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The real cost of owning a home

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Re: The real cost of owning a home

#631

Post by laughing_man »

asdff wrote: post #475
pc86 wrote: post #362

Earlier quoted context omitted.

This is the answer - there are plenty of move-in ready, turn-key homes that require basically zero maintenance unless you want to remodel or change something, but those cost more (sometimes a lot more) than the ones that need more TLC or true fixer-uppers.

Even with fixer uppers the house is usually functional and fine. Just people think the bathroom is too ugly to poop in, so they have to spend five figures and rip out the walls, floor, ceiling, and everything else, to replace it with new walls, floor, ceiling, and everything else.

More like the bathroom is too ugly to poop in because there's a leak behind the shower and now there's mold growing on the wall.

Re: The real cost of owning a home

#632

Post by notepad0x90 »

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…

Even psychologically, i don't get it. you're still renting, except insurance and property taxes replace your rent, even if you pay it off fully.

Re: The real cost of owning a home

#633

Post by carlosjobim »

steveBK123 wrote: post #381
vikingerik wrote: post #197

Earlier quoted context omitted.

Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.…

The liquidity problem with homeownership as well is that it's a lump sum. If you own $400k of stocks, you can sell any increment of dollars you want over time. You can take profit, you can take money out to cover needs, etc. With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back. It's like having a $400k position in your companies stock…

> With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back.

Do you expect to be able to take out a loan on your house and not have to pay it back? Want to have your cake and eat it too, literally?

Re: The real cost of owning a home

#634

Post by rogerrogerr »

Been thinking about this a lot. Curious what the rational folks of HN would suggest for me. Fact pattern:

- I'm in the 25-30yo range, single male

- Living with parents because I can; there's no friction and I mostly enjoy it. And I'm saving a ton of money.

- Remote senior SWE for a non-FAANG, but still doing around $200k/yr between my W2 and a few other things

- NW somewhere around 400-500k.

I could easily go buy a house, it just seems like... a trap? Home prices are stalled at a little over 7x median household income, a bit above where they were in 2006 [0]. Everyone who tells me to buy property seem less like they have my best interest in mind and more like they're either repeating the cult saying of the last 50 years, or they're invested in a class of bigger fools existing.

I fear the one-two punch of me becoming unemployable (AI is getting _really_ good at even the niche stuff I do) and the market crashing. I'm glad I don't have dependents to worry about; even more glad I don't have a mortgage to service.

If I had to go live on my own, the napkin math I've been doing, even ignoring closing costs and house maintenance costs, is that I can rent a house for cheaper than I can buy a similar house in my area. This is "in the long run"; meaning at the end of 30 years I will have higher net worth having rented than bought, with conservative estimates of market performance and aggressive estimates of rent increases and house value appreciation.

It all just seems nuts. I see people my age working at grocery stores (a good and honorable line of work) who are buying houses and I don't understand how they make ends meet.

Am I stupid?

[0]: https://www.longtermtrends.com/home-price-median-annual-inco...

Re: The real cost of owning a home

#635

Post by skew-aberration »

laughing_man wrote: post #625

IMO most childless people would be better off renting (kids change the whole set of incentives). Exceptions would be people with hobbies that require a lot of space or a yard, and light sleepers. A house means a better standard of living, but you definitely pay for it. I spent $25k replacing a fence at my house this year, and I'll need to spend another $20k to replace the air within the next few. The roof, another $3…

If you were renting, you would still be paying for the fence, utilities, roof, etc (quoted prices for fence/hvac are very high btw).

If every renter on the street had significant free money to invest, why wouldn't the landlords increase rent? The only thing stopping them is the availability of other land / houses to buy, which acts as leverage for the renters. As land gets bought up over time, zoning becomes more restrictive, etc and this source of leverage dries up.

The result is that while some high-income earners benefit from renting, it is mathematically impossible for the average person to do so. 'Anyone can win the race but not everyone' principle.

Re: The real cost of owning a home

#636

Post by iamalizard »

brailsafe wrote: post #607
iamalizard wrote: post #582

I'm not from the US but I find some of these numbers ridiculous. $515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else? > Cut down trees that were too close to the house: $2,800 I could've likely flown to the US, cut down your trees for a few hundred and flown back home for that much money. Why so expensive? I'm beginning to question the other numbers. > Repla…

> $515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else? I agree, but the what else is that property taxes are often the largest source of income for a city budget, if not the sole source, so everything that goes into running a city; road maintenance and police usually make the top. > Can't you do it for like 5-10 $ yourself? If you don't have any tools, maybe…

> property taxes are often the largest source of income for a city budget

Hadn't considered that, thanks. :)

> I personally don't value faucets that much, but if I were replacing one, I don't see why I'd get a crappy one.

I realize I don't know how faucets cost in the US so 185 could be close to what one would pay even to DIY it.

> If someone said to me "I'll give you $400 to fly to Europe and cut down a large tree that's too close to someone's house without causing any damage and you must bring your own equipment, dispose of the tree, etc.." I sure as hell would not take that offer, especially if I knew how.

I'm not sure I'd literally fly over with equipment to cut down one tree, but from what I've seen (admittedly, not a lot), damage occurs when people are careless (want to do it quickly, don't secure bigger branches properly or are negligent in general) or try to cut from the base like a lumberjack in the movies. Of course anything could happen no matter how careful one is - I've broken lots of cups and plates - but it doesn't seem especially risky compared to other jobs. But again, I'm not a professional tree cutter - I've cut a few trees. I took my time to do it and was careful but they weren't huge trees right over someone's mansion.

> Quality work and good/better tools are worth investing in if you value them or their output.

Definitely. I regularly pay experts lots of money, like a week's salary, for a few hours of their time, and it's worth it. And when I'm looking to buy a new tool, I almost always select one with good specs from a reputable brand. Unless it's for a one-time job where I just buy whatever's cheapest (within reason). Not surprisingly, I have had to use such tools multiple times shortly after that "first and only" job was done. Yet surprisingly, the cheap tool usually does the job. But there's a big difference between using a tool 10 times a year and 10 times a day.

Re: The real cost of owning a home

#637

Post by laughing_man »

abalashov wrote: post #431
hawaiianbrah wrote: post #429

Earlier quoted context omitted.

> There's no one person I can call for every single problem. There absolutely can be if you want to pay for the service. Look up home concierge / residential management services, like Para Home Services.

True, but you still have to cough up. The benefit of renting is that it's an SEP (Someone Else's Problem).

Sort of. If it's not something that's damaging the building, landlords tend to not be in a huge hurry to fix things. So it's your problem until he gets around to fixing it. I've had good landlords and I've had landlords that took two weeks to fix the sink.

Re: The real cost of owning a home

#638

Post by XCSme »

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…

In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)

Re: The real cost of owning a home

#639

Post by skew-aberration »

kccqzy wrote: post #630
laughing_man wrote: post #625

IMO most childless people would be better off renting (kids change the whole set of incentives). Exceptions would be people with hobbies that require a lot of space or a yard, and light sleepers. A house means a better standard of living, but you definitely pay for it. I spent $25k replacing a fence at my house this year, and I'll need to spend another $20k to replace the air within the next few. The roof, another $3…

Theoretically these capital expenses like fence replacement or roof replacement should have been deducted from the market value of a house when you buy it: a theoretically rational buyer would take into account the present value of future capital projects. And this just goes to show how much the market value of a house is now much higher than the present value of all future rent. In simpler words, the market is froth…

I don't follow this logic. Homebuyers do deduct these costs - I certainly did. House price is still tightly coupled to NPV of rent - expenses. People are a) predicting higher growth in rent over time (there are sound economic reasons to do so, though AI is a curveball) and b) use different discounting rates due to access to credit, etc.

Re: The real cost of owning a home

#640

Post by rogerrogerr »

iamalizard wrote: post #614
carlosjobim wrote: post #247

Earlier quoted context omitted.

Why is that good? That is horrible for economic development and employment. It is worse for a country than being nuked.

I'd also like an answer to why it's good, but also to why it's horrible or "worse than being nuked". I admit I know nothing. :)

Well, at least if you're nuked, you might be able to redevelop that land before the nimby's emerge from their shelters.
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