The difference between owning and renting expenses, is what you should compare to the risk/reward analysis of the property value.
Also do not forget time. I only have 168 hours per week minus zillions of things, to enjoy life, and after all the subtractions often there isn't that much time left to enjoy. Yes if I need to replace the tiles in my bathroom I can save a little money doing it myself but even contracting out will be hours of work to design, decide, and coordinate, and who stays home to let the craftsmen into the house and its just a circus. When I rented a bachelor pad, ALL repair work consisted of verbally mentioning it to on site manager and magically things happened, I paid more rent than average for that privilege compared to people who have to sue their landlords for any little thing, but there is no escape from spending lots of time as a building superintendent if you own a house. Buying a house is getting a part time job as a landlord. Its not like the kitchen faucet magically knows its in a owned house so it'll never fail, vs a rental.
I mean, we have to realize the groupthink on HN is that cooking food for yourself is an intolerable waste of time compared to spending two hours in restaurants daily, so owning a house and having to dump many hours into the uncountable sufferings of home ownership must be completely unacceptable; rent a nice place and "invest" about five minutes a month into telling the manager what he needs to do.
The second to last measure is many lifestyles require real estate. Not everyone wants to live life with no capital goods other than a mobile phone. I'd be pretty unsatisfied with life without my table saw and lathe and garden and ham radio antennas and a couple other things that simply require land to be realistically practical, aka go buy a house and do your hobbies in it. For all practical purposes in the market I live in you can not have a dog while renting, for example.
A final measure not often mentioned is its just a fun experience to try; Its amusing to reread some of the complaints about home ownership rewritten to apply to having friends, or buying a pet, or having children, or traveling, or getting drunk. I didn't have kids because of an enormous amount of handwaving about how I'll be wealthy if they become child movie stars or historically kids in an agricultural setting were a net financial positive which should mean something in suburban 2010s or some equally ridiculous argument. Owning a house is a VERY expensive hobby, but if you have fun and can afford it and its not hurting anyone else, may as well try it...
I mainly bought a house because I kept having to move every year, renting flats in houses where they decided they wanted to sell, or move in themselves, etc. So now only the bank and the state can kick me out, and not relatively more capricious property owners.
Its just like the situation with hiking boots, I can only afford the $250 boots that last many years, I'm not rich enough to afford the $100 boots that only last one year before falling apart. I can't afford to spend $100, I have to spend $250. Richer people than I, can buy themselves the $100 boots.
Also at some big box stores I've seen some masterful post sale salesmanship. New washer hoses cost $19 on the shelf but as part of the installation package they'll prevent your basement from being flooded for only $50 installed by our professionals (usually lower quality hoses too). Installation "only" costs $99 but you need the new hoses for $50 and fuel prices went up a decade ago so we still have our temporary $19.99 fuel surcharge on our deliveries. Oh you want the old washer hauled away, thats only $50 and they totally take care of the problem for you. Technically according to google search you can buy a box containing a LG top loader thats normally $770 for a mere $650, but unless you have time, skills, and a large vehicle that box of machinery won't wash any clothes for $650, add something like $220 worth of installation... Oh and thats 18 months financing but it only has a one year guarantee for parts and labor, which is comical... for a mere $150 you can get a five year guarantee which is about a quarter the lifespan of my speed queen, if and only if you also purchase installation services. Suddenly that "cheap" $650 washer is going to hit the credit card for over a kilobuck and its only going to last five years at best while providing plenty of repair work headaches. So figure twenty years of clothes washing costs $1200 with a speed queen or over $4000 with LG products... I'm not wealthy enough to buy $650 washers I can only afford the $1200 washers.
Hoses are quite the racket. Because of where I put the washer, I had to get extra long ones.
Sadly, according to an article HN sadly killed[0], the Speed Queen is no longer particularly good: https://thewirecutter.com/blog/speed-queen-washer/
I'm having trouble coming up with any way to prove it wrong, besides common sense. Think of the price of appliances, and then think of how many you can get with 12k. Reshingling a roof tends to be around 5k, and lasts for 30 years.
I can't even imagine a scenario where you spend 12k a year.
This year I'll have some new windows put in to replace very old ones that look like complete crap.
Arguably some of that is optional but it's pretty typical for me. $1K/month seems like a reasonable estimate for me. I imagine that a newer house could well be less.
Also don't forget that the previous tenant let his kids shoot BBs at the siding, so the water has been leaking in causing it to wear faster and faster, your wife doesn't like how it looks like grandma's house, and for some reason the toilet in the master bath takes 10 minutes to refill the tank and it drives you nuts just often enough that you seriously consider ripping out the requisite walls just to re-run the old copper piping.
Oh and when you bought this home, did you already happen to have a lawn mower, edger, fertilizer spreader, and such? Are you planning on utilizing that extra space to build a raised garden and then realize half-way through that if you don't install an automated drip system you'll have sunk all those costs into a garden that dies the moment you leave on a 7-day family vacation?
Oh yea and the last owner definitely was heavy handed with the salt on the driveway, and you don't need to replace it now, but better put $100 a month into a savings fund for the inevitable replacement 5 years from now.
Not to mention that the cement that was poured to make the back porch has re-leveled itself at a 4 degree angle and when you host guests they bump the picnic table such that it always wobbles and spills everyone's drinks. Fortunately you don't have to excavate it and re-pour because there now exist companies that use advanced machinery to just backfill in extra concrete to level the pads, but it still is going to put you out $2k.
/end rant
Needless to say, as I look at our next home, I am realizing there is this delightful sweet-spot between home ownership and renting an apartment: townhomes in master-planned communities. The HOA covers building _and_ yard maintenance, but you have full creative power over the inside. No need to store shovels and lawn mowers, and your weekends are free to walk the park that is literally across the street (I'm looking at you, Daybreak, in South Jordan UT). Oh and the single-car garage isn't a big deal because transit is built straight to the community, and you are within walking distance to convenience stores and the pub.
It's basically "a house" with all the negative parts taken care of by paying the HOA who can deal with the economies of scale, making the cost very worth it if you are an engineer with a little bit of cash to spare each month.
Therefore, a lot of the improvements you made should have added value to the home. I'd consider improvements different then simple maintenance/random failures (your cement issue). The siding, roof, and driveway should have all been things you took into account when buying the house, so any improvements made there should have an immediate affect on the value of your house.
>Oh and when you bought this home, did you already happen to have a lawn mower, edger, fertilizer spreader, and such?
If you buy a house and legitimately have to worry about the $200 you'll spend on a lawn mower, then maybe buying isn't for you.
I agree with your point that owning a house is a lot about lifestyle. I have a lot of sports gear, like canoes, that would be more difficult in an apartment setting. Yes, you can rent storage units but you definitely have to make compromises.
I hire out most renovation, but don’t hire gardeners, etc. If you want a hands free lifestyle, that’s awesome but costly.
I've owned a non-new home for a few years now. I have all the records of repairs/maintenance. So far the average is less than $130/mo (that includes buying two microwaves and a washer)
My roof needs to be reshingled. That'll cost about $6K (got a bunch of estimates from roofers). Maybe $12K 20-30 years down the road for a full replacement. That'll likely be my biggest expense, which is not even $1K/yr, let alone a month.
My other appliances are old. Once I replace them, it will bump the average to at most $200/mo.
I don't do any repair work myself - always pay to get it done. You either have a huge house or live in a very expensive area (mine is above the national average).
Done some of that.
>electrical work
How often is this needed? Unless your house is so old and not up to code...? To give you an idea, I lived in a place for 2 decades and it never needed electrical work.
>trees that need trimming
It's your property - you control how many trees and how big. If it's too costly just get rid of them. Having said that, I just trimmed two trees on my property over a month ago. An hour or two of work and the right tool. Of course, if my trees were much bigger I'd have to pay someone.
BTW, I did not assume yard work as part of the amount per month. Of course, everything (including HOA, yard, etc) needs to be factored in, but I thought you were talking only about maintenance of the house.
>kitchen or bathroom remodels
How often? My house is almost 20 years old and I can see it going at least another 20 years before any such work is needed.
>painting
I assume you mean exterior? I guess - how much you need depends on the type of house. Mine uses vinyl sidings - no paint needed. But yes, you need to paint a few other parts. For my house, this is once every so many years - and the estimate I got was under $1000.
>replacing windows and doors
20 years old and look like new - I think mine will last another decade or two.
>furnace work including annual cleaning
I get my furnace tuned every year - costs $85. I included that in my estimate of less than $130/mo. Don't forget water heater maintenance too!
As I said, I'm not pulling numbers out of nowhere. I actually did this analysis some months ago. I have all the numbers on how much I've spent repairing stuff and maintenance in my software. I added it all up and calculated the number I gave you. It was actually $100/mo, but since then I think I've replaced two appliances so I bumped it up to $130 (total cost of the appliances + install is under $1000 - divide it up by 48 months I've lived there).
That's a pretty big disclaimer that you probably should have mentioned up front. Your choice of house is far from typical, and they make the costs some standard deviations from typical.
EDIT: In addition to mobility cited by a reply to this comment, another advantage is the saved opportunity cost of investment in real estate vs other markets.
But the rent where we were staying went from $1300 to $1800 within 3 years for a 3 bedroom, 1650 square foot apartment. We were able to buy a house, a brand new build 3000 square feet 5 bed/3.5 bath for $2000/month with only 3.5% down in a neighborhood zoned to top rated schools.
As far as convenience, we pay a lawn service $140/month to cut our grass and now that the home warranty is up (paid for by the builder), we pay about $700/year for a "home warranty" when anything breaks you just call them and pay a deductible. Is The warranty a good deal financially? Probably not, but it is convenient.
That is a neat 'home warranty' thing you have though. I've never seen that before. Whenever I own a home, that sounds enticing to have.
I'm not endorsing this particular provider. It's just the first one that comes up when you Google "Home Warranty"
https://www.ahs.com/home-warranty/
Average price is around $850.
https://www.homeadvisor.com/cost/inspectors-and-appraisers/p...
When I was a landlord and owned three rental properties they were worth every penny.
Let me emphasize that buying one is statistically not a good deal and it usually makes more sense just to "self insure" and save for repairs. But it is more of a convenience thing.
Instead of paying the $1,800/month, you are now paying $2,200/month.
We also have 1300 more square feet, a separate house with a yard instead of an apartment, 2 more bedrooms, 1-1/2 more baths, a separate office and we don't pay the mandatory $100 a month for crappy cable and capped internet from Comcast -- as part of the lease, you had to pay for cable. We pay $70 a month for gigabit internet from AT&T.
Heck I save $80/month by getting rid of my gym membership and converting one of the spare bedrooms to a gym.
There are varying definitions of "freedom" to consider.
Sure, there is the freedom of being able to walk away after 12 months to someplace else.
But there is also the freedom of being able to plant a garden, or paint your room, or install shelving, or excavate a root cellar, or install a new doorknob, etc, without having to get express written permission from your landlord (which will almost always be no).
Plus, the mobility aspect to just pick up and leave gives me a ton of reassurance.
There is also the bonus that someone else has to fix the appliances and do maintanance than me.
You have two choices that masquerade as purely economic ones while ignoring the enormous lifestyle differences.
I rent a tiny room in the heart of NYC for the cost of probably a monthly mortgage payment on a nice house in upstate NY. For me there is really no alternative because my entire life revolves around my immediate walkable neighborhood.
The economics of rent vs buy matter but lifestyle and future expectations are too often downplayed in comparison.
That is not to say this is the only thing to consider. Often people know where they want to live and what size of property/house they need, and for many people that is only achievable by buying.
If you rent a flat for 20-40 years, the rent won't change as much as when you move around every few years.
So you might end up with super low rent compared to the rest of the city after 10 years or so.
But I also know a guy from NY who rented a flat for a few hundred bucks decades ago and now subrents it to other people for thousands.
Who is being harmed by a rent-controllee sub-leasing? Literally no one. Because the harm to the owner is already made in the form of rent control.
The owner is harmed, because otherwise they could have gotten a new tenant and raised the rent back up to market rate.
If rent-control didn't have the restriction, then it wouldnt make a dent into rent prices, but it would clearly show that it is a mere transfer from the owner to the rent-controllee.
You may as well do 7/1 ARM or 7 year IOM and treat it as rent.
Not only that, leverage is risk. Buy a home in 2006, or in a city on the decline, and you may lose everything you put in. Leverage multiplies the losses as well as the gains.
I'd love to see some analysis (perhaps a monte carlo sim) on how the "no recourse" angle plays out. I can only assume that a floor on losses skews the expected outcome significantly.
Though you should at least try run the numbers. Maybe you will forget an important detail but if you just go with your gut or an insufficiently specific recommendation from elsewhere you will likely miss many more important details.
The trick is to do some research first, and if possible have someone else look over your thoughts to see if they can spot an important omission. Be particularly careful if the sums add up in a way that closely confirms your original idea - your analysis might be unintentionally biased by subconscious filtering.
> or numbers from strangers on the internet
That is definitely something to be wary of. Too many people base decisions on simple advice without checking that the advice is even relevant to their specific situation. I've seen people in the UK dump figures into US targeted calculators with the thought that "the $<->£ is the same for every figure so it will all work out OK" without thinking that our tax regimes and other factors are quite different in ways that can have a large impact.
The new effect we have is asset inflation: sure you payed 3% for this house, but this house cost a lot more. When interest rates raise, mortgages are more expensive but house values go down.
It is said that its better to buy in a high interest rate period at a low value, than a low interest rate at high value: in the former, you can re-fi later.
I call that out when talking about "no recourse". If you leverage 5X in the stock market and invest $1M in index funds and the market drops by 30%, you are on the hook for the $100k beyond your $200k you lost. If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation.
But that seems dishonest.
It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest.
Think about it this way. The bank has effectively bought an insurance policy to protect itself against this event and is paying the premium out of your interest charges. Now does it seem dishonest?
That's not a true equivalency. Unless your loan has language or provisions for "mailing back the keys", doing so is an act of default and regardless of how well (or poorly) the lender(s) has/have hedged against the default you are breaking the agreement.
A real equivalency is stealing from walmart "because they can afford it". You shouldn't do that and you also shouldn't default on agreements you enter into.
That's not a real equivalent at all. Walmart could press charges and recoup their loss through legal action. Stealing from Walmart is illegal.
Defaulting on a contract is not illegal. That's precisely why we have contracts in the first place. It spells out what would happen in a default, and both parties voluntarily enter into the agreement. If one party is not happy with the terms of default then they shouldn't sign the contract.
In a no recourse default, it is literally spelled out in the contract: "If you default, the lender will not be come after your other assets".
It depends on what you mean by "breaking the agreement." The state of default, its triggers, and its consequences are part of the agreement. You are acting within the scope of the agreement by triggering that state.
If you write a program like this:
if (foo) { doX(); } else { doY(); }
if (youKeepPaying) {
youGetToLiveInTheHouse();
} else if (youSendUsTheKeys) {
exit();
} else {
weWillSendTheSheriff();
}
In this case its priced into the risk of your loan and you bought it by being in the state and taking a loan there.
> As with all articles on Afford Anything, these high-level concepts can be applied anywhere. But specifics about laws, taxes, inflation, etc., are geared at a United States audience.
So I think it's fair to go ahead and mention US-specific counters to the arguments without specifying.
The standard deduction is $24K for a couple.
I'm another one who was burned in the real estate collapse, and have been renting ever since. I was definitely not a trump voter, but I have to say his new tax plan looks like it's going to benefit me greatly.
Another thing I've noticed people haven't mentioned here is the freedom that comes with renting. As with many in the tech industry, I don't normally stay at a single job for 20 years, but instead I end up changing jobs every few years. If I buy a house convenient to work, and then end up having to get a new job that's across town, I either have a horrible commute or I rent out my place and go rent a new one. As a renter, I can just give notice and find a new place in a better location.
That's even if you keep the exact same mortgage and bank.
But if inflation is 3%, you're probably paying 3% (or more) interest on your loan.
So suppose your home costs X. You pay 0.2X downpayment and borrow 0.8X through your mortgage. The first year your home appreciates to 1.03X but you also pay around 3% of 0.8X = 0.024X in interest. So your gain is 0.03X appreciation - 0.024X interest = 0.006X: which is exactly 3% of your 0.2X downpayment! Looks like the leverage didn't help in this scenario at all.
Of course if you bought in the Bay Area a few years ago you made bank, but that's because the growth here happened to be much faster than inflation, even without leverage.
> Sure, you can be leveraged in other investments but (1) your interest won't be tax deductible, (2) your interest rates won't be nearly as low, and most importantly (3) you won't be able to borrow with no recourse
(3) is true, but you can buy stocks on margin, the interest is deductible as a business expense, and interest rates are often lower than mortgage rates.