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.
|Floor Mats 12×12||$144|
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.
|Year||Cash Flows||Discounted Cash Flows|
Once we account for our opportunity cost and look at the absolute dollar values, a home gym doesn’t look like such a slam dunk anymore. Don’t get me wrong, it still shows as a positive opportunity under our assumptions. It just doesn’t offer the type of return that might make for a compelling argument to setup a home gym.
Reasons to consider a home gym
- There are limited membership options nearby
- You place a high value on the convenience of working out at your home
- There aren’t any other higher value uses for the open space in your house and you don’t anticipate higher value uses to arise in the next 5 years
- Your alternate investments would earn less than 8%
Reasons to consider a gym membership
- You have opportunities with even higher returns
- You prefer having a separate location for your workouts
- You value the social aspect of a gym membership
- Extra space for a home gym is cost prohibitive
There isn’t much of a financial difference between a barebones gym and a gym membership over a five year period. If you have available space in your home and value an at home gym then you could buy the equipment for a home gym at similar cost to five years at a full service gym like the YMCA. If you lift competitively, are unable to stretch your house budget for additional space, or enjoy the social aspects of gym membership then you aren’t leaving much money on the table by maintaining a membership instead of creating an at home gym.
However, in this case the numbers don’t tell the whole story. Amanda at Runtothefinish makes a compelling argument that a home gym eliminates excuses you might otherwise make to work out. All else being equal, if an at home gym improves the chance that you adopt a healthier then it is totally worth it. As we’ve learned throughout the COVID pandemic, nothing is more important than your health.