How much does that paid off house cost you?

[Traveler]

Addressing the two topics that have morphed here:

Paid off house costs:
For our paid-off house in Arizona: $9000 per year with everything (prop. tax, utilities, cable/internet, insurance, minor fix-ups, no sewer because we're on septic). So $4500 per year per person versus close to $15,000 I was/still am paying by myself for my unpaid for house in Sacramento.

Re: Fulltime RVing and options.


A lower-cost option for folks looking to "have it all" (RV and a bricks and mortar base) is to think about RV residential parks where you can buy a parking pad and also put a casita up on site. There are several parks like this in Yuma that cater to snowbirds and I believe the pads sell in the $30K range. If you're fulltiming you'll probably want to head south for the winter and plant yourself in the sunbelt. Arizona, Southern California, parts of Texas and Florida are the logical locations and these RV parks with building options are worth looking into.

 

[tryan]

I've got about 15 years of rental data for the 6 free n'clear property's I maintain. Below are the average % of rent used to keep them up:

Maintenance: 15%
Taxes: 12%
Insurance: 3%
Water/Sewage: 2%
Vacancy: 5%

So a little less than 40% of the rents go to keeping it up. Of course this will fluctuate in any given month. This is why I maintain that only 50% - or less - of the rents should be allotted to a mortgage.

Enjoy!

 

[laurence]

But part of the mortgage goes into equity, so depending on amortization, you aren't paying, your "investing" that portion, so that needs to be deducted. Right now I'm paying about 1100 a month in interest, 400 a month in taxes/insurance. My last apartment was 1300 a month plus 50 bucks renter's insurance. Now, four years later it's renting for 1800/mo. Since my house is new, I'm still under warranty (5 years on a ten year warranty left) so my maintenence cost has been pretty low, but I have spent money on upgrading my homestead. Still, it's good to have these things in perspective, homeownership may not be as good of a deal as it seems. But it's the only way I could have added 300k to my net worth in 4 years.

 

[Mr._johngalt]

If anyone is interested: Although not a "pure" investment, here are the numbers
for our condo (% of rent) as if it were rented out 100%
of the time:

Maint/assoc dues/utilities 32%
Taxes 13%
Management 8%
Insurance 8%
Vacancy 8%

Not that exciting, except it was "bought right" as they
say.

JG

 

[haha]

 But it's the only way I could have added 300k to my net worth in 4 years.  

Not really. SInce it was a pure stroke of luck, you also could have won the lottery, or invested in a stock that produced out of range returns, or any other three sigma events. Your reasoning reminds me of people I met in the late 90s who explained that tech/dot-coms were the "only way I could have made so much...."

One difference with house is that the Fed will probably sacrifice the country before it lets homeowners go down, so any bust will be softened whenever possible.

Mikey

 

[haha]

I've got about 15 years of rental data for the 6 free n'clear property's I maintain.  Below are the average % of rent used to keep them up:

Maintenance: 15%
Taxes: 12%
Insurance: 3%
Water/Sewage: 2%
Vacancy: 5%

So a little less than 40% of the rents go to keeping it up.  Of course this will fluctuate in any given month.  This is why I maintain that only 50% - or less - of the rents should be allotted to a mortgage.

Thanks Tryan for this very useful info. And, John, thank you for yours.

One thing I draw from this is that in normal markets prices will often be bid beyond where a single-family or a condo for rental will make sense- except as a speculation on future appreciation in rents and/or selling prices. This is because most people will not be as conservative as Tryan is- they just aren't organized enough to know what the costs really are, or they are too optimistic to believe it if they are told.

Another thing is more subtle, but perhaps also true. Since 40 to 50% of rent goes to cash costs, the renter doesn't give up much relative to a  condo owner for example.  The renter is exposed to the full brunt of rental increases- but the condo owner is exposed to 40 -50% of increases. Better for sure, but perhaps not worth the opportunity costs, and the considerable loss of freedom.

Personally, I would only want a condo if it were in a concrete building, in a quality urban area. In an apartment, if your neighbors are annoying or the neighborhood is undergoing negative change, you are out of there with minimal costs. Not so in a condo. IMO, condos combine most of the disadvantages of owning with most of the disadvantages of renting.

Mikey

 

[Cut-Throat]

I just ran my report out of Quicken for 2004 and my costs for Staying in my paid off house were about $10,350.

This includes Taxes, Utilities, Association Dues (which includes Mowing, Shoveling, Exterior Maint, Ins.,Garbage). No Phone Just Elec, Heat, Water.

 

[laurence]

Well, maybe Mikey, but Southern California real estate has been a pretty good bet for some time. I would count winning the Lotto as a pure stroke of luck, but investing in real estate far from it. The fact that I had a better than usual run meant there was some luck involved, but that wasn't the only factor. I meant "the only way" as a manner of speaking, just like when someone says, "every time I...." ...it's not literal. Thus, the smiley face. I wouldn't let statistics paralyze you from taking advantage of outliers.

I agree Condo living could well be the worst of both worlds, but I haven't done it so can't say. Obviously this debate has left out some intangible benefits of house ownership, like potential for better crime rates, freedom of action with your dwelling (not asking permission to paint the walls etc.). A personal desicion, buy vs. rent, that can't just be decided on a cost analysis.

 

[tryan]

or they are too optimistic to believe it if they are told.

The RE "professionals" are a well oiled machine to keep the buyers head in the clouds. Buyer realtors, home inspectors, appraisers and loan officers looking after they're own interests to keep the deal "on" so everyone gets paid.

Enjoy!

 

[cute fuzzy bunny]

The wifes ex-house (as of this morning!!!) ran us about $2000 a year...most of that property tax, homeowners and flood insurance. The utilities were almost negligible. If you consider that she did nearly nothing to the place for 14 years and then we did a full exterior and nearly full interior remodel for about $50k, that would make the cost about $5500 a year.

Our new place runs about $2500 a year excluding utilities. I do all of the maintenance myself. Like several other california dwellers, I took the stucco exterior/concrete tile roof option. No exterior maintenance except a little painting and caulking for the rest of my life.

As far as gains, I guess I should buy a lottery ticket as I've made big money on all four homes I've owned since 1985. In fact, I've made over $450,000 in tax free capital gains in the last 2 years on homes owned for ~7 years, and I'm sitting on a ~$100k gain increase in my current home.

To hell with the stock market

 

[Cut-Throat]

As far as gains, I guess I should buy a lottery ticket as I've made big money on all four homes I've owned since 1985. In fact, I've made over $450,000 in tax free capital gains in the last 2 years on homes owned for ~7 years, and I'm sitting on a ~$100k gain increase in my current home.

To hell with the stock market

Can you say Irrational exuberance?

 

[cute fuzzy bunny]

You do have to love it when you find it...

Not a lot of complications in the formula...pick a region where real estate tends to rise, find an area in that region where prices are either depressed or they havent kept up with the rest of the region due to some factor that is soon to be resolved, be value conscious in your choice, and dont put too much money into the place. I broke that last rule on the wifes old house, but we got more than our money back.

Place I'm living in now ought to keep going up. The main downsides are a lot of welfare folks living in the area and no clean commute into the big city. I bought it for the cost of construction, landscaping and other improvements plus about $5-10k for the land (quarter acre in the back of an 8 home cul-de-sac).

As far as the community goes, real estate prices have tripled and quadrupled in the last 5 years. A nice 3 bedroom 1 bath on a .33 acre lot like my wifes old house could have been had for $60-80k 5 years ago. All of a sudden one out of three homes in that area have seen a major remodel and renters have been moved out for a new buyer. So I imagine over the next 3-5 years the welfare renters will move to less expensive areas and be replaced with buyers.

For the lousy commute options to "the city" (couple of one-lane-each-way meandering roads that go through a half dozen town centers full of red lights), one of them is being currently widened to 3 lanes each way from the heart of the city to...3 miles from my house.

I expect the current area to drive up another $100k+ during the next 2-5 years as people realize that they can either buy $1M homes east of the city or the same house for half that to the north where I live, and get the same or better commute.

Given the disparity between rents and owning in this area, I'd love to move into a rental. I couldnt stand moving again right now though, and rentals with 3 cats and 3 dogs can be a real problem. So we'll stick around a while longer and then maybe look for the next buying opportunity...

 

[Jarhead*]

TH: Those capital gains do take the edge off of living in Yuba City, Huh?

 

[unclemick]

Boy oh boy - you California cats just suck!

Can you hear me grinding my teeth? I worked with aerospacers who got substantial boosts to their retirement funds in the 80's, and 90's from Ca RE - when will it end?

Now - just where in Ca do I move after the next hurricane wipes me out?

Heh, heh, heh, heh.

 

[Nords]

Hale Nords expenses.

Here's the 2004 data (no gas, no heat, no air conditioning):
$592 Insurance
$1572 Property tax ($2026 in 2005)
$957 Electricity (solar array will drop this below $700)
$297 Community association dues
$345 Telephone-- land line
$388 DSL
$230 CATV
$847 Water/sewer

$5228 TOTAL

 

[cute fuzzy bunny]

TH: Those capital gains do take the edge off of living in Yuba City, Huh?

Yeppers...we spent the day "in thuh citay"...roseville. Another farmy town that turned into quite the little metropolis...

 

[sgeeeee]

I've chosen not to pay off my house for reasons that are benefiting me and that will benefit me even more if inflation runs up. But here are the costs per year beyond mortgage:

Homeowners insurance: $ 434
Property tax: $1504
House Maintenance: $5244
Phone & Utilities: $3323
TOTAL: $10,505

Some of what is lumped into House Maintenance is related to furniture and decorating and would apply to renting too. Similarly, Phone & Utilities might also apply if I were renting.

These costs have been completely swamped by the increase in my property value over the past 3.5 years since I moved in. In other words, there has been no cost of owning this home -- there has been accumulated value.

 

[LEX]

SHORe: How much does that paid off house cost you?

I found this article at Scott Burns Website on topic:

SHOULD YOU HAVE A MORTGAGE AFTER RETIREMENT?

Q: I am on the threshold of retirement. How do I correctly understand the benefits of continuing with a mortgage vs. paying off the loan? I reviewed the homeownership model on your Web site and it calculates a (lower taxes) benefit of about $4,000 a year. However, after retirement, my withdrawals from IRAs, etc., would have to be higher if I continued to make payments vs. paying the loan off now. My marginal tax rate would be 25 percent.
Can you help? It would appear that withdrawing additional income to pay the mortgage each month is different from earning an income from employment that would not change regardless of whether I was paying a mortgage or paid off the note. -- B.H., by e-mail

A: Unless you have a very high retirement income and substantial assets, having mortgage payments after retirement isn't a good idea. For those with lots of income and assets, mortgaging their houses is a portfolio-leveraging decision.

For most people, mortgage payments in retirement present two very real dangers. The first is that the need to make the monthly payments from investments will subject your portfolio to a higher rate of withdrawal. As I have pointed out many times, the higher the annual withdrawal rate, the smaller the odds that your portfolio will survive through your retirement.

The second danger is triggering the taxation of Social Security benefits. When your income, including one-half of your Social Security benefits, exceeds $32,000 on a joint return, your Social Security benefits are subject to taxation. As a consequence, many couples will find that every $1,000 they remove from their retirement accounts to pay mortgage debt will cause between $500 and $850 of Social Security benefits to be taxed. It can make mortgage payments very expensive.

 

[Nords]

These costs have been completely swamped by the increase in my property value over the past 3.5 years since I moved in.  In other words, there has been no cost of owning this home -- there has been accumulated value.

Good point-- $5200/year against a five year's runup of over $400K doesn't seem like such a bad margin loan. Sure hope we feel that way in 10 years!

 

[sgeeeee]

Re: SHORe: How much does that paid off house cost

I found this article at Scott Burns Website on topic:

SHOULD YOU HAVE A MORTGAGE AFTER RETIREMENT?

Q: I am on the threshold of retirement. How do I correctly understand the benefits of continuing with a mortgage vs. paying off the loan? I reviewed the homeownership model on your Web site and it calculates a (lower taxes) benefit of about $4,000 a year. However, after retirement, my withdrawals from IRAs, etc., would have to be higher if I continued to make payments vs. paying the loan off now. My marginal tax rate would be 25 percent.
Can you help? It would appear that withdrawing additional income to pay the mortgage each month is different from earning an income from employment that would not change regardless of whether I was paying a mortgage or paid off the note. -- B.H., by e-mail

A: Unless you have a very high retirement income and substantial assets, having mortgage payments after retirement isn't a good idea. For those with lots of income and assets, mortgaging their houses is a portfolio-leveraging decision.

For most people, mortgage payments in retirement present two very real dangers. The first is that the need to make the monthly payments from investments will subject your portfolio to a higher rate of withdrawal. As I have pointed out many times, the higher the annual withdrawal rate, the smaller the odds that your portfolio will survive through your retirement.

The second danger is triggering the taxation of Social Security benefits. When your income, including one-half of your Social Security benefits, exceeds $32,000 on a joint return, your Social Security benefits are subject to taxation. As a consequence, many couples will find that every $1,000 they remove from their retirement accounts to pay mortgage debt will cause between $500 and $850 of Social Security benefits to be taxed. It can make mortgage payments very expensive.

Scott probably gives the right answer for many, but like so much financial advice out there, it is pure drivel without quantifying the details of his answer. I don't know whether I qualify as having "very high retirement income and substantial assets" or not, but I can quantify the value of keeping my mortgage rather than paying it off so far. I am significantly ahead of where I would have been had I paid off the mortgage at retirement. And if inflation runs up over the next few decades, I will benefit even more.

The tax issues are very individual dependant, so I can't comment on how this affects others, but in my case it is definately insignificant. You really have to plug in your own numbers.

Since I just turned 51, Social Security benefits are not an issue to me and won't be for some time.

If taxation disadvantages or social security benefit taxation does become an issue, or if the financial climate changes and a 5% mortgage no longer is a benefit to me, I can always pay it off when the time comes.

It seems to me that many early retirees might be in a situation simlar to mine. Others may not be.

Of course none of this relates to the original question about the cost of owning a house.

 

[cute fuzzy bunny]

Yes, for the love of god, lets not start that dialog again...

Although for the past 5 years, my 'return' on not having a mortgage is the original rate (5.5%), plus allowing me to pay zero income taxes by lowering my withdrawal rate. Since there is very little equity build-up in the first 5 years, that would have created an annual unrecoverable 'cost' of roughly $20,000 per year in interest payments and income taxes paid (in my situation).

Had that money been in the S&P500, it would have lost 3.24% per year over the last 5 years or an $8100 loss per year. In vanguards balanced index fund, it would have made about 1.41% per year or $3525 gain per year.

So far so good. If stocks were cheap today, the economy looked a little better or I could at least get a good return on cash and bonds, I'd probably have thought differently.

The only asset classes that have gained enough over the last 5 years to offset the costs are energy, reit and precious metals. Fairly different risk class there...