Here’s the truth about houses: Unless you’re a landlord, your house will probably be the lousiest investment you ever make.
The myth about home ownership is that it’s a great investment — a way to “build equity” rather than “throwing your money away on rent.”
Hogwash.
Here’s the truth: When you rent, you pay one bill: the rent. That’s it.
When you buy, your property tax ALONE might cost as much as a single person’s rent. Property tax for one apartment I rented after college (which was valued at $250,000) cost $500 a month … the same amount I paid as rent.
And this tax, by the way, is money that contributes $0 to your equity … money that you’re “throwing away.”
Live in an area with low property taxes? Okay, then calculate your property tax + homeowners insurance + repairs and maintenance.
“But I’m not single!” I hear you saying. “We’re a couple with kids, and we need more than one bedroom!” Okay, fair enough.
Let’s say you’re a couple, looking for 2-3 bedrooms, you live in an area with low taxes, AND you’ve found cheap insurance. On the surface, you seem like a great candidate for a home owner. So let’s crunch some more numbers, shall we?
How Much Will that Home Really Cost You?
Calculate the amount of money you’re throwing away on the interest on your mortgage. Remember, your mortgage principal repayment becomes home equity; your mortgage interest payment becomes thrown-away money.
“Oh, but mortgage interest is tax-deductible!” you reply. (This is the equivalent of saying, “Oh, but for every $1 dollar I pay, I save 28 cents!”)
Let’s say your mortgage interest is $400 per month. Subtract the 30 percent you saved in taxes. Your out-of-pocket mortgage interest — your Net Loss — is $280. Now, let’s assume low figures for the property tax and insurance: Your property tax is a mere $300 a month, and your insurance is $120 a month. Congratulations: every month, you’re “throwing away” $700 per month on your house: money you’ll never see again, money that doesn’t add to your home equity, and money that won’t add one cent of resale value to your home.
Wait, that’s not all. That $700 per month ($8,400 per year) that you “throw away” is JUST taxes, insurance, and Net Loss interest. We still haven’t accounted for repairs and maintenance.
Regular ‘ol Maintenance … Nothing Fancy
You want a roof over your head? You can expect to replace it every 10-15 years. An asphalt-shingle roof (the cheapest) on a ranch house will cost $1,700 – $8,400, according to CostHelper.com. Let’s taking the average of those prices — $5,050 — and the average of that timeframe, assuming a new roof that will last 12.5 years. That means your roof costs you $400 per year.
Don’t forget to replace your carpet. According to Home Depot’s website, this will cost $2-$6 per square foot and needs to be done every 5-10 years.
On an 1,800 total sq. ft. home (moderate size) that needs 1,000 sq. ft. of carpeting (hallways, bedrooms, living area) assuming a modest $3.50 per sq. ft including padding and installation, every 7.5 years, your carpet will cost you an average of $465 per year.
Now we’re up to $865 per year on JUST maintaining the carpet and roof.
Oh yes, does your house come with a yard? A lawnmower costs $250. It’ll last for, say, 5 years without breaking, so that’s an average of $50 per year plus gas. I hope you’re not planning on landscaping, because that will really cost you. You’ll need a sprinkler system, too. And your furnace needs to be fixed. Don’t forget to fix the gutters, repaint the siding, and spray for termites.
Honey, can you please call the plumber? And fix the garage door? And … is your refrigerator running?
Source: Afford Anything
