The high cost of homeownership
This week, Kim and I hired a contractor for what we hope will be the last major project on the “country cottage” we bought last summer. We’re replacing our rotting back deck and installing a hot tub. It’s an expensive (and extensive) project.
The cost hurts all the more because we’ve already poured nearly $100,000 into performing needed repairs on this property. (In fact, as you may remember, we considered forgoing the deck replacement altogether.)
Budgeting for this job led me to reflect on the costs of owning a home. Like my colleague J.L. Collins (who believes a house is a terrible investment), I refuse to join to the cult of of homeownership. Yes, I own a home — and have for 24 out of the past 25 years — but I’m under no illusion that this is a smart financial move. Kim and I want to own an acre of land in the country, which is why we bought this place. We didn’t buy it because we think it’ll make us wealthy. (It seems to be having the opposite effect!)
Today, both for entertainment and catharsis, I want to spend some time talking about the high costs of homeownership. And lest you believe the stories below simply prove that I’m a fool with money, I want to point out that my experiences seem typical. Everyone I talk to about homeownership has similar tales to tell. I’ll bet you do too!
Note: In an alternate reality — maybe my next life? — I’d be a competent carpenter and handyman, much like my pal Mr. Money Mustache. Pete has the skills and experience necessary to do most major home-improvement jobs himself. This saves him tons of money. I don’t have these skills. I’ve begun teaching myself how to make minor repairs, and I can even build some simple stuff out of wood. But I don’t know how to replace a roof. I don’t know how to hang siding. I don’t know how to build a carport. I don’t know how to build a deck and install a hot tub.
My First Lesson in the Cost of Homeownership
In June of 1993, when I was 24 years old, my ex-wife (Kris) and I bought our first home. It was a nice ranch-style house in my home-town. The seller had prepped it for market by keeping the lawn a gorgeous emerald green. It was well-trimmed and well-watered even until the day we moved in (June 23rd).
I’d grown up in the country, just outside of town, and our lawn had never been gorgeous. It was a rough patch of brown grass and — mostly — various weeds. I relished the opportunity to have a lush green lawn.
I did everything I could to maintain the green. I watered for an hour in the morning. I watered for an hour in the evening. Sometimes I watered for an hour in the afternoon. Throughout the month of July, I probably watered the lawn an average of twenty hours a week. (Seriously.) I mowed twice a week with a reel mower. I also applied a treatment of fertilizer. To weed the lawn, I got down on my hands and knees and crawled over every inch, pulling noxious plants by hand. No joke — I actually did this!
The days were long and very hot, but my lawn weathered it well. As July drew to a close, our lawn was, by far, the most spectacular lawn in the neighborhood. The most spectacular lawn in the city. For all I know, it was the most spectacular lawn in the state! It was a carpet of deep green, completely weed-free. I was a proud, proud man.
One weekend in early August, we attended a yard party at a friend’s house. The grown-ups sat around and talked about life, talked about gardening. The conversation turned, and people began to complain about their water bills. Water bills? Kris and I exchanged puzzled glances. Water bills? The conversation continued, and people began to compare water bills.
My heart began to sink. The implication was clear. I mustered the courage to ask, in a small voice, “Do you mean you have to pay for water?”
“Well,” said one woman. “Do you live in the city?” I nodded. “Do you have your own well?” I shook my head. I had grown up with a well, but didn’t have one now. “Then you’re on city water, and you have to pay for it.”
I broke into a cold sweat. “How much does water cost?” I asked. I’d always thought water was like air: a fundamental human right. Free! How could somebody charge for water?
Our first water bill came several days later. It was $80, which seemed like a lot to us at the time — especially since we had budgeted a grand total of zero for the expense.
I cut back my watering after that to just a couple of hours a week.
The Ongoing Cost of Owning a Home
Kris and I learned quickly about the costs of homeownership, as all new homeowners do.
Our first Christmas, for instance, we woke to find that the water heater had failed. Water had been spewing from the pressure-relief valve all night long, flooding the back end of the house. Instead of opening gifts, we spent our Christmas day cleaning up the mess and finding a place to buy a new water heater. Ho ho ho!
The next autumn, we had a wind storm. Kris and I were worried that one of the nearby cedar trees would topple into our house. Instead, the back fence blew over. We got a crash course in paying for and constructing a wooden fence. (We didn’t do a good job of repairing things. Before we moved out of the house in 2004, we had to repair the fence once more.)
Fortunately, these sorts of minor catastrophes were few and far between. Our home was relatively new — built in 1976 — so systems seldom failed. When we spent on the place, it was generally elective stuff: putting in Pergo, painting the walls, building raised garden beds.
In June 2004, after eleven years in our little ranch house, Kris and I bought a bigger place close to Portland. This hundred-year-old farm house stood on two-thirds of an acre of land. Unlike our first home, our second home required a lot of ongoing maintenance. The roof leaked. The wiring was downright dangerous. (The electrician we hired was alarmed at the state of the wiring. He documented it to share in an online electricians forum where his colleagues exchanged horror stories.) Tall trees were diseased and rotten.
As long-time Get Rich Slowly readers know, this hundred-year-old farmhouse turned out to be more work than I anticipated. Initially, I believed it was my dream house. I was wrong.
Because our old house had seemed like such a burden, after our divorce I deliberately looked for a place with zero maintenance. I bought a penthouse condo along the Willamette River. (By the way, Kris still lives in the hundred-year-old farmhouse, and she loves it.)
While it’s true that the condo had no outdoor maintenance (that was handled by the home-owners association), things still broke inside the unit. The dishwasher died. The A/C had a chronic coolant leak. Somehow, the bathtub began to drip water into the unit below. The gas fireplace stopped working. The cats tore up the window blinds. And so on.
When you own a home, there will always be repairs — large and small — waiting for your time and money. It’s not a matter of “if”. It’s a matter of how many and how much.
Note:You’ve probably heard the common recommendation that you should budget one percent of your home’s value for annual repairs. (So, for instance, if your house is worth $400,000, you should budget $4000 per year for maintenance.) I like this rule of thumb, but I think it’s a bit misleading. From my experience, the cost of home repairs tends to be “clumpy” rather than smooth. It’s not like you predictably spend $325 per month on maintenance. Not at all! It’s much more common to have a $12,000 repair one year — then spend almost zero for three or four years before the next major thing comes along.
Mo’ Money, Mo’ Problems
Last July, my girlfriend Kim and I moved to our current location, a small home in a quiet area on the outskirts of Portland. We love the house, we love the lot, and we love the neighborhood. The downside? This place has been a money pit.
When we bought our new home, we knew it needed work. The pre-purchase inspection revealed plenty of problems, from a failing roof to rotten siding to crumbling decks. It was even possible that the foundation was falling apart!
Before buying, Kim and I talked at length about whether we wanted to take on this sort of project. For five years, we’d lived in that cozy condo, which had been relatively trouble-free. Plus, I had been notoriously averse to home improvement (and yard maintenance) in the past. Did we really want to trade our worry-free life for a long list of headaches? Ultimately, we decided that we did.
I crunched the numbers. “If the condo sells for as much as I think it will, we should have $40,000 or $50,000 to make repairs,” I said. “That should be enough to cover everything — unless the foundation is shot.”
The condo sold for more than I expected, which meant that we moved to our new old house with a $59,000 “profit” that could be funneled directly into our remodeling projects. We started right away.
The Money Pit
I’m not sure how things are in other parts of the country, but here in Portland contractors are booked solid for weeks — or months. Because of this, they’re able to charge much higher rates than I’m accustomed to paying. (Higher demand means higher prices, just like you learned in high school economics class.)
Over the ten months we’ve lived here, Kim and I have managed to find folks to make all of the necessary repairs. But it’s been costly. We’ve paid for the following projects:
- HVAC System. We completely replaced the previous HVAC system, installing an ultra-high efficiency furnace and air conditioner. (In retrospect, the A/C was probably the dumbest home improvement decision I’ve ever made. It seemed like a good idea at the time, though.) Total cost: $15,069.
- Gas line. The folks who bought our condo didn’t want the gas range, so they simply gave it to us. Great! Except that we didn’t have a gas line running to the new kitchen. We paid a handyman to install everything. Total cost: $1,000 and a lot of cursing.
- Floors. When we moved in, the floors were shot in every room but two. There was extensive water damage (and rot) in the bathroom and one bedroom. The carpets in three rooms were caked with mold, mildew, and animal urine. (Our entire neighborhood is infested with mice.) It stunk so bad that some days it gave me a headache. We hired a company to replace the carpets, install oak floors in the kitchen, and refinish the wood floors throughout the house. Total cost: $9,585 and mild cursing.
- House envelope. Our biggest expense came from having to replace the entire envelope surrounding the home. We paid one company to do all of this work. While replacing the roof, they found extensive rot in one area and had to replace the plywood. While removing the old siding, they found many areas of rot, including a large section behind the bathroom where termites had invaded. This led to an unplanned bathroom remodel (see below) plus some re-framing. Last of all, they replaced the front deck, which had begun to collapse. Total cost: $36,680.56.
- Gutters. While replacing the envelope, our contractor paid another company to install new gutters and downspouts. Total cost: $1,300.
- Bathroom. As I mentioned above, we had to tear up half of the bathroom (and part of one bedroom) in order to remove rotted material that was drawing insects to the house. This project was a colossal headache to everyone involved — but it looks great now! Total cost: $4,300.05, many late nights, and tons of cursing.
- Carport. Over the winter, we discovered that the carport erected by the previous owner was poorly designed. Its huge surface area drained onto the roof of the house, overwhelming gutter capacity. Water would both spill behind the siding into our bedroom and pool at the bottom of our sloped driveway, at the base of the house. We considered demolishing the carport and living without it, but in the end paid a contractor to build us a new one. It was expensive. Total cost: roughly $25,000.
All told, we’ve spent $92,934.61 on remodeling since July 1st. That’s roughly 60% above our $59,000 budget. I guess things could be worse — we might have had to replace the foundation! — but the expense is still painful. Very painful.
When we bought this place, we knew there’d be work. But, as I said, we didn’t know there’d be this much work. I’ll be honest: At times, both Kim and I have felt like giving up. When we think about how much time and money we’ve spent, our hearts sink.
“Do you regret having bought the house?” a friend asked me during my recent road trip across the southeastern U.S.
“You know what? I don’t regret buying it,” I said. “I do regret not having asked for more concessions from the seller. I regret not understanding that a bad inspection report probably meant there were more things wrong with the house than were visible. I regret that our total cost for the place is going to end up closer to $600,000 than $450,000. But I don’t regret buying the home. Kim and I love it!”
Kim and I really do love this house. For where we are in life, it’s perfect. I suspect we’ll live here for a long, long time. That helps ease the sting of remodeling costs a little — but only a little.
“You should watch The Money Pit,” a friend told me recently after hearing about our trials and tribulations. I scowled at her. “No, I’m serious,” she said. “It’s hilarious. Plus, you’ll totally be able to relate to it now. It might actually feel better about your situation.” So, Kim and I watched The Money Pit. It wan’t hilarious — but maybe that’s because it hit too close to home.
No Longer a Shack
“You know, I considered buying your house,” one neighbor told me last week. “Before the previous owners put it on the market, I took a look. I decided to pass, obviously. I felt like it was a tear-down. But I’ll give you guys credit. You’ve made a go of it. The changes you’re making look great, although I’m sure they’re expensive.”
This neighbor’s evaluation of the property is echoed by other folks we talk to. “That place is a shack,” one lady told me soon after we moved in. “I’ve been in the house many times. It needs a lot of work.” She’s right. This house did need a lot of work, but I’m pleased to report that it’s no longer a shack.
Now that the hard stuff is over, there are lots of little things left to do — new paint in every room, prepping the guest bedroom, minor repairs all over the place — but the major projects are complete. We’re ready to relax and enjoy the space.
Personally, I’m ready for the bleeding to stop.
One of the primary reasons I wanted to move from the condo was to reduce our average monthly housing expense. Between taxes, insurance, and HOA fees, we were paying more than $1200 per month to live in a place that we ostensibly owned free and clear. It drove me nuts! My calculations showed that the monthly costs for the “country cottage” ought to be less than half that. And they have been.
But that savings of $600 per month is more than outweighed by the huge repair costs we’ve incurred. It’ll take ten to fifteen years to make up the difference, to break even with the condo expenses. Maybe in 2033, I’ll throw a little party to celebrate how smart I was for buying this home…
What about you? What has your experience with homeownership been like? Is it less expensive than renting? More expensive? All things equal, would you prefer to own or to rent? Share your stories of unexpected home expenses — and how you’ve coped with them.
Become A Money Boss And Join 15,000 Others
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
There are 58 comments to "The high cost of homeownership".
The deck and the Hot tub are going to be worth it! Those have been my best home improvements and I use them every day. Enjoy!
I know, I know. I believe it, Sam. Kim and I will use ours every day too, and we know it. That’s probably why we’ve decided to go ahead with the project despite the costs.
Wow, this is depressing! I’m glad the end is near. We’ve made a few improvements to our property, but most weren’t required (fence, dock, landscaping, etc). However, this past fall, we had the same major plumbing issue (collapsed pipe under the house) happen at the SAME TIME at both our home and one of our rentals. $50k gone like that! And our insurance denied our claim.
Forgive my curiosity, but is the house solely in your name? Are you absorbing all of the repair costs yourself? Does Kim have any financial skin in the game, so to speak?
Kim and I are are both on the title. We’re sharing repair costs. And while I’m the one who paid the lump sum for the home up front, she’s paying me every month as if she had a mortgage payment. Like all couples, we’re finding ways to make this work for our situation. 😉
It is my personal pet peeve when people speak about owning their home as an “investment”. It is shelter and if you are lucky in the end you will have had a savings vehicle and not have spent too much on a repairs and improvements. I love my home but at times it can be a real headache.
YES indeed. A house is an asset, not an investment. You can love it to death and lavish lots of money on it (as we do), or let it fall down around your ears. The house you live in rarely turns a profit on selling (if you really count all the maintenance and repair costs you’ve put in over the years). Renting is cheaper if you are looking at it from a purely financial POV.
But yesterday, we turned on the fountain for the season and it’s splashing away. We sat out on the brick patio we had installed last year. The daffodils and tulips are out in profusion, and the pear tree is white with blossoms. The birds swarmed the feeder. Small but it’s ours. Garden of Eden.
Once you have become FI, reached your goals, taken care of your loved ones and made charitable contributions, what’s all that extra money for if you can’t spend it on what brings you pleasure?
J.D.—-yes, you did buy a house with some serious fundamental issues (and I thought we had a fixer-upper!). I hope the pain of all those unhappy surprises and your blown budget will melt away when the two of you are sitting in the hot tub at last. Win most of them, lose a few. Humor helps.
And at the risk of uttering a blasphemy on this site, let’s all remember:
IT’S ONLY MONEY.
“Renting is cheaper if you are looking at it from a purely financial POV.”
Not if you own a *newer* place free and clear. Let’s face it, JD’s post really should have been titled The High Cost of Owning a Home from the 1940s.
I’m in an older condo from the 80s that I own free and clear. It’s finally all fixed up, leaving me with a monthly HOA fee of $250, which is a high fee for where I live, but still much cheaper than most rents. My insurance is $200 *per year*, and my property tax is $1000 *per year*. And if I would have simply bought a *newer* condo outright, I would be enjoying a lower HOA fee right now, as newer condo complexes don’t need as much attention as older ones. Plus I would not have had the “fixer-up” expenses that I’ve had with my older place. But even with my fixer-up expenses, I’m still way, way ahead of someone who is paying a rent. Plus my condo has gone up in value since I bought it, allowing my initial payment to build into a substantial equity pool, which will give me a nice profit when I sell this place.
dh:
I tend to agree with you. A lot people buy these charming and cheaper homes when they should just save their money and buy one that doesn’t need any work. A really good investment (which nobody ever does) is to pay a contractor to look the place over before they buy it. Reading through this article, I’m stunned that people don’t bother checking the condition of the roof or wiring first. And if you want to add things like decks and swimming pools; get a local estimate first.
The Night Wind:
There’s no such thing as a house that doesn’t need any work. Whether you buy a house that needs a roof right away, or one that will need a roof in 5-10 years…you’re buying a roof. Granted some people don’t live in their houses very long anymore, but people who tend to go the charming fixer-upper route, typically want that cheaper house specifically so they can put money into customizing it, and are probably in it for the long haul.
I don’t think “should” should enter the equation. People buy what they want. Paying less overall for a newer house without issues [yet], when what they want is an older home with charm, means they’re paying a whole lot of money for something they don’t even want. And that’s definitely not value shopping.
Also, with a fixer-upper you get to choose your price point and scheduling (for the most part). Some things you can do yourself or learn how to do, or get help/ favors in doing…and earn a lot of sweat equity that way. And you can prioritize when you want to do it. Newer houses might put more money into things you [I] don’t necessarily value (like hideous granite and stainless steel, and ornate kitchen cabinetry). I HATED and still hate the idea of paying extra for someone else’s fancy taste, which I likely don’t even like.
If I was forced to live in a new-build that wasn’t originally designed by me (or someone with my aesthetic), I would likely spend a lot of money anyway, taking out things to put what I want instead. And it would be a waste because I spent extra for the things I want to rip out.
It’s absolutely true that older homes cost more in fixing-up costs. And, yeah, I completely agree, it’s all how you want to spend your money (for some, the charm of the older home is just worth paying for in repairs-upgrades-customizing).
But when I said that renting is cheaper than buying, I meant that most don’t count up ALL the costs associated with owning a house.
BUYING/OWNING: Costs
–Mortgage and interest
–If no mortgage, then the COST of that money being tied up (ie. not making money in the market, which most neglect to figure in)
–Homeowners fees & taxes & water & utilities
–Repairs and upgrades (cost more if you’re not handy)
–Yard care, snowplowing (if you live where I do)
BUYING/OWNING: Benefits
–Appreciation of property (possibly, but remember to subtract the fees and possible tax liability when selling it)
RENTING: Costs
–Rent (and possibly utilities)
–Unpredictability of how much rents may rise
RENTING: Benefits
–Super or owner on the hook for repairs, etc.
–Money not tied up in the house is (presumably) well-invested and making money.
My point was just this—-by the time you subtract all the costs associated with your house, it is usually more expensive than renting. I was being a bit hyperbolic, because there are exceptions. But owning a house is a luxury. It’s one I’m happy to pay for, but I think of my home as an asset, not an investment.
For many in the U.S., whose house constitutes the main component of their net worth, owning is a way to create some wealth, as a kind of enforced savings plan. That’s certainly been true in the past, though it may no longer be the case in the future.
I’m leaving out all the emotional/lifestyle benefits of owning versus renting — those have to be quantified individually!
I’ve owned a new home and an old home. Now pay close attention, kids: for the 10 years that I was in the *new* home, there were hardly any problems. But for the 10 years I’ve been in the *old* home, there have been quite a few problems. I do like my older paid-off condo now that it’s all fixed up. Because I live in a city with a low cost of living and no major weather issues (Albuquerque, New Mexico) I am able to save a great deal, as my insurance is only $200 *per year* and my property tax is only $1000 *per year.* I do have a monthly HOA fee of $250, which is kinda high for Abq, but I can live with that seeing as how I’m located in the best part of town and have no mortgage.
Seriously, SPECIAL ALERT: To all those that are thinking about buying a home: *In general,* you want to buy the NEWEST home that appeals to you that you can afford. You will save yourself TONS of time, energy, money, cursing, if you will simply buy something built in, say, 2010 or later. Older homes, in general, are MONEY PITS. In addition to the incredible financial loss, they have been known to cause full-on bankruptcy, divorces, and even heart attacks. Word to the wise!
I’m half serious in saying that we should do a home swap when my husbadger and I retire.
[dealbreaker]Do you have enough space at the condo (eg a patio, balcony, or courtyard) for a small garden?[/dealbreaker]
Hey, Sequential. I’m confused as to why you would want to leave Vegas to come to Abq??? I guess the grass is always greener, right? Or in our cases, the grass is always browner. Having lived in Vegas, I find there is much more to do there. And, like, we don’t even have an IKEA here. Don’t get me wrong, Abq is a rad place for sure on so many levels — but compared to Vegas??? I mean, we’re both in deserts with similar weather and scenery, except *your* desert is home to the most lavish entertainment Mecca on earth.
And I do have enough space for a small garden.
ABQ has 4 seasons. Vegas has 3: Hot, Cold, October.
Also ABQ is slightly cooler in the summer.
I bought my first house in May 2016, and it was a big time fixer upper. Built in 1980, last renovated in 1980. I’ve redone almost every room so far, it’s a 4 bedroom, 2 bath. 1 more bedroom to go! The house has also appreciated by ~80k in the last 2 years. I am loving how to do home maintenance and improvements.
Living anywhere has its drawbacks, but I agree, home ownership is overrated, considering it is the “American dream”. Some people like to say that renting is throwing your money away, but forget about shelling out for insurance, property taxes, and repairs, plus all the time and effort spent on regular care and maintenance.
So, while the husbadger and I were celebrating our 20th wedding anniversary last December in beautiful ABQ (hi DH!), our hot water heater spung a slow leak and went at it for several days. 🙁
’nuff said.
Woah…I’ll stop complaining about the hubs insisting he needs a new mower. He’s holding the mowing deck up with a rachet strap. I think we can get one more summer out of it.
Glad to hear your going ahead with the deck and hot tub. I can’t wait to see a picture of the finished project. I hope you and Kim find a lot of joy and relaxation in its use. I’m currently squirreling away funds for a very large screen porch and deck. Not only do I think I’d spend hours rocking, swinging or reading out there, it would block the southern sun and make the house much cooler.
I’m also working to get us a separate savings account for home maintenance and repairs. I think there is always “something” to repair, maintain or replace in homeownership. The list just never ends!
I have had a separate account for home maintenance for 20 years and add to it a set amount on a bi-weekly basis out of each paycheck. I increase the amount I save a little bit each year. If I need a roof, I’ve got the money. If I need a new HVAC, I’ve got the money. If I need a new mower, snowblower or some other equipment to keep the house in shape I pay for it out of this fund. If I don’t spend any of the money, I earn a little interest.
Wish I had more time to write – I am FIRE now because of home ownership. We just closed on our next Flip Project this week. The biggest caveat to achieving wealth through real estate is that you have to be willing to learn and to do things yourself. You also have to know when you’re out of your league and need to hire help, but you can’t just blindly throw money at problems. Research, research, research. Know what you’re contracting for even if you’re not actually doing the work. Our new project has foundations and our bids have ranged from $20k to $65k. DH has been sucking down YouTube and other source material like crazy. I’m sure he will make the right choice, because it will be an informed choice.
I totally agree on the age of the house being an important factor. Our first house was a farm house type fixer upper. Needed tons of stuff but we still made some profit when we moved. Our second house was brand new, this house was ten years old. It’s been a dream.
I haven’t done any extensive math on the subject, but husband and I are both in our 70s and totally thrilled we own instead of rent. For us there is no feeling like knowing the roof over our head is paid for. We downsized and paid cash for this retirement home so there is plenty to spare for the very occasional repair.
Sorry, foundation “problems”. Big ones, lol!
Yet another great post, JD. I didn’t get a chance to comment yesterday, but my comment would have been about the high cost of maintenance for smaller homes, which in our area means an old home. We have 1500 square feet for four people; we are in walking distance of my work, a public library, two commercial areas, etc. All pluses. Our mortgage is low but we have astronomical property taxes compared to other parts of the country. And every few years we shell out about $10,000 for this or that: new chimney, new plumbing, a desperately needed bathroom renovation; now we are being told that we need an entirely new roof, to the tune of $20,000. We came to home ownership later in life, and I do ask myself periodically if it is worth it. Your blog is so helpful and motivating in terms of conscious living/spending/saving, and your forthright honesty is so appreciated! Thank you.
It can be an adventure! One that my wife and I are launching into. Also in Portland, our next house closes in a couple weeks and we’re planning on renting out our current house. The next house has a basement we’ll be remodeling into an ADU. With that done and rented, our hope is that the rentals will cover our mortgage payments. That’s the plan, anyway. So I have no idea what will actually happen. 🙂
When you own a house, it becomes an asset, but it’s rarely, if ever, an investment.
That’s a lot of expensive repairs. It looks really nice now, though.
We’re going to replace our HVAC and the estimates are all over the place. $6,500 to $9,900. It’s pretty crazy. We’re paying about $1,000/month to live in our condo. I’m about ready to move into our rental home, but the tenants don’t want to leave yet. Oh well, a few more years. The monthly cost should decrease a bit, but it will be offset by all the repairs. It’ll be similar to your experience…
Your deck is going to be amazing, at least!
We went over budget with our house we bought last year by about 15-20%, the numbers are a litle hazy now, and we still have a decent amount of exterior work to do. We definitely went into 6 figures and were lucky that we sold our previous place in a heated market which gave us enough cash to pay for those renovations and refill our savings.
We figured out at least one goof on the day of move in – our dryer required a gas line and my husband had been convinced it was electric. Since he bought the thing before I lived here, I believed him. Last minute gas line installation: $200! 🙂
Now the contractors in our area have so much work they’re quoting 20% over reasonable pricing, at least, so instead of diving back into the work, we’re putting by money for more renovations next year. I’m thinking that either a recession cooldown is somewhere around the corner, or the changes to the tax bill will affect people next year and decrease demand enough so that labor costs will come down.
MAYBE here in the Bay Area it would be an investment but honestly, I don’t look at it that way. It’s a safe and good place to live.
Why was the a/c a mistake, though? With the increase in hot days here, where we haven’t lived with a/c in a decade, I’m starting to think we might need to put it in when we need to replace the HVAC system.
I am definitely spending lot more then renting. It is very difficult to turn a profit with home ownership. One thing I considered is the mortgage + HOA + property taxes < rent. I did not take into account utilities … winter rates crazy.
If it wasn’t for owning my previous home, I would have been stuck working until I was 70. I was lucky enough to buy that house just before the incredible property bubble that has been going on in Australia. Bought for 136K – 20 years later sold for 1.7M.
When I bought out my ex, most people told me that as a SAHM with 4 kids under 5 I’d be better off renting. But I wanted the security of having a home for my family that we’d one day own.
The only “investment” I had in mind when I bought out my ex-husband 20 years ago was security for the boys and I. I wanted for them to grow up in a safe, stable, rock-solid environment. We got that.
My current property is 15KMs away. I paid 750K cash for it 2 years ago and put the rest into my superannuation and other investments. I think that selling my little house has saved me a probable 10 years of work.
(In 2 years, my current home has gone up in value to 1.1M. But it’s all on paper – I have no plans to sell.) 🙂
The forced savings and compounding value over 20 years was a welcome but unexpected side benefit. A house CAN be a hugely important investment. But the investment can come in many different, often intangible areas.
(In 2 years, my current home has gone up in value to 1.1M. But it’s all on paper – I have no plans to sell.) 🙂
Sure do love your way of thinking…mine also
Wow, that’s a lot of fixing in a lot of money! My house was built in 1953 and while I haven’t had any major issues like you have I’ve had to do some things. The biggest add-on that I have done is a nice patio on the side of my house with paver stones. That cost me about $8,000, but it’s the place I spend the most time and my little sanctuary 🙂
Thanks for the update on your home remodel. I’m glad you guys opted for the deck and hot tub!
We’re one week into the deck/hot tub project, and although I think we have one to two weeks left on the contractor schedule, I’m sure it’ll be at least a month before everything comes together. (We have to wait for the spa to be built, and we have to wait for some roofing material to come in.) All the same, several times per day, Kim and I jokingly say to each other, “Hey, wanna go sit in the hot tub?” We are both very very ready for it.
I’ve been thinking more about the “home as investment” and it kinda sucks many times 🙂 You’re illustrating the pitfalls of what *can* happen when you become a new homeowner. We’ve been pretty fortunate to not have any major unexpected expenses so far, but still have shelled out mid to high four figure amounts several times over the past decade of ownership for pretty routine repairs and replacements. Fun times! At least our windows open and close and the roof doesn’t leak…
Wow, this is timely for me since we are in the process of moving from Pdx to Philadelphia. I was getting sucked into HGTV’s Fixer Upper series (and similar other ones) and started trying to persuade my husband that maybe we should consider buying a house that needs obvious work. Now, I’m pretty sure I don’t want to do that after reading your tale. 🙂
I don’t want to scare anybody off from buying a home or even buying a fixer-upper. But I want people to have realistic expectations, you know? For some people, buying an old home (and/or fixer-upper) is a terrific idea. I have friends, for instance, who are both skilled and patient. They’re able to buy older homes, do the work themselves in their spare time, and they’re willing to live in chaos for years at a time. I truly admire them. I really do. But I am not that person. I’m perfectly happy to try to diagnose problems via YouTube, and sometimes I can even fix them myself. But it’s often best for me to hire somebody else to make needed repairs — especially to this house.
New reader here. Really enjoyed this post–thanka for the level of detail you’ve shared. I too do not worship at the altar of home ownership. As someone said, it is mostly shelter and the feeling of security (it’s “yours”, the landlord can’t kick you out) that makes it worth it for us. But yes, the furnace breaks on the coldest night of the year, water leaks when you’re out of town, etc. It was the right decision for us (in bay area it’s slightly cheaper to own than rent) but doesn’t feel like an “investment” as much as a place to rest our heads at night.
I agree that it’s not an investment. But i consider it both an asset and insurance.
Rent can be quite volatile and if it goes up and you’re on a fixed income it can be quite devastating.
Owning a home isn’t always a good idea. But if you are pretty sure you’re going to be in the home awhile it can really make sense. We’ve been in our house for 12 years and in that time our payment has gone up about $100 in tax/insurance while rent on the smaller house we lived in before has gone up about $250. When I’m 65 I expect that difference to be even more stark, and 85 will be even more so. My house payment will eventually be zero while rent goes on forever. For that reason I consider my house an asset that functions as insurance against inflation.
It’s a defensive financial position, i.e. reducing expenses and attempting to retain the status quo, while my portfolio is aggressive and trying to increase my income.
Ownership can be a nightmare but the right home, over the long haul, is better than renting. My condo is paid for, taxes and assoc fees amount to $540 a month. The rents around here are about $1300 a month. You couldn’t find a $540 rental in the nearest slum.
So far my ownership expenses amounted to new carpet, a few cans of paint, and a window AC unit. Aprox $3,000 divided by the 10 years I’ve lived here, equals an expense of $25 a month. No doubt I’ll face expenses in the future, but the math is likely to continue favoring ownership.
Its always possible to set up an example of an expensive, oversized old house VS renting a modest apartment. The renter comes out ahead if he/she invests the money. But not everyone invests. And not every home is a nightmare.
You couldn’t give me a new-build, unless I could turn around and sell it, or it was a custom build with an actual architect…not a cost-savings engineer posing as an architect for a mass builder.
But most people who want a new house can’t afford custom build, so they go with the pimped out, skimped out option. I know folks in homes barely 10 years old who are experiencing issues no house at that age should…and it’s usually a result of shoddy work, shoddy design, shoddy materials, or any combo of the above.
Many older houses that weren’t kept up with may present wear-and-tear issues, but at least they have an excuse.
My house was built in 1964, and it was built for its environment….raisewith crawl space, masonry walls, extra wide eves to shield the sun, and was designed to fit a narrow, deep lot.
Typical new houses are not built with a style and customization of materials and features required for a particular area. You could find the same exact new-build in arid Arizona and in humid Florida.
I spent $40k on renovations and it could have been more, but I and my family did as much diy as we could. My mortgage has been $354 for the last 9 years, and the only time that price will change is when it goes to $0, after it gets paid off while I’m still in my 30’s.
Home ownership has paid off for us in SoCal. We own our condo free and clear; it would rent for $2500 a month and we pay $650 a month for the HOA (including water and trash), taxes and insurance.
Instead of having nothing to show for 40 years of rental payments, we have an asset that can provide a big chunk of change if needed in the future.
Since you listed all the other updates/repairs, I’m curious as to how much this last one costs (ie the deck and hot tub).
I live in a VHCOLA in Europe. My ex and I bought this house in the mid-80s. It’s been paid off for over 10 years but DH and I always joke that if we had to purchase it today, we couldn’t afford the front door.
We had subsidence this year due to erosion from (very) old pipes. Redoing ALL the outside pipework, shoring up the house and redoing the lawn cost us nearly $40K.
Frankly, it has been hell. It has been very, very destabilizing. We are in the process of selling a rental (at a small loss) to pay for the repairs.
But, it’s home, and for the time being, I can’t imagine living anywhere else.
You are in a strong market, so it sounds like you’d recup the money spent as long as you stay put for a while.
But a house is not just a house, it’s also a home.
Home ownership is a terrible investment. House ownership…not so much.
Helped my son buy a 2850SQ 4 bedroom 2 1/2 bath fixer upper several years ago. We did all the work ourselves and saved a bundle. Tore kitchen out down the studs including ceiling. Rewired, re-plumbed, new everything, sink, cabinets, appliances, tiling, granite countertops, etc. Opened wall to family room, all new hardwood floors throughout. Insulated all pipes, wallboard, mudding taping, finishing and painting, sweating pipes, wired 3-way switches, just to name a few things…. all in 3 months. And we both had full time jobs too. We learned a lot and I my taught son a lot. We now share fond memories of this father son job. Increased home value by about 40%. His wife and 2 kids enjoy this house everyday.
I don’t look at as an investment but as a hedge against inflation.
I purchased my 2 bedroom 1,100 sq ft. condo in 2005 for $94K with a 30 year mortgage at 5.25%. My mortgage payment is $550/month (including taxes) with an additional $200 in monthly HOA dues (includes water and garbage and yard maintenance).
Average rent in my area for a comparable apartment is $1,171. When I purchased it was about $850/month. Currently that’s a savings up $420/month. So I’m ahead by about $5,000/year if you don’t include the principal. If you include principal that gets paid down on my mortgage each month then it would be $6,200. If I don’t spend more than that on repairs each year then I’ve broken even.
So far I’ve done better than break even and every year that equation improves. Even through the Great Recession. As soon as I could have the PMI dropped I started putting that towards the principal as well. I expect to have it paid off in the next 15 years or so, sooner if possible. At that point the monthly savings will probably be tripled.
Our home has doubled in value since purchasing it in 2001. We’ve done some remodeling- finished 1/2 the basement and added a mini kitchen, pulled all the carpet out and put in wood floors, added a cement deck and numerous trees. All told, we did most of the work ourselves that cost about $14,000. We picked up items from craigslist, home depot, ebay and lumber liquidators. We added solar panels as well.
Is this home an asset? Of course. Is it an investment? I wouldn’t discount it.
We do minor repairs to it and will need new doors and new windows (these drafty windows are bad) but have not budgeted for those. In time, it will get done. Just not yet.
We do own rentals and I’ve told DH that we will move into one of them as we age but he said No Way. He feels the kids should get those and besides, he likes to live in a home as there’s “room to rattle around in.”
Time will tell where we will spend our golden years. All I know is that I can’t wait until the kids move out so I can start more remodeling projects!
Thanks for reaffirming our choice to live in townhomes. SF scare the daylights out of me. I’m not really the handy type, so condo fees are a blessing! Another result of my lack of handyman skills, is our choice to invest in mid to low range properties. This has been smart for us because the cost of ownership is smaller and requires less.
Thanks for the post and good luck with the hot tub!
I bought a condo in 2013, where the previous owner took a loss. It’s in DC in a prime neighborhood. My mortgage + HOA fees were less than my previous rent (albeit I bought a one bedroom when I had been renting a two bed). That said, my mortgage payment remained constant whereas the apartment complex raised its rent 1-2% annually. I chose to do a bathroom renovation to install a washer/dryer. While the cost of doing laundry in the basement means I’d need to do close to 1900 loads of laundry to break even, the rental appeal was significantly increased, and I’m able to charge my current tenants more than I would have otherwise. I’ll also mention, I’m in the military and knew I’d be moving out after 2-3 years so making renter friendly improvements was certainly on my mind. In the last three years housing prices have gone up and the same unit floorplan sold for $60,000 more than my purchase price and that’s without in-unit laundry and an updated kitchen. The next big outlay will be completely remodeling the kitchen to my taste (the previous owner did the last renovation), but that will be once I know I’ll be living there again. So overall, my choice to buy was cheaper than continuing to rent since the only outlays were voluntary rather that absolute necessities.
When discussing “renting vs owning” in a purely economic/financial sense, owning is the answer according to economics. Logically, if renting were ever to become more financially sensible, then everyone would become renters and no one would own, which would leave no places to rent! Economic pressures would drive rents up to stabilize it again where owning is more financially sensible.
It drives me crazy to see people comparing the costs of renting and owning. The rent you pay covers the cost of ownership PLUS a profit for your landlord. Rent can’t be less than owning because it inherently must include this profit portion. While we may be able to compare the apples and oranges of the house you owned vs the apartment you rent, if you were able to own the apartment you rent, it would cost you less (aside from any crazy economies of scale).
Much like stocks outperforming bonds in the long term, this is not an opinion, but a necessity of markets.
Now, that said, there are reasons to rent; flexibility, maintenance, restricted capital, etc.
For those saying that a home is not an investment, a rental home IS an investment for the owner. If you own your home and treat it like you’re renting it to yourself, why is it not an investment? Home transfer costs are ridiculously expensive, so frequent transactions will kill a lot of profit, but as a long term hold, sensible home ownership will usually make more financial sense than renting. It has to.
I am a huge proponent of home ownership, especially for myself. But I have to disagree a bit with your first paragraph. There are certainly areas of the country where renting is less costly than owning (even long term). Also, there are more rental options that are cheaper, that do not exist in the typical real estate buying market (for example, renting a one bedroom, studio, or even renting just a room or garage/basement); so you can go as low as you want to go with renting…not so much with buying.
Also, people don’t tend to be driven purely on economic value, not when it comes to things like housing and lifestyle…or else everyone would live in flyover country and other LCOL areas. Many (if not most) homeowners bought property, economics-be-damned, specifically because they did not want to rent. They want to make choices about their home and property, don’t want a landlord, want the feeling of stability (not getting kicked out, or a terminated lease), reduce their chance of getting new neighbors every year or few months. There are so many non economy-driven reasons why people decide to own, that it is possible for a universe to exist in which renting is more profitable over time than owning, and there are many scenarios which prove that it can be.
To what extent are these high renovation costs driven by “wants” and not “needs”? If you buy a house built in the 70s that’s structurally sound but still has avocado appliances, do you HAVE to renovate the kitchen, or do you just WANT to?
Are high costs of homeownership a cost of succumbing to HGTV syndrome, where it’s a foregone conclusion that everything has to be replaced to suit one’s fancy? Obviously roofs and hot water heaters have to be replaced from time to time, but really–do you HAVE to tear out the perfectly good oak cabinets to get the ones trending in 2018?
We just bought a 700 square foot cabin on a lake, and there are a ton of things we could do to modernize it–it was built in 1940. The previous owners did some rudimentary improvements, but it’s still “rustic.” DH and I are are very carefully assessing whether the “must-haves” are MUST-haves as we go about spending money on the place, and we’re going to stick with those in order to keep our money in the bank
I guess I don’t get why people never understand that most of what you pay in condo dues goes for stuff like maintenance and utilities that you’ll have to pay for yourself in a single family home. We prefer a single family home because we don’t want to have to deal with a condo association. We don’t live under the allusion that maintenance costs on the house are cheaper somehow.
I think the main thing that the “house is a terrible financial decision” folks forget is inflation. When we bought 20 years ago, our mortgage payment alone was more than rent on a comparable place would be, never mind taxes, utilities, maintenance (our place was in good shape, so no money pit problems). The thing, though, is that buying locked in much of our housing cost. As housing price inflation happened around us, our costs stayed stable. Those stable costs help our bottom line, even if we never sell.
If you want to know how a rusty kitchen sink can cascade into a $10k kitchen remodel, though…. I know the answer to that.
I hear you JD. My monthly home ownership expenses averaged (not including mortage) over the 2017 year was:
– $475 utilities
– $185 taxes
– $210 maintenace
– $350 major home improvemnts (not renos)
Add that up and we’re at a total that could rent a 3 bedroom in the area. Add on the mortgage and we could live in a McCondo (is that a word…you know what I mean).
People may run into good or bad luck with required expensive/emergency maintenance. Older houses are usually money pits. This article covers costs in OR areas and those seem to be quite high. I am in MA and my impression is, based on local repair/maintenance costs, apart from mortgage, tax, insurance, one must escrow about $1000 (of course, after tax) to “enjoy” home ownership. Else, one is a slave to lawn mowing, snow cleaning, and required repairs. When I read that 40% of Americans do not have $500 cash for an emergency, my impression is that 90% of Americans really cannot afford a home – they must rent. Considered another way, markets are efficient and a home retains value, or has enhanced value, primarily because so much labor and expense goes into keeping it in good repair and updated, just like any commercial building.
Home ownership has become a religion out of the mirage (of “you can/must buy this and that”) created by Madison Avenue, Wall Street and DC to keep the economy going. An economy having 70% activity based on consumer expenditure is a bad enough hint for the wise. I put it as: the parking lot of a home improvement store is never as empty as that of a grocery store because the homeowner may have “pauses” but the home needs to “eat” all of the time!
Thanks for this JD,
This is one of the reasons I will not own in retirement, I will retire in eight and half years then I’m selling and using the money in retirement.
I would rather enjoy my retirement doing things and traveling than fixing or maintaining a house in the last years of my life or using my money to pay someone else to do it, which to me is a waste of money.
Plus I can move to a cheaper place and rent in a nicer area.
But what is the cost of rental. Thinga break down in rentals and the landlord pays for repairs.
But every rental we had, the rent went up at lease renewal.
And while I didn’t have the responsibility of repairs, I still felt the landlord won in the end.
Now imagine this through the lenses of the 2020-2022 inflation. Mind-numbing.