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Homeowner's downfall: Cost of keeping up the place
Old 04-29-2014, 01:22 PM   #1
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Homeowner's downfall: Cost of keeping up the place

I often feel there needs to be more public discussion of the cost of home upkeep, not just how expensive it is to buy a house.

This link leads to yet another "Why can't they get along on $90K a year" story, but I think the reporter focused too much on cell phones and music lessons, and missed the elephant in the room: These people should be renters. They had no clue, when they bought their house, how much it costs to own a house. They can't afford to fix their leaky roof, and if they don't do that, the house will eventually fall down around their ears.

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‘Happy Days’ no more: Middle-class families squeezed as expenses soar, wages stall - The Washington Post
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Old 04-29-2014, 02:05 PM   #2
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Quote:
Originally Posted by Amethyst View Post
I often feel there needs to be more public discussion of the cost of home upkeep, not just how expensive it is to buy a house.

...I think the reporter focused too much on cell phones and music lessons, and missed the elephant in the room:
+1

My elephant is on parade.

I'm in the process of getting estimates for:

1. A new roof
2. Repairing rotted fascia and cladding it with Hardi-board
3. Repairing cracks in our stucco and repainting the entire house exterior.

The roof looks like it will cost about $15K (insurance will cover $11K). No guess on what the other items will cost, but it will not be cheap.
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Old 04-29-2014, 02:23 PM   #3
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Our yearly budget for house maintenance costs excluding all routine stuff, is near 1% of house value. That seemed to be what Zillow was recommending when I was comparing rent versus buy for DS. Close enough to let you know what's coming. It just accumulates until the roof starts leaking or the paint or carpet or tile starts looking worn or an appliance or heat pump kicks the bucket.
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Old 04-29-2014, 02:25 PM   #4
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I've seen in various places that 1-2% of the home's value should be set aside yearly for ongoing (understatement) repair expenses. I have not kept track of all I've spent, but it's likely more than that.
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Old 04-29-2014, 02:39 PM   #5
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It is not just the cost of the maintenance for us, but the time involved. We either have to pay for yard work and house work or do it ourselves. Even if we do it ourselves there is the opportunity cost of our time. And for items even like like getting dry rot repairs done, there is the time in researching contractors, getting bids, being home, dealing with flaky contractors or sometimes poor workmanship, etc.

We haven't decided yet exactly on our perfect downsized dwelling or location, but right now 1K sq ft condos or smaller are looking pretty good. Plus the smaller we go the nicer location we can afford.

The problem we have now is getting rid of decades of junk and getting the house in shape to sell. Never again will we a buy a house the size of our current home. It is too much work for people like us that just aren't into houses, decorating and gardening as much as we are interested in travel, hobbies and free time.
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Old 04-29-2014, 02:43 PM   #6
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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.
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Old 04-29-2014, 02:47 PM   #7
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America is a place where luxuries are cheap and necessities costly. A big-screen TV costs much less than it does in Europe, but health care will sink you.

Its a question of what your basic standards are, said Cohen. Basic standards mean living in a school district thats half decent, where houses are more expensive.

Robin and Scott seem to have a of of unnecessary budget leaks, but these two quotes from the story are true IMO, and very important.

Ha
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Old 04-29-2014, 02:57 PM   #8
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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.
You get a $250k capital gains exemption when you sell, which might be nice. No capital losses allowed though.
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Old 04-29-2014, 03:04 PM   #9
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$90K/year must leave them with $5K/mo after taxes, and the mortgage is $700. Where is $4300/mo going? Every month?

One possibility is that the kids are getting everything they ask for. Apparently they run up a pretty sizable cellphone bill each, and they have to have the best photo package because “I don’t care if we don’t eat next week, I’m going to get the kids’ photos,” he said. “That’s what you hold onto.” No, dude, what you hold onto is the memories of time spent together. We managed pretty well as a species without 8x10 glossies of our kids' braces.
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Old 04-29-2014, 03:05 PM   #10
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You get a $250k capital gains exemption when you sell, which might be nice. No capital losses allowed though.
Who needs a capital gain exemption when your house is worth $25,000 less than when you purchased it


I forgot a few other fees. Fire insurance, flood insurance, earthquake insurance.

I feel like the biggest idiot being a homeowner.
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Old 04-29-2014, 03:14 PM   #11
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Don't forget the costs of buying and selling a house and the opportunity cost of tying your capital up. Home ownership should be viewed as a luxury good, not an investment. I wish that I had understood that when I was young.
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Old 04-29-2014, 03:40 PM   #12
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Much it comes down to where you live, what you paid for your home and compare it to similar rental living arrangement. At least in my location living where I have, the math favors owning. The past 10 years I have owned my home my mortgage including escrow is about $700. Living in similar style home paying rent would be $1000 (I could live in an apartment for $700 or less but that isn't going to happen). So after 10 years owning has saved me say $30,000... Deduct out the $3k or so spent on closing costs back then, and I am up $25,000. I have spent about $12,000 on house the past 10 years, so now I am up only $13,000. Assuming the value of my house is the same as it was back then, I would net about 20k in principal deduction minus real estate transaction. So my back of the envelope math would have me up over $30k. Now I guess I could include an opportunity cost of my $10k downpayment, so I can net out say $5k more to bring me down to $25k. It appears owning is better, for me. But I didn't really buy it for that purpose anyways.


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Old 04-29-2014, 03:46 PM   #13
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I won't argue the costs of home ownership as stated in the above posts. However, a landlord has to pay all the same costs for an equal house. So given two options, renting a house long term or buying one, why would it be so much less expense to rent from a landlord who must absorb all those same costs? Granted, in my hood the few houses that have been rented are showing an accumulating lack of maintenance, but that eventually comes due.

I'm not convinced that the cost of owning a well maintained home is a loser compared to the same home that is well maintained by the landlord if it's for a long term (which abates the commission costs to a degree). I will admit that the liquidity of homeownership (or lack thereof actually) is a negative anchor.
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Old 04-29-2014, 03:51 PM   #14
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Much it comes down to where you live, what you paid for your home and compare it to similar rental living arrangement. At least in my location living where I have, the math favors owning. The past 10 years I have owned my home my mortgage including escrow is about $700. Living in similar style home paying rent would be $1000 (I could live in an apartment for $700 or less but that isn't going to happen). So after 10 years owning has saved me say $30,000... Deduct out the $3k or so spent on closing costs back then, and I am up $25,000. I have spent about $12,000 on house the past 10 years, so now I am up only $13,000. Assuming the value of my house is the same as it was back then, I would net about 20k in principal deduction minus real estate transaction. So my back of the envelope math would have me up over $30k. Now I guess I could include an opportunity cost of my $10k downpayment, so I can net out say $5k more to bring me down to $25k. It appears owning is better, for me. But I didn't really buy it for that purpose anyways.


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Oops, H20's got me thinking. For 10 years now I have been able to itemize my taxes. I would not be able to do that without the mortgage deduction. This has given me back easily over a thousand bucks in taxes each year, so add 10k more back on and I am over $35k in savings.


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Old 04-29-2014, 03:56 PM   #15
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Oops, H20's got me thinking. For 10 years now I have been able to itemize my taxes. I would not be able to do that without the mortgage deduction. This has given me back easily over a thousand bucks in taxes each year, so add 10k more back on and I am over $35k in savings.


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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?
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Old 04-29-2014, 04:02 PM   #16
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And yet another article about buyers remorse.
Really though, how obvious is it that you need a thorough professional inspection before closing?
http://finance.yahoo.com/news/homeow...163113390.html
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Old 04-29-2014, 04:04 PM   #17
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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?

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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Old 04-29-2014, 04:08 PM   #18
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I don't feel a bit sorry for them. We grew up without satellite or cable TV, four home computers (okay, one is a necessity now) cell phones, iPads, and when it came to buy school photos we got the cheapest package if we bought them at all. Somehow, we survived the deprivations. But we did keep enough money in the bank to fix the roof.

His bad credit is a result of waiting until the last minute to make a payment and then not bothering to read the statement.

Peel me a grape.
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Old 04-29-2014, 04:14 PM   #19
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The first comment on the original article is good, "This isn't a story about how hard it is to survive on 90k, it's a story about how you can't survive on 90k if you have crappy money management skills."
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Old 04-29-2014, 04:30 PM   #20
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The cardboard box is 1500 square feet, bought brand new 10 years ago for $140,000...
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.
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