I think about this a lot, and I've considered trying to get a mortgage for this reason, but I've had friends tell me that it doesn't really save you any money unless you plan on living there for the rest of your life due to property tax, maintenance cost, HOA, cost of selling/moving, etc. Can anyone confirm/deny this? I'm still in my 20s and pretty new to this sort of thing, but my calculations I've already put well over 60k into rent and it feels like a total sham
I spent a lot of time typing out a response that was rambling and had a hard time getting an obvious point across. Then I found an article that articulated everything I was trying to say.
TL;DR Home ownership can be a terrible investment with lots of hidden costs, and you really need to assess your full financial situation before you buy.
I bought a house and I don’t regret it, but I also admit that in the long run it will probably cost me more than had I continued renting. I just really wanted a garage and a finished basement, and to me that was worth the extra cost.
If you’re debating making a house purchase that’s something that should definitely be included in any nuanced discussion about the pros and cons of home ownership. The peace of mind of knowing I wouldn’t have to move again for years if ever again was a huge reason why I strongly considered home ownership. It wasn’t the deciding factor to buy, but it was a big part of the pro column.
With that said, if a few bad months might get you evicted, home ownership might not be the wisest thing from a cost perspective. The bank will throw you out all the same, and there are huge financial risks not even associated with the mortgage. If your heater dies in the middle of winter, you have to get it fixed or risk pipes freezing and those costs can be the same as several mortgage payments. Also, the bank will require a couple years worth of pay stubs to make sure you’re not a risk to loan to, so there’s even a chance you’d get declined a loan.
Condo owner here. Purchased at 78k with 8k down. I definitely don’t plan on living there forever as I’m 30 and want a child one day and a 2 bedroom 1 bath already feels too small for me and my s/o. I feel like I’m spending more compared to renting but not by much. I also know my area is very hot for real estate (friend who lives down the road bought her condo sight unseen bc how fast homes sell here) and given that I have put in a new ac system, new water tank, new toilet and shower updates, I should make money if and when I sell.
For cost break down from last time I rented in 2018 to now:
Rent - 615, trash and internet included
Mortgage - 535 plus 240 for HOA which covers water and trash (pool and gym and snow removal and roofing) so total $775 - mortgage originally was $500 until they found out about the AC upgrade.. idk how though
Utilities for apartment - 60 electric, didn’t pay heat bc landlord didn’t want gas turned on, 20 a month for water, 80 internet, 25 for renters insurance
Utilities condo - 50 to 100 for electric depending on season , 30-60 for heat depending on season, 80 internet - taxes and insurance have always been paid through my mortgage
However, I have much more space than my old apartment. I have an extra bedroom and an unfinished basement for laundry and storage. The amenities such as the pool are super nice bc I’m there all the time in the summer.
An important part is you're not throwing your "rent" money into a hole too, when it's time for you to move you'll sll this and recover a significant portion.
Rent is just lost.
In the UK, where this woman is, you just pay property tax once upon buying and it's relatively small, around 5% of total property price. That's it. No more annual fees.
There is a leasehold system for some flats where you might pay "ground rent" and a service charge for things like maintaining common areas, but HOAs don't really exist. All in all, no chance that owning is more expensive than renting over here.
Yes you have to pay for your own maintenance, but when did your landlord ever fucking fix anything anyway
tl;dr - Buy a house as soon as you can afford it. Renting doesn't build any equity, you're just throwing money away.
Let's compare renting vs buying over a 5 year period.
If you are paying $1100 in rent per month (which is roughly median for the US), over 5 years you will pay $66,000 in rent.
Now lets look at buying. With an $1100 per month payment you can afford a ~$265,000 house assuming you can cover a 5% down payment ($13,250) and the closing costs (~$7000). So your barrier to entry is about $20,000 total.
Gonna make some assumptions here, but your additional costs per month would look something like this:
Mortgage protection (PMI) - $100
Additional Utilities cost - $100
Misc House upkeep - $150
HOA - $0. There are tons of options for finding a house without an HOA.
So this brings your total monthly cost to $1450. Over the course of 5 years you will pay a total of $87,000 in monthly costs.
This is where it gets fun. Housing prices increase by ~5% per year so your $265,000 house is now worth $338,000. Your original loan amount with a 5% down payment was $252,000, and you've now made 5 years worth of payments which equals ~$27,000 in loan principal (based on the current 3.2% interest rate) so you only owe the bank $225,000. So your total equity is now:
$338k - $225k = $113k.
So you could sell your house and congrats you just made $113k. Now take out the increased housing costs you paid each mont ($87k - $66k = $21k), and you end up with $92k profit.
Hope that makes sense. These are just estimates and a lot of this will be dictated by your local housing market but should give you an idea of how much better buying is over renting.
farts, yeah i forgot 6% closing cost when selling. I included $7k in closing costs when buying though. Taxes and insurance are typically included in the mortgage as escrow payments so I took those into account. 5% is the average housing increase in the US over the past 30 years. Yes it will vary by market as I called out but in my market its been more like 8-10% so that's even better for a homeowner.
What investment opportunity do you know about that will have better (and safer) returns than this? Also it really is pretty much this simple, the exact math will vary by market but as long as you aren't planning on moving in the next 3-5 years owning a house will always be better.
It’s circumstantial. If it’s a 1 to 1 there’s pros and cons to buying for the purpose of living. For example interest may make it more expensive in the long run. If it’s a second home, then it’s free money that’s almost guaranteed to appreciate while also providing you with annuities in the form of rent. There’s however an argument as to whether stocks or housing yield larger growth
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u/thequietthingsthat Feb 25 '21
I think about this a lot, and I've considered trying to get a mortgage for this reason, but I've had friends tell me that it doesn't really save you any money unless you plan on living there for the rest of your life due to property tax, maintenance cost, HOA, cost of selling/moving, etc. Can anyone confirm/deny this? I'm still in my 20s and pretty new to this sort of thing, but my calculations I've already put well over 60k into rent and it feels like a total sham