Homeowner's downfall: Cost of keeping up the place

[Mulligan]

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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[Fermion]

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.

 

[W2R]

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.

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.

 

[NW-Bound]

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.

 

[rodi]

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.

 

[haha]

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

 

[Mulligan]

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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[NW-Bound]

...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?

 

[Mulligan]

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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[meierlde]

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.

 

[WannabeRetired]

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.

 

[Tortoise]

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.

 

[MichaelB]

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.

 

[eytonxav]

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.

 

[HFWR]

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.

 

[Mulligan]

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.

So in your area HFWR, would renting a property similar to what you presently own, would be more expensive?


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[HFWR]

So in your area HFWR, would renting a property similar to what you presently own, would be more expensive?


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A house similar to mine would rent for $1100-$1300/mo, from a cursory look at craigslist rentals.

 

[Mulligan]

A house similar to mine would rent for $1100-$1300/mo, from a cursory look at craigslist rentals.

Real estate is all local, and obviously you can't buy and sell every year anywhere and not lose your shirt. But in my area and apparently yours owning certainly is not a guaranteed money losing proposition. Although I would never consider getting into the landlord business, most here won't get a property unless it is revenue positive from the get go. Some will buy them for 40-50k, put a little lipstick on the pig, and boom next thing your getting $700-$800 a month rent cash flow positive from the get go. But the potential heartburn from dealing with renters is not worth it to me. I doubt there are any slightly fixer uppers in Silicon Valley for $40,000 though.


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[rodi]

Interesting thoughts on the homeowners insurance as a percentage of home value. We pay $1100/year for 2 homes on one lot (we have a detached granny flat). It's about 1/10% of the value of the home. AND we live in a fire risk area and are 1/4 mile from an earthquake fault.

But fire or earthquake won't wipe out the dirt - just the structures... Insurance doesn't replace the land - just the structures. So there is a big disconnect between the home value (which includes the dirt) and the replacement costs.

FWIW - our house is as UNFANCY as they come. 2k sf 1963 tract home. Still worth a lot more than it should be.

 

[meierlde]

Interesting thoughts on the homeowners insurance as a percentage of home value. We pay $1100/year for 2 homes on one lot (we have a detached granny flat). It's about 1/10% of the value of the home. AND we live in a fire risk area and are 1/4 mile from an earthquake fault.

But fire or earthquake won't wipe out the dirt - just the structures... Insurance doesn't replace the land - just the structures. So there is a big disconnect between the home value (which includes the dirt) and the replacement costs.

FWIW - our house is as UNFANCY as they come. 2k sf 1963 tract home. Still worth a lot more than it should be.

Does that include the earthquake insurance rider? If not the fault is irrelevant since homeowners policies exclude earthquake risk unless a rider is purchased.
But from the insurance premium , you clearly don't live in any area subject to many windstorms. In inland Tx its windstorms and hail that raise insurance premiums. The house I live in had its roof replaced twice, the second time with a metal roof, and would have had a shingle roof replaced a third time in 28 years. The last event meant that every roof in the neighborhood that was not metal had to be redone.

 

[HFWR]

Real estate is all local, and obviously you can't buy and sell every year anywhere and not lose your shirt. But in my area and apparently yours owning certainly is not a guaranteed money losing proposition. Although I would never consider getting into the landlord business, most here won't get a property unless it is revenue positive from the get go. Some will buy them for 40-50k, put a little lipstick on the pig, and boom next thing your getting $700-$800 a month rent cash flow positive from the get go. But the potential heartburn from dealing with renters is not worth it to me. I doubt there are any slightly fixer uppers in Silicon Valley for $40,000 though.


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I'm in a fairly good location, but there's so much housing in the area, and more coming in at a [-]rabid[/-] rapid pace, that prices haven't gone up much since I bought.

 

[NW-Bound]

One-tenth of 1% of the home value is pretty cheap premium for a home insurance. Where I am, the land is worth perhaps 1/3 or 1/4 of the total home value.

By the way, our insurance covers the replacement value meaning what it costs to rebuild. We also have a $500 deductible, which may be too low.

 

[anethum]

My homeowners policy is only about 8/100 of one-tenth of 1%. My land in the current market is 100% of the property value because it is coveted by developers to build a McMansion. Every single small house nearby (mine is < 1,200 sq ft) which has sold in the past 5 years has been razed and replaced with a McMansion. The vast majority of the houses which sold in the 10 years prior to that were razed, too. The lots aren't even that big. Even my tax assessment puts over 80% of my property's value in the land, and the remainder in the structure. I appealed the assessment, claiming that my structure should be valued at $0, but my appeal was denied. I joke that if my house were crushed by a meteorite, the resale value would increase because the developers would save on the destruction cost. My vegetable garden is some of the most expensive farmland in the country!

 

[haha]

I'm in a fairly good location, but there's so much housing in the area, and more coming in at a [-]rabid[/-] rapid pace, that prices haven't gone up much since I bought.

This is a huge factor that is easy to overlook. Where building out is constrained, and certain neighborhoods have hard to duplicate amenities, personal housing is often a reasonable investment if you are going to be around for a while. I previously thought that in places like DFW eventually building would be constrained by increasing commuting distances, but I hadn't reckoned on the huge expansion of corporate employment in the various suburban cities They are suburban in layout and planning, but basically live unto themselves rather than function as bedroom communities for Dallas and Fort Worth.

Quite different from here in Seattle or Bellevue which are still and likely will remain the employment and transportation hubs in our area.

It's interesting around afternoon quitting time to see all the huge double-decker or tandem buses leaving Seattle full of commuters for points north, south, and east. And way more people are driving home on I-5 or I=90 or 520.

Ha

 

[Live Free]

I've never considered my house to be a great investment. Quite the contrary - it is a money and time suck for sure.

We've been in this house about a decade and it has appreciated about $13K/year (that is already taking into account the 6% off the top we would have to pay to unload the house). While the appreciation is decent I guess (and certainly better than it going down in value!), that is about what I pay a year in interest, taxes, and insurance on the property. Factor in what seems to be an endless list of to-dos and we are not coming out ahead.

OTOH, we are in a lovely, spacious (i.e., energy-hog) single family 5 bedroom home. The two-bedroom apartments down the street are more than $500/month over my mortgage payment (which includes the insurance and taxes). So, maybe we are getting better living space for the money. I don't know.

The plan is to sell this joint when the youngest chick leaves the nest in a few years. Then we either rent somewhere cheap or buy a smaller place and have no mortgage. I'd love a small, cheap, condo-type place, but my DH hates sharing walls with others and likes more room. I foresee a battle on this.