Should you rent or buy? That's one of the hardest questions to answer. Most articles don't tell you what you really need to know. This one does. I'll give you the facts about home ownership.
Fact: Houses need maintenance. Your maintenance costs could be as high as thousands of dollars a year (or more).
Fact: Your must pay property taxes on your home each year. Local governments are always trying to raise property taxes.
Fact: Your mortgage company will require you to carry home owner's insurance.
Fact: You'll put a lot of labor into your home or you'll pay someone else to do it.
Fact: If you don't put down 20% of the cost of the house, you'll pay Private Mortgage Insurance (PMI).
Fact: Your house will need to be painted every 4 to 8 years. Good paint will cost you at least $25/gallon. Don't scrimp, you don't want to do it again.
Fact: Painting your house is not easy. Especially if you have a two story house. You may have to buy ladders or rent scaffolding.
Fact: About one in ten paint jobs goes awry.
Fact: Permanent siding can cost 4 to 5 times as much as traditional wood siding.
Fact: Permanent siding also wears out can be damaged by wind and hail. Vinyl wears out faster than steel.
Fact: Asphalt Shingles last 15 to 25 years. If your roof is worn out it may start to leak causing costly damage to your home.
Fact: Most modern windows have a 20 year lifespan.
Fact: Water heaters last about 6 to 10 years.
Fact: Furnaces have a 10 to 25 year lifespan. Guess which one your builder installed?
Fact: You are responsible for the sidewalk and sometimes the curb and gutter in front of your home. You must pay to put it in and pay to replace it when necessary.
Fact: You are responsible for the trees on your property. That means trimming them to keep them out of power lines, off the street and off the sidewalk.
Fact: When you rent, you know exactly how much your payment is every month. With a house you never know when something is going to break. Toilets leak, hoses and pipes break, appliances break down.
Fact: Housing prices don't always go up.
Fact: Your house is not primarily an investment rather it is a place to live.
Investing: the act of investing; laying out money or capital in an enterprise with the expectation of profit
Residential property has appreciated (on average) at 3.8% per year, about the same amount as inflation. On average your home is only maintaining its value, not appreciating.
Subtract the maintenance, taxes and mortgage interest and you aren't left with very much.
Fact: Residential real estate has high transaction costs compared to other investments. A Realtor charges about 6% of the value of a home just to sell it. Could you imagine a stock broker doing the same thing?
Conclusion: Renting can be a good decision for many people.
The first day I moved into my house the furnace broke. It was the middle of winter. I had to get it replaced ASAP. Make sure you have enough money to pay for such things. Many first time homebuyers spend their entire savings just to get into the home. Then when something breaks, they have no money to fix it. Hello credit card debt.
Buying a house is as much or more a personal, psychological and emotional decision as it is a financial one. To many people the benefits of a house outweigh the disadvantages. Just make sure you know what you are getting into when buying a home.
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Comments
2 Comments so far
"Renting can be a good decision for many people."
Back when I did the calculations for Rent v. Buy I didn't come to this conclusion…but it was a lot closer than I thought it would be. The main factor in my calculations that hurt renting as an option were the increases in rent payments over the long term, i.e., purchasing a home essentially locks in your payment (assuming you got a fixed mortgage), while rent payments increase given enough time.
Plus most, if not all, of your costs of owning a home are built into the rent payment. In other words, a portion of your rent payment will go to paying property tax, maintenance, home insurance, etc.
[...] (stocks), require constant care and maintenance. That means MONEY. You have to feed the money pit constantly. When you subtract your maintenance costs from the appreciation, you're looking at a [...]