it is a cost I will pay regardless of whether I add gym equipment or not
• Inflation will average 2% over the projected 5 year period
• Any funds I don’t spend on gym equipment could otherwise be invested in a passive index fund earning a market premium of 6% for a total return of 8%
• No resale value for the equipment we buy

For the purpose of this analysis we’ll budget for the bare minimum needed for a home gym. For cardio equipment we’ll use a simple spin bike. These are among the cheapest pieces of cardio equipment and allows for indoor cardio exercise when there is inclement weather outside. We’ll also budget for a bench and dumbbell set. The dumbbell set we’ll use contains pairs of weights in 5lb increments from ranging from 10 to 50lbs. I wouldn’t expect to be a professional athlete or body builder with this type of setup but it is sufficient to maintain general health and wellness.

Dumbbell Set	$1684
Bench	$165
Floor Mats 12×12	$144
Spin Bike	$280
Tax @10%	$227
Total	$2500

To complete our analysis we can compare the setup above to an alternative workout regimen using the YMCA. The Y contains many more amenities than the barebones home gym we budgeted for. We’ll use the Y as an example in but this could easily be substituted for a more budget gym.

The cost of a monthly YMCA membership in nearby Pleasant Hill, CA costs about $52/mo. Given the total cost of $2500 and the monthly cost of $52, you might pull out your calculator and say this is a slam dunk opportunity since 2500/52 is equal to about 48 months which is less than 5 years. However, this would be incorrect because it invalidates our assumptions that there will be inflation and we could invest the money we would have otherwise spent on gym equipment.

Accounting for opportunity cost

Opportunity cost is the term which refers to what I could do with my money if I didn’t use it to buy this gym equipment. While I could spend it on a vacation, invest in crypto, or do any number of things with the money, our focus is on the next best opportunity. The next best opportunity in this case is our assumption that we could place the $2500 in an index fund earning an annual return of 8%.

To account for this opportunity cost we can discount the cash flows by the rate we would otherwise earn on our investment. Doing so yields a table of cash flows as follows where gym membership fee savings are represented by positive cash flows.

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