Many times you hear people say “Owning your home is not an investment.” It may not be an investment, but it does involve spending money that could be better used elsewhere. Still, I do admit that there are intangible benefits that you can’t easily put a price on when you own your own home. Here are some advantages that come to mind:
It will be very rare that you will be kicked out of your home. As someone who has been unceremoniously given 30 days notice to leave a rental that they enjoy, I look forward to a day when I don’t have to worry about frantically searching for another rental or hiring a moving company. As long as I avoid any future freeway developments I should be able to find a home I can live in for as long as I want.
You can improve your home. I have zero desire to fix up my current rental. Why bother? Heck, I’ll probably just lose my deposit if I try. But in a place I own, I can start to make little customizations that make life just that much cozier. First thing, I would make my house totally energy-efficient, both saving me money and reducing consumption. Then, I could the flooring, split a big bedroom into two smaller ones, make a garden, whatever.
It’s hard to measure this, but I feel like such improvements would really improve my happiness level. Of course, I can also think of some disadvantages:
What if your neighbors are jerks? What if they hate my dogs, or worse, like to breed vicious pit bulls? (It’s happened. Dogs have died.) I’ve had my share of annoying neighbors. Selling a house definitely costs more than simply moving out of an apartment, even if you have to break the lease.
For condos: What if your homeowners association stinks? I’ve heard some horrors stories about egomaniac HOA presidents with their overpriced pet projects and expensive assessments. I don’t think anyone loves their HOA.
Improvements cost money. If some people consider having a mortgage to be a form of forced-saving, maybe renting is a form of forced-frugality? Most renters don’t have weekly trips to Home Depot or argue about what kind of tile to put in their kitchens. They just call the landlord when something breaks.
After writing this, it seems that a lot of my feelings center around permanency. For me, I don’t want to move to a bigger house in less than 5 years. I’m tired of moving every 12 months. I want a home. I just have to find one at the right price.
Homeowners: What are some intangibles that I missed?
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Before you get too caught up in all the lovey-doveyness of buying a home, check out http://www.patrick.net. This guy gives a very thorough analysis of why home ownership is not all that great.
Here’s two big ones:
– Pride of ownership. I love my house. I’ll be there for the rest of my life. Love the neighborhood, love the neighbors.
– “you can’t take it with you”.. seriously. At some point you’ve got to start living life. Yes, save money. But it would be a tragedy to spend your life living far below your means and amassing a fortune only to look back with regrets! You only live once people.
– Bryan
Pro: pride of ownership.
The rush of glee that runs through your head the first time you solder a pipe or patch some drywall or do whatever other (even the simplest) house project you’d never dreamed you’d be doing–even if you did a sucky job. Then telling your friends that you did it yourself when they come over for dinner, and watching their amazement that you built something that didnt invovle a computer.
One huge benefit: Finally paying off the mortgage and living rent free, excluding property taxes (only $300/month in my case).
The Garden! One of my friends I was renting with started what she called a “guerilla garden” in secret after the landlord refused to let her have a garden. One time I caught her capsizing one of his flowers to plant an herb or something, she was so funny. Anyway the garden is a source of discovery.
The luxury is in renting. No worries. The porches need painting? It is not my problem! One day you come home and someone is outside painting the porch. Fine, non attachment. Why would I want to become attached to a house? What if I want to live on the other side of town, now it is a big hairy deal, my house has been on the market about a year now! Open houses, hire a real estate lawyer, it is a pain and a hassle. I have to mow the lawn.
I have learned alot finally about how to put in flooring, sinks, plumbing, some electrical, fixed all kinds of things…that is very empowering to know you can do it.
There is a degree of pride and social privilege in, “I own a house” but mostly we own because we think it is an investment.
Is it really not an investment? We were just asking ourselves that last week, trying to run numbers in our head. What do you think?
You’ve listed most of the advantages and don’t forget about the tax deduction. Home ownership is a lot like marriage. You’ve got colored lenses on before it happens and through the honeymoon stage. Then reality sets and you realize that you’re married. Don’t get me wrong, you love it and wouldn’t change it for the world (married 12 years myself) but what you thought it would be and how it is are two different things.
Home Improvement & Home Repair really do cost money – a lots of it. You need to come to terms with that fact that you (most of us anyway) can’t do all of them at once. Otherwise you can rack up some serious debt for the sake of home improvement. For example, look around your rental and think of all of the things you would change or fix if it was yours – then think of the $$ it would take to make it happen. Not just the “cool” stuff but the tools and every other thing at Home Depot you need to get the job done. Don’t forget that lawn maintenance is part of this as well. Yards don’t stay green, weed free, and trimmed all by themselves. Last but not least – your time is worth something and none of this stuff happens without you spending some of it. So when the weekend comes around, you now don’t have find something to do..you’ve got enough to do already. The neighbors and the neighborhood – you’ve worked hard to keep up your house and all you want are neighbors that will at least but “some” effort into it.
Again, these aren’t all bad but they need to be taken into consideration and remembered.
All good points. As a current owner of two rental houses, and having rented after a relocation for a year and a half, I can say your last point about permanence is the best one. Us humans are funny when it comes to real estate – you have a unique location that is yours to do with it what you wish.
As a counterpoint here’s an interesting analysis of the real costs of ownership, that add up substantially over time. http://www.realestatejournal.com/buysell/tactics/20070313-crook.html
It’s a good thing to keep in mind to beware of overpaying or getting into too much house.
Ditto on the pride of ownership and making improvements.
For me, the primary intangible is the freedom of having your own space – back yard, front lawn, etc.. Growing up in apartments and with a lot of kids, space was always an issue, and there were always neighbors to worry about.
The secondary one being able to work on the car/s in the garage and/or driveway. I used to change the oil in my parents driveway, but in college and in city apartments, you’re not allowed to put the car on the ramps (in the street or apt. parking lot). A relatively new home owner (6 months), i’m looking forward to doing the oil changes again and saving some cash in the progress.
Cory’s got it right – part of what I want is the ability to tinker/fix/maintain. It’s just so satisfying, and when it’s for your own home you don’t feel like it’ll all be for nothing in another 8 months when your lease runs out…
Sadly, I don’t see myself owning where I am now (DCish) for quite some time. As much as I want the good of owning a home, the bad (300-500k in debt for a small apartment) just isn’t worth it.
Two words: SECRET PASSAGEWAYS. No joke. I’ve build secret passageways behind hidden doors and bookcases in each of the three houses I’ve owned in the past 10 years. My kids thought they were the coolest things on planet Earth, and it made my home the place to be. You wanna see amazement from your friends at something you built? Swing open the ‘Anne Frank’ bookcase to show the secret ladder going to the hidden playroom in the attic. Now *that’s* cool.
I think before having children you can make a good argument for not rooting yourself in any one particular area of the country or neighborhood but once the children come along settling into a home and a good neighborhood with a good school district overcomes any financial “disadvantages” of home ownership. Good luck with your continued search. I have no doubt that with a bit of work and patience that you will find the deal of a lifetime.
Pro: Hot neighbor next door who likes to sunbathe topless in her backyard.
Con: Big hairy guy next door who likes to do the same.
+ No surprise visits by the landlord while you’re in the shower.
+ When something breaks, you may have to fix it but you don’t have to wait.
+ In New York, renters often don’t even get to set the thermostat. Or control when there’s hot water.
+ If you were smart enough not to get an ARM, no rent increases.
– You have to mow the damn lawn and shovel the damn driveway.
– When the neighbors turn out to be drug dealers or rednecks running an illegal car repair shop you’ll take the decrease in property values personally. And fume constantly (true story, separate concurrent neighbors.)
The forced savings is definitely a benefit, as you said, since many people seem unable to save without motivation like foreclosure facing them down.
John’s right that’s it’s nice to live rent free. Of course, a tenant who saves lots of money can also live off of their savings,which basically amounts to the same thing. If you own a house free and clear, you could rent it out for, say, $1500 a month, and have that much more revenue, or live in it, and forgo $1500 a month. That amounts to the same thing as a tenant with lots of savings (from not having to do repairs, from investing a down payment, from setting aside the money he saves in rent vs mortgage each month) paying his rent out of those savings…
I’ve owned, and I rent now. My landlord is a bit crazy, but he’s tolerable, and really a pretty nice guy. I just wish he’d fix things every once in a while, and I wish he’d be honest about his complaints. A few weeks ago, he hassled me about the water bill; talking to his wife, I learned he didn’t like me running my dishwasher after 9pm. Easily solved, but as long as I thought it was the water bill, I didn’t know what to do! Owning, I never had this problem.
Excellent post! I haven’t been a home owner long, but I’ve enjoyed it so far.
Before I bought, I went to a home buying workshop in which the presenter (a loan guy) said that your home is like your bank. So he would agree with the forced saving idea you mentioned. You can borrow against your house, too. He also said your first home is not your dream home.
I bought my first and only house when I was 38. I’m now 44. I LOVE having my own home.
I love having a fenced in backyard. We have a greenbelt in the backyard–so it’s private. Shortly after me and the kids moved in, we got a dog. Now we are up to three doggies—I really missed having dogs when I lived in apts. Have a doggie door–they get to run out and play in the fenced in back yard.
The feeling of being settled. I was so tired of moving every year or two.
The cost of moving every or two, deposits, moving vans, or begging what friends you have left to help you move.
Spending my weekend planting bulbs, pulling up weeds, fixing up the house, bbq’ing. I really enjoy doing these things. When I was in my apt. I tended to go out, and spend money, and not want to just stay in the apt.
Neighbors that don’t constantly change.
A stronger sense of community.
My house the way I want it, within my means, rather than just leaving it the way it is, cause it doesn’t belong to me.
By the way, there were many things when I first purchased my home that I didn’t like…it’s a constant work in progress…but overall, a project I enjoy working on.
oh, sheesh – having to agree on anything with your spouse! Some people are pretty easy going and there’s no problem — but my husband has challenged me on almost every stupid detail (tile or pergo? – light paint or striking paint? – put the outlet here or put the outlet there?) I always figured I’d be do the decorating choices too – but everthing has to be a struggle. I hope your experience is different. My husband was also a “contractor” at one point in his career — that’s why I have an unfinished house for almost 7 years now! I would never, ever do major renovation again — we would surely land in divorce court.
I would have rented an apartment with him – had a I known. And then bought a house that was completed renovated before we moved in. Would have saved many a fight.
I’m a renter, and I plan to be one for a while.
I’ve done cost benefit for both renting and owning, and currently, by my calculations, I’m benefiting financially much more by renting than by owning.
Big factors include me getting a good rent price in Chicago with Utilities included (if I owned, my heating bill would kill me every winter). Also, with the high property values, the property taxes in this county are more than I think its worth to pay as an owner.
For me, the convenience of not having to deal with headaches like the water heater breaking, or plumbing saves me a lot of time and possible stress.
And though some like permanence, I like the idea of mobility. If I get restless and and want to take off somewhere else, i can.
The way I figure, if you shop around and get a good rent price, and save the money that you would normally spend on mortgage, you should be able to save up a nest egg to be used to provide you the money for you’re rent. I know their are tax implications too, and I took those into account for my situation.
For other people’s situations the result would be different I’m sure, but I think a lot of people jump into owning because that’s kind of the “American Dream” thing, but they don’t look at what would be best for their situation.
Sweat equity. Bought and worked on two homes. Didn’t buy to make money, each time thought I would stay there. Added things to make them more what I wanted, lots of light, bringing outdoors in, kitchen remodel, landscaping. The first one (owned 5 years) with only 50% of profit, put my older daughter through college, got a new car, got a field in Ireland (which has quadrupeled), and a chunk was left over to fix up second house. Only downside was chunk I put in stock market, solid tech stocks I had been watching for two years, six weeks before crash – down 90%.
Just sold second house, will put younger daughter through school and allow me to semi-retire. I know, those days are over. I was so envious of my parents, they bought their first house in SF for 3K, sold that for 25K and moved 3 times, each time at least doubling value. I was convinced that was over, and I would never make money on houses like they did.
What I did make far exceeded my lowly teacher salary, and teaching makes sweat equity work feel like a picnic.
Property tax is a big issue, CA stays roughly where you buy in, here in NC, mine just doubled and will keep going up based on property values, which is a little unnverving.
If you get a new job that is a long commute, you can just wait until your lease is up and find a closer place to live. If you own a home you either have to limit your job search by distance from your house or deal with the long commute.
Basically it comes down to flexibility. You hinted at it but I don’t think you came out and said it. When you own a home, you are for the most part stuck with living there for at least 5 years before you aren’t losing a lot of money by selling it and moving. I am assuming that housing market is fairly stable.
A quick note on home improvments, indoors you can do just about anything you want. However when it comes to doing things outside it depends on your Homeowners Assoc. Some HOAs can be very restrictive on what they will allow you todo to your front AND backyards. If you don’t get it approved they can come in and make you tear it down.
Josh, your ‘no rent increases’ isn’t actually correct in practice. Every year my nice mortgage company sends me nice letter saying, in essence “You owe $X dollars because your escrow went up [from increased property tax and/or insurance]. Do you want to pay us now or spread it out over the year and your new payment will increase by $Y?”
Happens every single year because my property value, and hence property tax, has only gone up to date.
— “He also said your first home is not your dream home.”
Very true. We’ll just build the next house.
But borrowing against your home is stupid, mostly because you end up with 2 loans that you have to pay at the same time ( somebody convince me otherwise ).
We also made a mistake of paying extra on a mortage that has a rate of 4.75%. We have a lot of equity but it is not generating any income. So if you can borrow a lot of money at a good rate, don’t be in hurry to pay it off. If rates go lower you can always refinance and it will never go up (I am not talking ARMs and legs here).
Here’s my take as a homeowner (besides what others have already mentioned):
Pros:
*Possible significant appreciation – this is intangible since you never really know what the market will do
*Your grandparents will be thrilled
Cons:
*Loss of freedom, flexibility and variety
*A large mortgage can be bothersome to those averse to debt and interest
I personally think (non-investment) buying makes very little sense in most cases where you don’t plan to stay put for a very long time. Unfortunately, it took buying a place for me to gain that perspective. I’m young, though, so live and learn.
Apartment living is about as bad as it gets, next to jail. JMO
One of the big intangible advantages for me was that i always hated the fact that the landlord had a KEY, and could just come in — or send contractors in — without even telling me in advance. (Yeah, yeah, they’re not supposed to do that without advance notice; but they do, all the time.) I’m very protective of my space…the idea of people i didn’t know being in it when i wasn’t there was very icky.
If anyone comes into my HOUSE without permission, that’s trespassing. I can call the police.
Not the investment you think. Read this Wall Street Journal Report… link
There are two big things. One is duration: how long you stay in the home. If you only live in a house for a few years, the 0 to 2% nominal appreciation you may get per year, may be eaten up entirely by broker fees, lawyer costs, title insurance, etc. The longer you live in the home, the more you amortize those costs. Thinking you have positive equity in the home makes little sense if your transaction costs eat up the gains.
The second is future supply. In CA, it is very difficult to entitle land, and homes are in shortage. In the Midwest, it is incredibly easy to entitle land, and the home will never be worth much more than the cost of building it. This may not be obvious in a few years but if you hold these assets for 10 to 15 years, you will quickly see how important land appreciation is. Of course the flip side is that in limited locales, like CA, like NYC, prices are already up due to the shortage.
I think I’ve got a lot of satisfaction, sense of happiness and sense of accomplishment/fulfillment with owning my house.
First off, I’m living in a big house, only two persons residing in the house, large enough to do anything, spacious. Secondly, I’ve made a lot of improvements myself, liking putting up simple yet artistically looking foam insulation boards atop the cathedral ceiling, to increase living room comfort and accustics for my big screen HDTV home theater. This is a very creative solution which otherwise would cost me $10K to redo the roof and put insulation on top of it. My innovative solution only costs $140 for the foam materials, minus the 10% tax savings during tax time. I’ve always bragged about this when guests visit. I also put two large window shades in front lawn to reduce direct sunlights heating the living room, which reduces room temperature during hot summers. And many other improvements I’ve done, not mentioning that I spent considerably small amount of money to remodel the home to be a model home like a brand new house. When ever I see and enjoy the fruits of my labor, I feel very content, happy, and really literally say to myself and my wife: I love my home! The house really is my home!
Not to mention the house appreciation, that gives me a lot of joy: in two years owing the house, appreciation at least doubles my initial 20% downpayment for the house. It’s not in the best top school neighborhood in the bay area which is prohibitingly high priced, but it’s in a fairly nice decent quiet residential neighborhood that enjoys the convenience of walking distance to major shopping mall, 10-15 minutes commute to most hitech companies/jobs in the south bay area which also enjoys mild climate of the bay area, and a few blocks away from the super-rich Saratoga neighborhood.
Oh, did I mention that this house has an in-law cottage with separate entrance that generates monthly rental income? I take pride in spotting this house gem and bought it without any other bidders.
There is a lot of pride and self-accomplishment in the house and I take a lot of them, and I deserve them every single bit!
There is so much more, and you may only understand it if you own one.
To bay area homeowner:
You are probably super-rich to have enough monthly cash flow to pay for home improvements, property taxes ($~6000-7000/yr), earthquake insurance with a 20K deductible (~$1200/yr), and mortagage payments for probably a $600,000 home in your area. Then you still have enough cash leftover to plow into your 401K and plan for future child-rearing expenses. I envy you.
If I owned a home here, I wouldn’t feel a sense of accomplishment. I would probably feel a weight around my neck worrying about the financial disaster of an earthquake or losing my job.
Pride of ownership is definitely an intangible. Some people may think having to keep up a yard is a negative, but I enjoy it. I can do anything I want with the landscaping, and it’s relatively painless. Also, not sharing a wall (or floor or ceiling) with anyone is great. You can’t put a price on making your house a home (well, I guess technically you could, but you get the point). I’ve only owned for about 5 months so far, but I wouldn’t trade rent for home ownership for anything.
jonathan, one disadvantage you may not have considered is that if you buy a home, you will probably have LESS SEX.
this paper done by fannie mae cites a national survey of homeowners versus renters on various things like happiness and the frequency of sexual intercourse:
link
and intuitively it makes sense: mortgage + home improvements + home maintenance = less going out, less fun, and less sex.
Thanks for all the responses! Lots of good food for thought. Remember, these are the intangible benefits, of which it is hard to put a price on. Things like mortgage tax deduction are relatively easy to calculate. I’ve been crunching numbers for so long, I though this would be a nice break. 🙂
LOL, Nick. That could be the pro and con of an apartment too. You should hear about some of the awful “views” I’ve had to endure. Hint: It’s worse than just a hairy topless guy.
Renting doesn’t mean living in an apartment. I live in a lovely house built in 1900 right now. Of course, it’s draftier than swiss cheese and the furnace is from 1945!
Everyone in my circle of friends have bought either condos or homes, except me, until recently. Perhaps, it’s peer pressure (this is to show that high school peer pressure never leaves you), but after the purchase, it definitely gave me more topics to share with them. Where to get the best deals on furniture? have you paid your property tax yet? What is your mortgage rate etc… quite interesting conversation pieces….
Jt
My experience renting has been excellent (will be moving into my fifth apartment in August). The landlords are nice and fix things usually within 24 hours. They never just enter your apartment without permission (this is actually illegal in CA).
Mine current management never enters without notice (that I know of), but they never schedule anything. It’s always done via the little slip of paper under the door.
I’ve had notice left *AFTER* they visited (they denied that up and down, and I had no real proof).
They also love to leave notice the day before they will be in the apartment – so if you’re out of town, you don’t get any notice.
Not having to deal with that, alone, is worth a lot… :-/
The best intangible is that there are more and more financial products available that allows one to use a home as a bank. Not for SUVs or trips, but one thing most renters don’t have — the ability to get 20-50-whatever thousand dollars if you need it in a pinch.
I disagree that borrowing against your home is always dumb — could be dumb, could be smart, depends on the plan of the borrower.
I used an ARM to buy land. Then I got a construction loan and built a comfortable home on an acre for my one-income California family. Without these new financial products, and being able to leverage myself up to my eyeballs, i would still be sharing a little rancher with three kids. Now we are about 50-50 equity to value in a much better position.
Some think we need more regulation. I say don’t let the government limit our options. If you need someone to protect you from yourself — stay a renter.
After I account for the income tax benefit of interest writeoff and house appreciation (and include interest and property tax payments), it cost me $612 to live in my $400K house for 2005. I haven’t finished my taxes for 2006, but expect the figure to be similar.
$612 is much cheaper than the $16K in rent I would be paying otherwise.
Buying a home is not that difficult especially when you’re a first time buyer with a “low individual income” of
I love owning my own home – biggest pro:
I own two pit bulls – total lover boys.
I love the ability to have them in my back yard, in my home without jerk neighbors who (when I rented with them) went ballistic on my landlord – threatened to sue him and in addittion, knocked on every neighbors door and told them I had vicious pit bulls. I was basically ostraiziced in my own neighborhood, I eventually (and voluntarily) left – it was that bad.
Mind you, both my dogs are neutered, passed obiedence school and passed the canine good citizenship test. Well behaved, rescued shelter dogs.
Blah – I was discriminated against because of my dogs, who did nothing except be born as pit bulls.
In my own home, no one can strong arm me out of my neighborhood. And by the way, all my current neighbors are aware that I own pitties and love them!
KMC: Admittedly, I simplified. But A) rent increases average 6% to 21% annually of total payment, property tax increases are going to be more on the order of 1-2% annually. And B) technically you get to vote on the property tax increases, or on the people who make those increases. Okay, I’ll also admit that B is specious.
Avoid HOAs whether for a town home, condo, or house. Waste of money IMHO. They control you, you don’t control them. I served on my HOA for eight years so this is not an outsiders bias. Lots of busy bodies who think it is your responsibility to fix everything from barking dogs to just about anything else you can think of.
I bought my first home in Dec. last year. It’s hard to explain the joy of owning your own space that you can really do anything you’d like with. Secret passageways aside (very cool though), being able to knock down walls, put up new ones, finish basements, build media rooms, and install new appliances in a newly remodeled kitchen of your own design is amazing if you’re into these things. If you buy a fixer with a solid foundation to work on, and you can find it foreclosed, I do believe it can be a good investment.
Back to intangible sorry.. It’s great having friends over and them saying, “I absolutely love your house, you’ve really got a Feng Shui living room.” Last week my girlfriend invited her friend over to watch Planet Earth in HD in our newly finished media room. After watching for 30 seconds, she turns to my girlfriend and says “I feel like I’m in the OmniTheater!” It’s fun and it’s rewarding.. oh and when we’re watching movies or tv at 2am I never wonder if I should turn down the volume. We can throw a huge party and noise is still not an issue like in an apartment. Priceless.
I didn’t mean to stereotype pit bulls, that came out wrong. I was just using an example of what actually happened. (They were pit bulls.) I’m sure yours are wonderful 🙂
you should have said dalmations – horrible temperament
oh ya – love the blog, thanks for your effort in helping us all
I lived in an apartment for four years before buying my condo. The one thing I HATED was every year in September the lease would come up for renewal, and the rent would usually go up, and both of my roommates would split (not because of me! they’d do things like “get married” or “move back in with mom” or “go to grad school in another state.”) So I’d have a month or so of panicking over whether I’d have to find a new place on my own or whether I could stand to live with random stranger X or whether I’d get stuck paying all three shares of the rent and that’s totally not worth it and…etc.
I have owned my place for four years and I ADORE not having to get that yearly letter from the landlord and find out how much my rent’s going to go up this time, nor worry about getting new roommates for my crappy apartment. Stability rules.
My condo is also a lot nicer than my apartment was. I bought my place based largely on its well-architected open layout — can’t find that in most apartments.
I also found, to my surprise, that once I owned my walls I was suddenly a lot more interested in decorating them. I also became interested in furniture, and got rid of the formica hand-me-down I’d been using as a table, got a nice teak dining room set, bought a lovely wood platform bed, etc. My place looks like an adult with (some) taste lives here. Yay!
(That’s why I recommend anyone buying a house should set aside at least $5k to go shopping. Because you’ll want to!)
I used to say I’d stay in the Bay Area until it finally kicked me out, and buying a place was my way of saying I wasn’t going to let it do that. It’s not going to be my last house, though (so permanence isn’t a factor for me, sadly) but it’ll get me closer to that goal.
neonate try buying new in michigan – prices are great and home maintenance is non-existant. instead you maintain your gf/wifey. 😉
You have to “be” somewhere for the next 50 years. It might as well be a place that you love, a place where you want to make memories with your family. And I would argue that a home is better suited to fit the bill than an apartment. You are more likely to be able to customize your home, and you are less likely to get unceremoniously booted from it.
People that talk about all the expenses that go into a home forget that living in an apartment is 100% expense! A home, on the other hand, is not 100% expense – there is equity earned and taxes saved. It doesn’t make a home a smart investment, but certainly smarter than an apartment.
Or what about tax benefits? Appreciation? I’m a part-time realtor and I just recently helped a friend by a small $105k condo. With his association fees, property taxes and mortgage he is only paying $50 more per month than he was when renting. His association covers all exterior maintenance, insurance, landscaping, etc.
Now, this property will appreciate in a few years plus he will have paid down the mortgage. By the time his wife has their second child he can sell this house for a profit of $20-$25k. It only cost him an extra $50/mo…
How could you *not* consider owning?
David Rocci
Rocci,
If it costs only $50 more to own a place then by all means, it’s a good thing to own. The problem comes when owning a comparable place to renting cost 50%- 100% more, which is the case for most condos/houses in California coastal areas. It does not makes sense to pay twice the money to get the same thing.
I think it’s reasonable to pay about 30% more to own than to rent. Anything more than that is rediculous.
What do you all think is a reasonable premium that one should pay for owning vs. renting?
My partner and I have come to realize from personal experience that a home can be your salvation. We’ve met a lot of people that have had to use their home as a bank account. The bank account is called a reverse mortgage.
Many of these people planned for their retirement, and some did not do so well. Their home is now providing a source of income they didn’t think they would ever need.
Although renting has its benefits, renters better save what they are not spending on a home. Otherwise, they may find themselves in dire straits when the economy or health issues eats up their retirement funds.
It’s never too late to have a home pay your way comfortably through retirement. For those that lack sufficient knowledge and condemn the program, SWSWSW, Next. The people using a reverse mortgage don’t give a damn about your opinion, so deal with it.
this is tangible, but does anyone else know that part of your rent is tax deductible?
I think you’re buying a home for the right reason – for the emotional benefit. I’ve seen too many people buy a house for investment purposes and end up being obsessed over what the market is doing, “gee should I sell? Should I hold on? What if this place tanks?” – instead of truly enjoying what they have. If you buy a home and it makes you happy, then you won’t care what the market does, if you end up having to sell at a loss, at least it gave you enjoyment while you were in it. And that counts for alot! One thing that scares me being a home owner is now, liability wise, I have something very valuable I could see being taken away – by some sue happy jerk – keep that in mind when you look at your home insurance – can’t have the same low coverage you did when you were just a renter. Great blog – glad NPR talked about it.
SmBusMan: in what state is rent deductible? In addition to being a realtor I also prepare taxes in Illinois – there is no such thing for our state.
Not flaming…just curious…
David Rocci
Chicago ‘burbs
A portion of your rent is deductible if you have a home office. I’m not aware of any general rent deduction, though.
Renter = $$$ rich
Homeowner = $$$ poor
You will be able to save a LOT more money as a renter. I rented for 14 years; I’ve been a homeowner for 3.
If you’re smart you’ll buy a home that is FINISHED completely inside and out – in other words, one that does not require a single penny of restoration/reconstruction/redesign/reverse remuddling/build-out/etc.
If you think you’re getting a bargain because the house needs x change or y redo, think again. Repair/replacement/refurbish projects are endless. Get used to $200 visits to Home Depot/Lowes/ every saturday AND sunday. Get used to getting screwed by contractors; get used to thinking “i can do this!” and making a friggin’ mess that irritates your spouse.
I love my house but realize I overpaid for a rat-trap. Do not buy a rat trap thinking you’re getting a deal. You aren’t (blanket truth). Learning how to fix things has been so much fun but it has been a very expensive education (~$100k).
Another thing: If you’re going to buy a place, buy the biggest house on the most land closest to work. Homes are not investments; they are liabilities. For this reason, do not have any equity in them. Keep your money making money for you; let appreciation do its thing.
If you’re going to stay in the Bay Area, you really should consider staying a renter. You’ll be able to save $$$. If you want to own a home, MOVE.
One intangible to think about is your time. Your weekends will now all be spent at Home Depot. When I realized how much time I spent there I wanted to buy the stock. (I’m an index guy though, so I didn’t.)
Several of the intangibles I am starting to learn about are the different “frugal” options you now have that most people can’t do in an apartment.
Thinks like growing your own vegetables/peppers/spices/herbs all are so much cheaper when you grow them yourselves. I mean, yes its possible (I even did it) to grow various spices on an apartment window ledge. But having property gives you the ability to use more space. I’ve recently planted several spices, and have a crop of sage and lemon grass coming up as we speak
As with all things in a new property the balance between effort and cost is apparent. Those willing to put in just a little more effort, can actually save a little more. Its nice to learn, to be a little more self-sufficient, and giving tomatoes or zucchini bread to a neighbor can often net you a free invite to backyard barbecues in the future.
Neighborly goodwill is not to be scoffed at, especially if you plan to be a neighbor for a long time.
The Fresh new start in your life
Thanks for the great post. Good advice! I always thinking fixing up your home is a love hate thing. It can be extremely rewarding, but it can be a second job too. This was a great post though.
I stumbled upon this blog like I did yours. Thought it’s humor on home fixing might be enjoyable: http://burisonthecouch.wordpress.com/2009/12/31/our-house/
Thanks for the post! I’d love to see more like it.
Personally, I wouldn’t go back to renting for anything. As a homeowner, I don’t have to deal with a landlord. Yes, I have to deal with home repairs and maintenance, but it is nothing even close to weekly visits to Home Depot spending $200 per trip. That’s just crazy! I live in the county, so I only pay county taxes, and they remain pretty stable – only going up a little bit each year. I don’t have a crazy HOA to have to deal with, but I am still lucky enough to live in a neighborhood where people do take pride in homeownership and they keep their homes and yards looking nice. Plus, around here it would cost just about as much to rent a house of this size as it is costing us to buy – we’re paying just over $900/month for a 2200 sq ft, 4br, 2.5 ba house on a little over 1/2 an acre. That includes escrow for the taxes and insurance. 7 years ago we were paying $600/month for a 900 sq ft, 2 br, 1.5 ba apartment, and we hated pretty much every second of that! Oh, yeah – even if we were renting a house, we’d still have to mow the yard, so that’s not a negative for us as homeowners. I think stability has got to be the biggest plus for me though. We have 2 children, and giving them a sense of permanence means a lot to us. I think what it really comes down to is what works best for each individual. For some people that’s owning, for others it’s renting.
I appreciate posts like this. As a REALTOR, I am always trying to advise my clients on preparatory aspects of buying a home (especially considering saving and arranging finances), and sometimes they won’t listen. I’ll bookmark this and pass it along to the ones that need an outside opinion on what smart real estate looks like. Great article!
Thanks!
Matt Templeton
Templeton Team | Albuquerque REALTOR
RE/MAX Alliance REALTORS
9577 Osuna Rd. NE Ste B
Albuquerque, NM 87111
Direct: 505-750-3305
Cell: 505-301-0694
I’ve been renting for the past 15 years, but I am definitely looking at buying soon before starting a family, its the intangible benefit of security for me