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Old 04-29-2014, 04:33 PM   #21
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What about real estate taxes and home owner's insurance? I am guessing these are several thousand a year? That would be $20,000 you need to take back off your savings.

Oh you said $700 including escrow. $700 including real estate taxes and home owner's insurance? How big is your cardboard box?

Sorry Fermion, I did not answer the other part of your question. Yes that includes RE taxes and insurance. Though based on another posters comment in a budget post I think I am getting ripped off on my insurance, so I'm going to try and knock that down. The principal part is $491 a month. That is why I am not in any hurry to pay it off even though I am retired.


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Old 04-29-2014, 04:38 PM   #22
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which would cost $500K to $600K in a town in Los Angeles County, where a relative of mine lives.

Out of curiosity, I look for the lowest cost in that town. It's a 867-sq.ft. condo being put on auction. The auction price starts at $155K.

NW, that is why home prices astound me on the coasts. I was always raised and taught to never buy a house more than 2 times your income. Though I made low 6 figures my last several years before retiring, I wouldn't have dreamed of extending out to 200k on my income. I assume out there most normal people who get a mortgage extend past 2X income. That would have kept me up all night worried about the house payment!


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Old 04-29-2014, 04:43 PM   #23
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The pay is a bit higher in California, but not enough to make the difference. The high cost of housing means that you often see 10 or more people crammed into a small home. Garage conversion into bedrooms is quite common.
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Old 04-29-2014, 04:54 PM   #24
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The cardboard box is 1500 square feet, bought brand new 10 years ago for $140,000. Welcome to small town midwest America!

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My total monthly PITI is $763.00. 1100 SF ranch, small southern city. Renting the equivalent space here would cost at least $1,000, and probably more. Owning is superior to renting for me personally.
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Old 04-29-2014, 04:57 PM   #25
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I think to determine the true costs of home ownership though you have to add in the value of your time spent on upkeep, not just the cash outflow. Time is money, unless your house is also your hobby or your pride and joy to work on.
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Old 04-29-2014, 05:01 PM   #26
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I think to determine the true costs of home ownership though you have to add in the value of your time spent on upkeep, not just the cash outflow. Time is money, unless your house is also your hobby or your pride and joy to work on.

And also probably on the time continuum of when you are evaluating the costs. If my furnace would go out on me this year and I decided to replace the carpets and siding it would look bad at that point. But then forward ahead 10 years later and no repairs were needed through that period it might be very favorable again.


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Old 04-29-2014, 05:06 PM   #27
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Ok, then my numbers.

We pay $4400 a year in property tax, $900 a year for flood insurance and $1050 for fire and theft. $5,000 a year for home maintenance.

$11,350 and we haven't even gotten to mortgage interest or lost opportunity costs on the down payment we made.
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Old 04-29-2014, 05:38 PM   #28
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Ok, then my numbers.

We pay $4400 a year in property tax, $900 a year for flood insurance and $1050 for fire and theft. $5,000 a year for home maintenance.

$11,350 and we haven't even gotten to mortgage interest or lost opportunity costs on the down payment we made.
Here's some "ground truthing" for home ownership costs here in New Orleans, for a very slightly over median priced house bought 11.7 years ago.

$80/month in property tax (for 2013, highest, not an average)
$224/month in homeowners' and flood insurance (for 2013, highest, not an average)
$67/month in maintenance (average over 11.7 years)

$371/month Total

Of course, one must also consider both the "opportunity costs" for money tied up in it, and any possible gain upon resale. So, I'm not sure how meaningful these numbers may or may not be.

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Unless you get lucky in your area (and you could just as well buy a biotech and try to get lucky there) a house is a pretty horrible investment.
I couldn't agree more! For me a house has been a great place to live, and not a good investment.
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Old 04-29-2014, 06:04 PM   #29
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I bought my home 25 years ago. Its price has appreciated perhaps 2x. The inflation rate is about 2x also. So, it is only keeping up with inflation.

It is difficult to count maintenance costs, taxes, etc..., as that should be part of the living cost, some of which is incurred even if we rent.
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Old 04-29-2014, 06:23 PM   #30
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I don't disagree with the OP about the importance of looking at rent vs own before you buy.
Here in my very expensive real estate market you can often rent for much less than you can buy. The only landlords who are cash flow positive are those who bought a long time ago or who bought in 2008/9 during the local dip in prices post bubble.

We looked at buying investment property, locally and had realtors telling us we were nuts to want it to cash flow without factoring in appreciation... We were looking at shortsales that were on the brink of foreclosure. We didn't buy because we wanted a positve ROI, not negative. Every one of the places we looked at sold for much higher than made sense as investment properties.

That said - we did purchase our primary home in this expensive market. But we had a hefty downpayment, so our mortgage payment was comparable to our rent on a smaller house. Not sure if it pencils out even now - but it's almost paid for and some of the costs are fixed going forward thanks to Prop 13.
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Old 04-29-2014, 08:02 PM   #31
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I don't disagree with the OP about the importance of looking at rent vs own before you buy.
Here in my very expensive real estate market you can often rent for much less than you can buy. The only landlords who are cash flow positive are those who bought a long time ago or who bought in 2008/9 during the local dip in prices post bubble.

We looked at buying investment property, locally and had realtors telling us we were nuts to want it to cash flow without factoring in appreciation... We were looking at shortsales that were on the brink of foreclosure. We didn't buy because we wanted a positve ROI, not negative. Every one of the places we looked at sold for much higher than made sense as investment properties.

That said - we did purchase our primary home in this expensive market. But we had a hefty downpayment, so our mortgage payment was comparable to our rent on a smaller house. Not sure if it pencils out even now - but it's almost paid for and some of the costs are fixed going forward thanks to Prop 13.
I think people get acclimatized to conditions wherever they are. For many years small real estate operators in the big coastal cities of the Pacific have just bought on expected market value appreciation.

It may work out, but like you I was never willing to be a landlord under those conditions.

Ha
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Old 04-29-2014, 08:08 PM   #32
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Ok, then my numbers.

We pay $4400 a year in property tax, $900 a year for flood insurance and $1050 for fire and theft. $5,000 a year for home maintenance.

$11,350 and we haven't even gotten to mortgage interest or lost opportunity costs on the down payment we made.

Must be a very nice home, Fermion! I might be able to afford all that if I was willing to give up eating and electricity. Home insurance costs baffle me though. Obviously my home is not even near the same area code yours is in price based on property tax and yearly maintenance costs, but you only pay $200 more a year in insurance costs. I have to be getting ripped off somehow on mine.


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Old 04-29-2014, 08:31 PM   #33
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...I have to be getting ripped off somehow on mine.
I dunno. Have you considered the risks of hurricane and tornadoes for different areas?

For home insurance, my yearly premium is about 0.3% of the home value. We have no threats of flood, tornadoes, hurricane, forest fire, earthquake, tsunami, etc... Have I forgotten some other hazards?
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Old 04-29-2014, 08:39 PM   #34
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I dunno. Have you considered the risks of hurricane and tornadoes for different areas?

For home insurance, my yearly premium is about 0.3% of the home value. We have no threats of flood, tornadoes, hurricane, forest fire, earthquake, tsunami, etc... Have I forgotten some other hazards?

Tornado and hail would be the only possible threats for me. I have never seen one my entire life or had a hail claim,but they do occur in MO. I think I need to shop rates better. Two years ago when my premium rose to $1100 (8 years with same company, no claims) and I shopped it to $650, then they jacked it up $200 the very next year. It is such a PIA, dealing with escrow and shopping rates as last time they didn't do what I asked and they paid out for both policies last time. Then I had to correct that mess.


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Old 04-29-2014, 08:40 PM   #35
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I dunno. Have you considered the risks of hurricane and tornadoes for different areas?

For home insurance, my yearly premium is about 0.3% of the home value. We have no threats of flood, tornadoes, hurricane, forest fire, earthquake, tsunami, etc... Have I forgotten some other hazards?
In the interior of Tx (200 miles from the coast and not in the main tornado alley) I pay .4% on homeowners with a 1% deductable. In 2005 when I lived in Houston it was more like 1% of the value for homeowners (with no flood since the property was not in the 100 year zone). Of course Tx in general has the highest home owners premiums in the country.
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Old 04-29-2014, 08:58 PM   #36
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Unless you get lucky in your area (and you could just as well buy a biotech and try to get lucky there) a house is a pretty horrible investment.

It has an expense ratio of 1% to 2% (maintenance) and has a yearly fee in the form of real estate taxes (another 1.5%). On top of all of that, the broker charges you a back end load of 6% to get out of it (real estate commissions).

Around here you can rent a $300,000 home for $1700 a month. Why would anyone buy

edit: oh yes, I forgot our lovely state also charges you an excise tax when you sell of something like 1.2%. Bonus.

Great comparison. Really puts it into perspective.
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Old 04-29-2014, 09:49 PM   #37
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which would cost $500K to $600K in an average town in Los Angeles County, where a relative of mine lives.

Out of curiosity, I look for the lowest cost home in that town. It's a 867-sq.ft. condo being put on auction. The auction price starts at $155K. The Zillow estimate is $209K.
Our little cracker box house in Silicon Valley is 1370 sq. ft. A mirror image of our house across the street sold a couple months ago for $770k. Another house directly across the street that is a little smaller than ours sold for $750k a couple months before that. We paid $350k for our house 15 years ago. We paid off the mortgage in 9 years. We gutted and remodeled the kitchen and two bathrooms, as well as redid all the landscaping. We like our cracker box.
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Old 04-30-2014, 05:27 AM   #38
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DW and I were renters for the first 15 years of our life together. We had some tough family discussions because there was so much pressure from family and coworkers to buy. I don't know how many times I heard "rent is throwing money away".

I think the thread topic is spot on, it costs money to own and many homebuyers do not understand just how expensive it can get. Relocating is also costly. Owning is a long term commitment, people without a similar employment outlook rush into this decision at their own peril.
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Old 04-30-2014, 08:31 AM   #39
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This is one of the reasons we downsized last year and moved to a maintenance free (on the outside) community. After all, time is money and I am overjoyed at not having any more yard work.
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Old 04-30-2014, 08:51 AM   #40
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Oh you said $700 including escrow. $700 including real estate taxes and home owner's insurance? How big is your cardboard box?
Not Mulligan, but live in the burbs of Dallas, and $700 is my PITI payment as well. Live in a 1650sf "ranch", built in 1984, that I paid $113k for in 2000. Currently owe around $83k; mortgage payment alone is about $400/mo.

Pluses are privacy, and a decent patio for grilling and such. Minuses are upkeep and yardwork. May move to a turnkey condo or somesuch in the future, but any place I would want to live would actually increase my mortgage, but hopefully lower total costs by eliminating all the extras involved in keeping up with a house and yard.
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