How much does that paid off house cost you?

[GTM]

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?

 

[Spanky]

Hmmm. property tax = $3,700; repair and improvement = $2000, utility = 2,500, insurance = $900

 

[Zipper]

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.

 

[dex]

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.

 

[Mr._johngalt]

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

 

[Helen]

I just got back from buying a $500 Honda lawn mower -ouch.

 

[Mr._johngalt]

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

 

[yakers]

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.

 

[omni550]

GTM asks:

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.

 

[JDARNELL]

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

 

[Helen]

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

 

[laurence]

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.

 

[dex]

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

 

[Mr._johngalt]

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

 

[Martha]

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.

 

[KB]

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.

 

[eyeonFI]

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.

 

[Mr._johngalt]

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

 

[whitestick]

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.

 

[Caroline]

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

 

[Mr._johngalt]

You know, this "travel" thing is interesting. So many retirees (early or traditional) list "travel" as their no.
one goal. I have traveled quite a bit but have no real
strong desire to do much. I used to like long motorcycle trips, but that was more for the biking than the travel. The PT lifestyle has absolutely no appeal.
We really need a home base (or in our case, 2 of them).
"Travel" generally is of no interest, and I don't think it is just an age thing. Believe I would feel the same way if I was 20 years younger.

JG

 

[Martha]

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.

Have you checked out www.escapees.com for any ideas? One option for lower maintenance is a condo. But you might not want to buy a condo that gets used only a couple of months a year. Once we rented an apartment to a couple of retirees that only used the apartment for two or three months in the summer. What wonderful tenants! We charged them less because we could keep the heat down in the apartment in the winter. You might be able to negotiate for a lower rent.

We also have looked into full time rv life. Like your wife I am hesitant to give up the roots in case it doesn't work out. I would play it out for a year and see how it goes. Kind of off the topic, but be sure to look at the issue of state residency, whether there is a need for a street address, and health insurance coverage. I know of a couple who bought an RV with intentions of fulltime travel and found that their retiree health plan really only covered them in their home state of Michigan.

 

[unclemick]

I can't put my finger on it - but the 'travel bug' died off rapidly in ER - down to stay at home sticks in the mud.

Rv'ing, travel/long distance vacations to get outta Dodge were big during working years and the first few years of ER.

Since we live in an area where people 'outta the city' come to spend summers - used to get razzed by friends on 'why we were going somewhere else on vacation?'

 

[Eagle43]

I can't put my finger on it - but the 'travel bug' died off rapidly in ER - down to stay at home sticks in the mud.

Rv'ing, travel/long distance vacations to get outta Dodge were big during working years and the first few years of ER.

Since we live in an area where people 'outta the city' come to spend summers - used to get razzed by friends on 'why we were going somewhere else on vacation?'

I grew up in NoLa and used to consider it one of the two best large cities in USA, with the other being San Francisco. Hey, that might be a good new topic, best big city in USA, and why. Anyway, my old man used to work on A Streetcar named Desire, no kidding. I still think New Orleans is wunnerful, and return often to see relatives and the city.

It is true that your city's residents don't travel very much. They always seem to have a party going on, sorta like living in the Caribbean. The Cajuns know how to live. Hunting, fishing, trawling, beer, crab boils, and the French Quarter. Only problem is their lifestyle seems to take them out too early.

 

[Mr._johngalt]

Re. "Best big city in USA?" Yeah, that would be interesting. Although I have visited a great many, I can
only claim to be well acquainted with a few, namely

Chicago
Milwaukee
Detroit
St. Louis
Dallas

Man, from that list, Dallas wins in a walk..................

JG