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How much does that paid off house cost you?
Old 04-09-2005, 01:57 PM   #1
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How much does that paid off house cost you?

As a renter I am not all that familiar with the cost of owning a home. I pay my rent which covers many expenses a homeowner faces.

Excluding monthly bills that everyone must pay such as telephone, electric and cooking gas, cable and internet service,

How much does it cost to maintain your fully paid off house?
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Re: How much does that paid off house cost you?
Old 04-09-2005, 02:00 PM   #2
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Re: How much does that paid off house cost you?

Hmmm. property tax = $3,700; repair and improvement = $2000, utility = 2,500, insurance = $900
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Re: How much does that paid off house cost you?
Old 04-09-2005, 02:07 PM   #3
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Re: How much does that paid off house cost you?

Probably about what you pay in rent.

It's an appreciating asset, however, and should improve your net worth over time.

A mortgage free home makes ER doable.
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Re: How much does that paid off house cost you?
Old 04-09-2005, 02:08 PM   #4
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Re: How much does that paid off house cost you?

GTM,
To do the analysis properly you need to add up the oppotunity cost of a paid up house and the operating costs of the house then subtract (or add) the estimated annual appreciation (or depreciation). Taxes conplicate the calculation.
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Re: How much does that paid off house cost you?
Old 04-09-2005, 04:32 PM   #5
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Re: How much does that paid off house cost you?

I had "conplication" once. MOM fixed me up

I have pondered this question, but am too lazy to
actually crunch the numbers. DW and I were discussing this the other day. When we met, I was renting and
quite content with it. Now, we own 2 homes. I am
satisfied with this arrangement but suspect if we had
not married that I would still be renting. One
big downside to homeownership for me is no DIY skills whatsoever.

JG
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Re: How much does that paid off house cost you?
Old 04-09-2005, 04:38 PM   #6
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Re: How much does that paid off house cost you?

I just got back from buying a $500 Honda lawn mower -ouch.
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Re: How much does that paid off house cost you?
Old 04-09-2005, 04:44 PM   #7
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Re: How much does that paid off house cost you?

I own 2 lawnmowers. The "tractor" was bought at auction for $125. The push mower (for trimming)
was bought at a junk shop for $15. Now, for those of you wondering.............although it is true that I possess
almost no mechanical skills, I can sell and negotiate.
Sooooooooooo, when I am done with these "junkers"
they will be sold (maybe even for a profit), or simply
discarded (properly of course).

JG
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Re: How much does that paid off house cost you?
Old 04-09-2005, 05:34 PM   #8
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Re: How much does that paid off house cost you?

One other thing to consider in the rent VS own is that mostly people will rent smaller places than they own. (I'm probably an exception with 1000 SQ FT 2 Br 1 BA SFH.) There is not economy of scale in a larger house. Each room still needs heating, cooling, cleaning and the like.
But to take advantage of the economies of renting one must be discliplined enough to save the difference over the cost of buying. The rents can go up but you can move. A house is often a better investment but I have known individuals who lost a lot of money in real estate too.
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Re: How much does that paid off house cost you?
Old 04-09-2005, 05:58 PM   #9
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Re: How much does that paid off house cost you?

GTM asks:
Quote:
How much does it cost to maintain your fully paid off house?
I live in a very nice suburb of a large metropolitan area.

My costs for a 1850 sq. ft. colonial are:

Water $32/mo
Natural Gas 91/mo
Electricity 52/mo
Home Insurance 51/mo
Property Taxes 184/mo
Phone 20/mo
Cable TV & internet 71/mo

For a total of $501/mo.

I've also read that, to keep my house value up, I should set aside about 2-3% of the house value annually for ongoing maintenance, replacement of wearout items and freshenings. That would be about $5000 - $7000/year. This seems high to me. I spent $5000 last year to replace the 27-year-old furnace and A/C, but some years I've only spent a few hundred dollars. I'm very handy, so by doing my own repairs and upkeep, I'm sure I save a lot.





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Re: How much does that paid off house cost you?
Old 04-09-2005, 06:12 PM   #10
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Re: How much does that paid off house cost you?

I am on a major campaign to pay off our house. We have been in it for 2.5 yrs and owe about 120K on it valued at 280K. Should be less than 3 yrs til completion.

To rent this house would be about 1500 a month or 18000 a year. So as I see it I get about a 15000 (18000 - tax/ins) reduction in income need per year. Of course I need to take into consideration maintenance and repair.

JDW
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Re: How much does that paid off house cost you?
Old 04-09-2005, 07:26 PM   #11
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Re: How much does that paid off house cost you?

Prop. taxes: 1,800
upkeep 2,000 - 5,000
insurance 400

The nice thing about buying vs. renting, is that at some point the sucker is paid off and the cost of ownership becomes very cheap. *The other biggie is that it offers protection from inflation if one either takes a fixed loan rate or pays the mortgage off, rents on the other hand continue to rise.

-helen
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Re: How much does that paid off house cost you?
Old 04-09-2005, 09:12 PM   #12
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Re: How much does that paid off house cost you?

I've heard the opportunity cost of owing/paying off house mentioned before and I'm not in agreement. It's not like the money you spend on the house is gone, real estate is an investment like anything else, you can reverse mortgage in retirement if it comes down to it. Plus, in my area (San Diego) the rent on my last apartment now exceeds what my mortgage payment is after only 4 years. But I also have some unusual advantages, weather which does not require the running of air conditioners, concrete tile roof with lifetime warranty, so my other expenses are low. Oh, also lots of tasteful concrete to keep gardening costs down.
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Re: How much does that paid off house cost you?
Old 04-10-2005, 03:42 AM   #13
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Re: How much does that paid off house cost you?

I've put together a quick sceniro of how to incorporate opportunity costs into home owner ship evaluation.

When tax benefits and peace of mind of owning are taken into account owning a home is better than renting.

300,000 Purchase prise of fully paid off house - including closing costs
400,000 Current Market Value
5 Years Owned
20,000 Average $ increase per year

18,000 Opportunity cost - assume 6% return on 300K
6,000 Property Taxes - 1.5% of current market value
500 Insurance
1,000 Maintance
Replacement cost of home equipment omitted
25,500 Cost of owning home
(20,000) Average $ increase per year
5,500 Net cost of owing a home - excluding tax affect
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Re: How much does that paid off house cost you?
Old 04-10-2005, 03:42 AM   #14
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Re: How much does that paid off house cost you?

We have been in our 1100 SF house for 3.5 years.
I don't keep track of this stuff very well, but here is what
I can recall doing:

All new siding and gutters
Interior painted 100% (not by me)
Large custom built deck
Replaced floor coverings throughout entire house
Remodeled bathroom
Fenced large part of yard for dogs

I would guess the above cost us $14,000. Add the
routine maintenance items and you would be around
oh, say $16,500. Taxes and insurance run $2000
a year.

No conclusions.

JG
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Re: How much does that paid off house cost you?
Old 04-10-2005, 04:32 AM   #15
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Re: How much does that paid off house cost you?

John, so you did none of this work yourself? If that is the case, construction costs sure are cheap in your area. We hired someone to do a fence for us a couple of years ago. Couldn't do ourselves given our rocky clay soil. It cost us close to $10,000 for just the fence. We did a bathroom on what I thought was the cheap for about $4000.
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Re: How much does that paid off house cost you?
Old 04-10-2005, 09:59 AM   #16
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Re: How much does that paid off house cost you?

Property taxes 3600.00 I'm estimating here. With all the supplemental taxes for a new home, I'm not sure exactly what the taxes will be .

Homeowners Insurance 470.00

Maintenance costs are not determined yet, the house is 1 year old with stucco walls and tile roof.

My washer and dryer are 2 years old and fridge is about 8 years old. The appliances that came with the house are 13 months old. I'll put about 2000.00 a year aside for this stuff which is on the high side in my opinion.
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Re: How much does that paid off house cost you?
Old 04-10-2005, 10:47 AM   #17
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Re: How much does that paid off house cost you?

I bought my house 4.5 years ago for $167k, and the current market price would probably be about $380k. Since I've owned it I've spent approximately:

$900/yr insurance
$3000/yr property tax
$15000 total improvements (new patio, gutters, windows, painting, some landscaping, and some DIY plumbing).

I'll have the mortgage paid off in about 2 years, and I consider my house the best investment I've ever made.

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Re: How much does that paid off house cost you?
Old 04-10-2005, 05:41 PM   #18
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Re: How much does that paid off house cost you?

This could be a new topic, but I'll tag it onto this one.

This got me thinking about "the best investment I ever made". Other than family so we are talking strictly
financial, I would say some raw land that we used for a hunting club. Had a lot of fun for many years. The carrying costs were low and I sold it for 5 times what I
paid and incurred no income taxes on the gain as I had
a tax loss carryforward to apply. I may have done better on some of my
convoluted business deals, but don't have the exact numbers. I do know I never made any real
significant money on our residences. Moved too often.

Jg
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Re: How much does that paid off house cost you?
Old 04-10-2005, 08:50 PM   #19
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Re: How much does that paid off house cost you?

I have been wrestling with this topic as well. My scenario is that I have a motorhome, which I intend to drive a lot around the good ol' USA. DW requires some form of stabilty - which she defines as some place to leave life's accumulation of (junk) treasures. I on the other hand, prefer to travel as light and as constantly as humanly possible, and explore this beautiful world.
Thus the conundrum. And to the topic at hand, I currently own home, or at least will in a few years, but after I begin ER. The cost of property taxes, maintenance, insurance, et.al. and general handyman upkeep (lawn mowing, etc, since we won't be around) represents, to me, a large sink hole of costs - totaling some $10,000 per year. I'm trying to detemine if the cost of owning a paid off house, or sell the sucker, and pay about 12,000 - 16,000 in rent per year, along wih modest utilities (about 1200 - 1500 per year), that will only see occupancy usage for about 1-2 months per year (less if I can keep DW distracted). House is estimated to clear around 170,000, and believe that conservatively I could invest and get between 7,000-9,000 per year to help offset some of that rent payments.
I know that most of the advice seems to be pay off the farm, so to speak, and I should add that the motorhome will be paid off, within 4 years of ER, sooner if I take $40,000 from selling home, and pay off the motorhome, which I had planned to do, before this issue of "roots" came up.
My plan/hope is to make time on the road enjoyable enough, that eventually we could close apartment, possibly take interim storage option (which was original plan - but DW isn't buying that yet), and then go to shipping pictures, and stuff to daughter's house, and selling balance of "treasures" to close storage. Dang that Venus - Mars thing anyway.
Any suggestions, comments or ideas.
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Re: How much does that paid off house cost you?
Old 04-10-2005, 09:23 PM   #20
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Re: How much does that paid off house cost you?

Hi Whitestick:

My own plan is a lot like yours -- I'd like to buy a motorhome (and a few airline tickets as well) and see this glorious world. I've already started the process of letting go of some of my own "treasures" -- it's hard, but I'm making progress.

I don't plan on selling the house, however, but expect to rent it out instead, at least at first. I'm thinking this will easily (here in Northern California) cover my taxes, insurance, property mangement, etc. and, over time, maybe add a little to boot. Any chance you could convince DW to do likewise, at least for a while?

It sounds like she's worried about making the leap o' faith and then finding out she can't go back home if being on the road isn't to her liking. At the same time, you'd like to get some return on your big housing investment. Could renting the place out, if possible in your area, accomplish both?

Best of luck, whatever happens!

Caroline


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