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The real cost of owning a home

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Re: The real cost of owning a home

#211

Post by hdgvhicv »

strongpigeon wrote: post #175
jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

> You don't have to worry about rent increases I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.

And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school Gets better, prices increase, and you have to move and your kids have to move school.

Re: The real cost of owning a home

#212

Post by jrflo »

jerlam wrote: post #179
jrflo wrote: post #143

Earlier quoted context omitted.

Condos come with another problem: you don't own the land. The condo itself is a depreciating asset unless maintained and money is put into the unit and the building. You're also exposed to the risk of the area becoming less desirable, newer condos being built nearby, general economic trends, mismanagment of the property, etc.

Other than "mismanagement of the property", most of these exposures apply to non-condos as well.

Right, owning a condo has many of the downsides of owning a home without the upside of owning the land, which is the primary thing that appreciates. Not saying it's never a good idea to buy a condo, but it's not as dependable an investment vehicle.

Re: The real cost of owning a home

#213

Post by hunterpayne »

01100011 wrote: post #118
M4R5H4LL wrote: post #4

With a mortgage, you are forced to save money. In other words you have no way around being disciplined. So yes in theory you could probably make more money with aggressive investing, but chances are most people would risk too much and lose a lot and never have the mental discipline of saving the excess they have no matter what happens in their life.

I made plenty of money (and still do) holding US treasuries and other safe investments. You don't need to gamble on stocks to have income from cash which offsets rent.

For most of my life, fixed income was outperformed by inflation. Indexed funds returned double fixed income over that entire period. Either you are in your 20s or you aren't nearly as good at investing as you think.

Re: The real cost of owning a home

#214

Post by olavgg »

com2kid wrote: post #9

It is suggested to set aside 1%-3% of your home's overall value for repairs every year. Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth. Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. S…

I just paid 120 000 USD for replacing the exterior drainage system. I knew it was expensive, but not that expensive.

Re: The real cost of owning a home

#215

Post by IAmGraydon »

relium wrote: post #15

I think 1% per year is insufficient for repairs. Even a paint job will cost more than that these days. There's also a potential HOA fee, even in many neighborhoods with freestanding homes. But there are tax benefits of home ownership too. The interest deduction used to very significant, although less now since they raised the standard deduction. There's also a $250K/500K non-taxable capital gains benefit when you sel…

There are years where I don't have to spend that much and sometimes there a year here or there where I do a major project (roof, new patio, etc) that goes way over, but an average of 1% per year seems right to me.

Re: The real cost of owning a home

#216

Post by toast0 »

sakopov wrote: post #101
com2kid wrote: post #9

It is suggested to set aside 1%-3% of your home's overall value for repairs every year. Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth. Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. S…

I would really recommend getting a Home Warranty. I probably saved myself $7-$8K just in the last year fixing all kinds of electrical, plumbing and HVAC issues.

Maybe, if your home warranty actually has competent providers in its network. When I had one, it was always pulling teeth to get a provider to come out; and most of the providers who are willing to drive 3-4 hours to come out on a home warranty contract aren't the best. And yes, they did replace some things, but at least for me, I'd rather have paid out of pocket to get things fixed or replaced in a timely manner, rather than f**ing around for 3-5 months to get my air handler replaced or my oven almost replaced and then just get a check because their selected oven didn't actually fit. Of course, the check didn't really cover an oven that would fit; but maybe if you have a less fancy house their part selection would work out.

Re: The real cost of owning a home

#217

Post by jedberg »

sdellis wrote: post #210
jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait…

My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.

Re: The real cost of owning a home

#218

Post by hdgvhicv »

thrance wrote: post #174
zeroonetwothree wrote: post #110

Earlier quoted context omitted.

There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up. And while I agree that it’s nice to customize things to your preferences, this has a downside in that it’s easy to get carried away and overspend. Might as well get the nicer finishes when you are remodeling,…

> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up. Not my experience, at all. All landlords I've had were lazy assholes who did the bare minimum, but never forgot to increase rent on the 1st of January, every single year. Paying someone else for no other re…

If you treat renting as a longer term hotel it’s fine. If you move to a city and want o know where to live you probably want somewhere short term for a year or two.

It’s when you are looking at long term living that there’s a problem.

Re: The real cost of owning a home

#219

Post by kube-system »

01100011 wrote: post #108
com2kid wrote: post #9

It is suggested to set aside 1%-3% of your home's overall value for repairs every year. Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth. Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. S…

> and many homes thus slowly degrade in value Except in my experience the lack of upkeep doesn't actually affect the value all that much. In many places the vast majority of the price is the land and people seem less interested in valuing based on the condition of the structure. It may affect time to sell, but that seems about it. Sure some credits might be offered during escrow for some repairs, but again often the…

That depends on the market and how much deferred maintenance we're talking about.

In some places buyers will bulldoze perfectly good homes just to build a different one, just because the land is so valuable.

In other places, there are abandoned homes that municipalities can't even give away because the cost to bulldoze is more than the land is worth.

If the place you're in looks more like the former, maintenance doesn't matter as much. If it looks more like the latter, maintenance is going to be more important to your sale price.

Re: The real cost of owning a home

#220

Post by AlotOfReading »

jandrewrogers wrote: post #74
cosmic_cheese wrote: post #12

On the other hand, renting comes with hidden (and some not so hidden) costs too. The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowi…

I prefer corporate rentals precisely because there is less idiosyncratic risk. They boringly have a strong incentive to keep you renting the same place as long as possible. The cost of owning absolutely does increase over time. The mortgage payment is just one part of the fully burdened cost. Furthermore, there is a real risk of an unexpected $20k expense that you have to pay for. Owning is less predictable than rent…

You can buy home repair insurance if you want to transform unexpected repair expenses into predictable monthly payments. It's a bad idea for exactly the same reasons renting is worse:

Someone else has to approve repairs and contract the labor.

My experience with corporate landlords is that they're incentivized to maximize income, which is emphatically not the same as keeping you renting the place as long as possible. Realpage for example optimizes for higher income at the cost of turnover and lower occupancy.

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