True housing cost?

[Sam]

Can you guys/gals tell me if I miss anything in the following calculation? I'm trying to figure the true cost of staying in my current house.

For simplicity, not all values are exact but close enough. Home in Houston, market value 200K (210K - 10K sale commission).

Annual cost:
12K Opportunity cost. After tax ROI on 200K invested in stocks/bonds
05K Property tax
02K HOA and Insurance
02K Maintenance & Repair
00K Appreciation (home appreciates at inflation rate)
00K Federal tax advantage
----------------------------
21K Annual cost

I deliberately exclude utilities, because they have to do with us (the tenant) and not with the house.

What did I miss? The actual numbers are not important, the categories are. Thanks.

 

[Nords]

What did I miss?

Is this a comparison of rent-vs-buy, bigger-vs-smaller, or Houston-vs-California?

Should the analysis examine the costs of equivalent housing in a rental, a different location, an RV, or a highway overpass?

Utilities might still matter. Despite Hawaii's highest cost of electricity in $/KWHr, we're a lot lower in monthly electricity bills than Texas and Minnesota-- and for different reasons. A smaller house could cost less to heat/cool, especially a newer place with better insulation technology. An RV would have fuel costs, especially if you drove a lot or towed a heavy vehicle.

Insurance will vary with area, and I believe personal-property insurance is usually cheaper than homeowner's.

If this is a stand-alone calculation ("It's costing us $xxxx/month just to live in this place!!") then I wonder if the interest expense of the mortgage has to be included in the running total. But if the mortgage is paid off then that's just an accounting capital-expense curiosity and probably not meaningful.

 

[Sam]

Should the analysis examine the costs of equivalent housing in a rental, a different location, an RV, or a highway overpass?

Hey, a highway overpass sounds interesting. Thanks for the suggestion

If this is a stand-alone calculation ("It's costing us $xxxx/month just to live in this place!!") then I wonder if the interest expense of the mortgage has to be included in the running total. But if the mortgage is paid off then that's just an accounting capital-expense curiosity and probably not meaningful.

Yes, it's a stand-alone calculation for now. There is still a tiny mortgage not worth mentioning.

Eventually, if/when the house is sold, we'd move into a rental (house, condo, or apartment) which will cost 50% to 75% of the current expense.

 

[OAG]

To truly account for the actual cost I would think, as Nords mentioned, a CREDIT should be shown for the cost to rent a like property.

Your Total cost: 21,000
Rent of LIKE property: 1,500 a month or 18,000 a year (or whatever it is)
Adjusted Cost: 3,000

I think the above gives you a better method to find the "true" cost of staying where you are at. You should have some insurance cost in a rental AND you will NOT get any appreciation (only the Landlord will get that along with annual rental increases). If the rental increases, if they come, are not to your liking you can always move (of course there is another COST of renting usually not applicable to ownership, at least, in the short run).

Of course if you are going from a large 3/4 bedroom place in a "good" neighborhood to a 1 BR efficiency apartment in a "not so good" neighborhood you would not be comparing Apples to Apples.

 

[TromboneAl]

I'm not sure why you have the Loss of Opportunity cost in there. The house could appreciate just as much or more than stocks/bonds.

Historical Averages

 

[Meadbh]

You have to live somewhere. Other than the overpass, there will be a financial cost involved. (note: costs of residence at the overpass could also include loss of social circle, personal injury and arrest for vagrancy).

Let's suppose the minimum acccomodation acceptable to you is an apartment which you rent for $500 a month, plus $100 in utilities. That's a housing cost of $7200 a year. Subtract that from your current housing cost and you get $13,800. That is the annual opportunity cost of living in your current house.

 

[Sam]

I'm not sure why you have the Loss of Opportunity cost in there. The house could appreciate just as much or more than stocks/bonds.

Historical Averages

What Loss of Opportunity cost?

12K Opportunity cost. After tax ROI on 200K invested in stocks/bonds
This is what I would do with the proceed when the house is sold.

00K Appreciation (home appreciates at inflation rate)
I am not losing money, but I don't expect any real (after inflation) appreciation from the house either. Houston residential real estate has basically been flat since I moved here in 1991.

 

[Sam]

Clarification from OP:

1) This is a stand-alone calculation. I just want to know how much it costs to live in my current home.

2) The first line item, Opportunity cost is the investment cost. If the house is sold today, I would have 200K to invest and that investment would net 12K for me annually.

3) There is no mortgage on the home, so no mortgage Principle & Interest.

 

[MooreBonds]

Annual cost:

05K Property tax
...
00K Federal tax advantage
----------------------------
21K Annual cost

What did I miss? The actual numbers are not important, the categories are. Thanks.

Do you itemize on Sch A or take the standard deduction? If you itemize, you are also including your property tax. I know you said the actual numbers are not important...but if you itemize, you are getting at least SOME "federal tax advantage" by deducting your property tax.

Also, if you're thinking of eventually comparing it to an apartment (and want to get really sophisticated ), you can divide your "annual cost of house" by your square footage, then do the same for the apartment and the apartment square footage, to get the total annual cost/sq ft. Then (assuming your house would be bigger than an apartment), close off enough rooms in your house to equal the square footage of an apartment you'd be renting, and see if you can handle living in an apartment of that size.

 

[aenlighten]

Appreciation

If only considering appreciation to be zero after inflation, you may also want to consider only investment returns after inflation. Your capital will be eaten away if you spend all the earnings. Another area is transaction costs incurred to shift, sales costs, moving, etc. Capitalized property tax reductions can be significant if your property tax is subject to limitations and below current levels. Future increases in rent levels can be a very important consideration long term depending on the area, the determining factor in many cases.

 

[Sam]

If only considering appreciation to be zero after inflation, you may also want to consider only investment returns after inflation.

Excellent point! Thanks. So the revised opportunity cost would be
06K Opportunity cost. After tax and inflation.

Do you itemize on Sch A or take the standard deduction?

Standard deduction. Sch A does not work for me.

 

[lazygood4nothinbum]

costs of residence at the overpass could also include loss of social circle

all my friends work. with all the early retirees under overpasses, socially, that could wind up being a net gain.