The Fallacy of Home Ownership

I’ve know you’ve heard it before, the only way to financial success is to buy a home. After all renting is just throwing your money away while investing in a home is always a better financial path. This message, I prefer propaganda, is everywhere. I have but one question, if buying a home is such a good idea then why is everyone so broke? Renting isn’t the waste of money that it is made out to be and in most cases is it a better financial deal than home ownership.

But I do believe many are starting to finally see the fallacy of this idea. There are many articles out there talking about how bad of an investment a home truly is. My favorite article is by JL Collins titled Why your house is a terrible investment. It is a great read and I highly recommend you check it out. I want to focuses on a different view point of renting today. I want to compare renting an apartment in a multi family complex, is the best financial path of all.

Labor, Equipment and Supplies

The big three as I like to call them can cost you a fortune. Not only that but this cost is so often overlooked. If you live in an apartment complex you won’t have to pay any of these costs. You not only won’t have to spend time mowing the lawn but you also won’t need to buy and maintain a mower either.

I know that the labor piece can be hard to quantify so an example might help. First off you need to figure up what your hourly income is. For simplicity sake lets say the figure comes out to $20 an hour. Now for the hard part, how much time does it actually take to maintain a home? After all this number will vary not only from home to home but also year to year depending on what needs maintained. I searched all over for a study on average time spent on home maintenance but I wasn’t able to find anything that fit what I was looking for. So lets just take a reasonable, round number and use it instead. For this example I’ll go with a conservative 100 hours of work per year. The total cost would then come to $2,000 per year which isn’t a small sum of money. Beyond just the cost, you could have spent that time on other activities such as spending time with your children.

Most advice that I’ve seen recommends setting aside 1 to 3% for home maintenance each year. Lets be super conservative and say the home costs $150,000 and maintenance will only be 1% per year. Even with these numbers, yearly maintenance cots will set you back $1,500.

The total is now up to $3,500 per year just for the first category.

Governmental Rent

No matter where you live the government will charge you rent. If your a renter this is already baked into the cost by your landlord but when you buy a home you have to figure in this price yourself. An article published last year in USA Today noted that homeowners paid out $278 billion in property taxes in 2016. Rates ranged from 0.32% to 2.31% but the average was 1.15%.

That will add an additional $1,725 to you yearly home ownership costs. Please note that as your home value changes, this number will change as well. Taxes are the gift that keeps on giving if you know what I mean.

Mortgage Interest

The next piece to the puzzle is interest because most people don’t pay cash for their homes. For our example, lets you use the standard 20% down payment in order to avoid PMI. We will also use a 30 year fixed rate mortage. The going rate for such a loan right now is 4.20% according to Bank Rate. Using a mortgage calculator on Zillow shows that in 30 years you will have spent a total of $91,256 in interest. As you probably know the amount of interest paid is front loaded. That is one of the reasons why buying a home every 5 years is such a bad idea. You will spend most of your life paying bank interest which is throwing your money away.

For simplicity sake and in order to stay super conservative lets average the interest cost over the 30 year montage period. This will leave you with a yearly interest cost of $3,041.

Conclusion

I’ve only discussed three costs, which doesn’t include insurance, the need for remodels after owning the home for a long period of time or even the principal itself. I’ve also chosen an inexpensive home and each estimate of cost is on the low side of the spectrum. Even with all of that your total cost for just these three expenses is $8,266 a year or $689 a month. Just for kicks, once you throw in principle, your monthly total gets pushed over the $1k mark at $1,022 per month.

You will also need to factor in other considerations. First off, your apartment will probably be smaller than a home, therefore costing you less to heat and cool it. You will also have less room for stuff and believe me stuff costs a lot. I remember when my parents bought there first house they had an abundance of space available. Over the years that extra space was quickly consumed by more and more stuff until the house was literally packed to the gills. You will also spend less time cleaning because the home is smaller and has less stuff to dust off and take care of. The smaller/less feature is a bonus not to be glossed over.

Anyways, the list obviously goes on and on and on but I think your starting to get the point. Owning a home to live in simply isn’t an investment but instead a lifestyle choice. Something you simply want and desire for you and your family. It is  a place to live, nothing more nothing less. You can just as easily put a roof over your head by renting and doing so will save you money. You’ll also no longer need to worry about expensive repairs popping but because their the landlords problem now, not yours.

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