Consumerism Commentary - Latest Comments in The Cost of Buying a Home Over 30 Years

Re: The Cost of Buying a Home Over 30 Years

Scott — Mon, 17 Mar 2008 03:05:32 -0000

Haha, this article makes me smile. If you had purchased a $300,000 house in 1970 in Arizona (where I live) it would be worth approximately $600,000 in 2000 (and that's pre-bubble!) Now from 1940 to 1970 avg home prices quadrupled! This is not short term spikes, but slow and steady 30 year growth. In that case a $300,000 home would be worth 1.2M. Not to mention the interest expense you listed of $195k is tax deductible, as well as the $180k in taxes. Aaand if you had rented it, as you most certainly would with an investment, you could also deduct the $108k in maintenance. In the end Real Estate has a proven ROI of around 13% usually, which is comparable to the stockmarket (10% I think). I just depends on which venue you have the time to learn about.

Re: The Cost of Buying a Home Over 30 Years

I just know dumb people — Mon, 04 Feb 2008 19:14:00 -0000

I knew this woman who refused to contribute any money to her 401k (which matched dollar for dollar until investing 6% of her income) and instead bought and sold houses with her husband.

"So you're telling me you can beat an instant return on you money by taking it all and investing it in real estate?" I said. She just stared at me, all stupid like.

Stupid woman.

Re: The Cost of Buying a Home Over 30 Years

travis — Fri, 25 Jan 2008 21:51:59 -0000

Honestly this is the wrong way to think of the investment.

I bought a house and fortunately - nothing has needed much maintenance. So my costs are mortgage, insurance and $300 for upkeep.

This turns out to be $900 than renting for me. So this is an easy win.

Additionally the first number of years are all interest for a mortgage so you get to write of $20k a year (ever hear of a tax shelter - this is the key)

Next while the market will increase or decrease I am still "earning" money on my house and money to write off of taxes. Renting can't do that for you.

Now if you want to make money - sell your house in 5-10yrs... Thats where you earn money on the principle from the bank. and protect your assets via your shelter...

sell, upgrade and move along - after doing this a few times you've increased your credit and worth.

Re: The Cost of Buying a Home Over 30 Years

Travis — Wed, 16 Jan 2008 22:59:03 -0000

FYI: That house where I live would be more like $8000-$10000 year for taxes.
Add that noise up!

Re: The Cost of Buying a Home Over 30 Years

Living off dividends — Fri, 19 Oct 2007 20:20:02 -0000

you cannot put a price on your HOME.

however,if you cannot afford to get a 30 yr loan with 10% down, you're probably better off renting.

if you're going to speculate and buy a house you cannot afford, with a short term ARM you will be in trouble.

thats the only difference which most people didn't get - but i guess they're getting now!

Re: The Cost of Buying a Home Over 30 Years

Linda H — Fri, 19 Oct 2007 20:00:57 -0000

In my housing market (formerly hot now cool), you're not selling your home any time soon or for a decent price without a realtor (they stick together), so even if I could get $230k the example +$12,476 becomes -$1,324. There are monthly carrying costs associated with hanging onto a house just to get your price not to mention living in a fishbowl.

Second, there are other considerations against renting, though they are not necessarily financial - who wants to rent to someone with a couple large dogs? What happens when the market heats up and the landlord decides to sell (out you go, add moving costs)? Also, I got sick of living with white walls and no garden and someone telling me how many pictures I could hang. If not renting Single Family homes, add 'shared wall/floor/ceiling' problems. How do you quantify the value of quality of life and security?

Re: The Cost of Buying a Home Over 30 Years

John B — Thu, 06 Sep 2007 13:17:03 -0000

You forgot to include gain on investing difference between mortgage payment and rent. Investing in a stock market index fund would have returned additional funds. You also left out cost of selling your house - commissions, etc. Can you sell your house for $230,000 today?

Re: The Cost of Buying a Home Over 30 Years

DICK — Sun, 01 Jul 2007 20:10:37 -0000

BUY ONLY WHEN THE LAND IN UN BUT SOON TO BE INDERSDEVOPLED. TAKE 40K INVESTMENT 10YRS LATER 250K RETURN..MEANTIME RENT.

Re: The Cost of Buying a Home Over 30 Years

ADC — Fri, 29 Jun 2007 11:38:09 -0000

Personally, I was supprised at how expensive it was to own a home even when paid off. You still have taxes, insurance, home owners association fees, repairs and other misc. & sundry costs. When considering all that is involved in homeownership, an argument can certainly be made for renting.

Re: The Cost of Buying a Home Over 30 Years

Wealth Building Lessons — Mon, 02 Apr 2007 16:51:28 -0000

I completely agree.

thats why i sold my condo(for a tidy profit) and now rent it back!

Re: The Cost of Buying a Home Over 30 Years

ZeusMan — Mon, 02 Apr 2007 16:19:56 -0000

As we've been deciding where and when to buy a home, I started considering the true costs of home ownership. The above comments are correct - it's very difficult to compare without creating a spreadsheet.

So I made one comparing 10% down on a $350K property vs. renting using the same total monthly payment. Since renting an equivalent home in Colorado costs far less than purchase, the extra money is put into an investment fund along with the initial 10%.

Even with pretty agressive appreciation of 5% annually and dirt-cheap property taxes (about $2K in Colorado), I couldn't reach breakeven in under ten years. And there's no way we'll be at the same address even half that long.

The standing advice to buy a home and "build equity" comes from circa World War II. And that was passed down from a time where people bought their homes (or built them) outright without a mortgage. It was fully expected that a family would not only stay for thirty years and own the home, but it would be passed down another generation or more. With the typical family moving every 5-7 on average, that advice simply isn't as relevant as it once was.

IMHO, the advice to buy a home is supported by the huge real estate industry which takes 5-6% of every transaction plus the mortgage companies.

Re: "that big tax writeoff" that everyone loves. Both renters and homeowners get both standard and personal deductions. For a married couple, call it $10K. The only *additional* benefit to writing off mortgage interest and property taxes is after you exceed that threshold and are willing to itemize.

And it's only a deduction from gross income, not off your net taxes. If your 2006 mortgage interest was $15K, your actual tax advantage is only the taxes payable on the extra $5K above and beyond the standard deduction everyone gets.

That's about $1,250 for most people (25% tax bracket). To me, spending $15,000 or more in annual interest to save $1,250 in taxes doesn't make sense.

Re: The Cost of Buying a Home Over 30 Years

Harlan Landes — Mon, 19 Mar 2007 21:18:46 -0000

I emailed David Crook, the author of the aforementioned WSJ article, and asked for some of the details behind the calculation of $300,000 for remodeling and upgrades. I am satisfied with his answer, and I think you will be, too.

I'll share the gist of his comments on Wednesday, so if you're interested in this topic, check back.

Re: The Cost of Buying a Home Over 30 Years

Harlan Landes — Mon, 19 Mar 2007 18:56:30 -0000

Adventures: I don't know anyone who has actually lived in a house for 30 years, but that's what the article is talking about, not income-producing rental properties, in which owners are less likely to upgrade.

Remember that these figures are over 30 years, and for remodeling, consider that most people take out a home equity loan, so the numbers would include interest paid on that loan.... and that interest can last until the mortgage is paid off (if ever). So that $300,000 could easily be $150,000 in repairs/upgrades plus interest.

Re: The Cost of Buying a Home Over 30 Years

Adventures In Money Making — Mon, 19 Mar 2007 18:46:21 -0000

i read that article and found the $300k in improvements laughable.

i don't know anyone who's done 300k in repairs/upgrades on a 290k house.

Dorky Dad is correct in his numbers. WSJ is off.
I currently own 6 rental properties and I have bought and sold a dozen more. I think i know more than the average journalist when it comes to calculating costs.

Re: The Cost of Buying a Home Over 30 Years

Harlan Landes — Mon, 19 Mar 2007 14:06:07 -0000

Drogo: The tax write-off *is* included in the figures in the article. See the chart above. The fourth line takes the tax benefit of mortgage interest into account, assuming a 33% bracket.

Re: The Cost of Buying a Home Over 30 Years

Drogo — Mon, 19 Mar 2007 13:50:18 -0000

What about the huge tax write off each year?? No one even mentions that!!!!

Re: The Cost of Buying a Home Over 30 Years

plonkee — Sun, 18 Mar 2007 05:36:47 -0000

I think that one of the overlooked benefits of buying rather than renting is to stabilise housing costs as noted by hamburger flipper. My rent is liable to increase roughly every three years, whereas my mortgage payment is at worst roughly constant. This also means that the cost of my housing is partially eroded by inflation.

Re: The Cost of Buying a Home Over 30 Years

Anne — Sat, 17 Mar 2007 17:03:53 -0000

@saving advice: I think you have to assume renting a house v. buying a house or renting an apartment v. buying an apartment. I pay a monthly maintenance fee to my condo association but don't have to mow the lawn, and my condo is very small, so furniture costs and utilities are no higher than an equivalent rental apartment would be.

Re: The Cost of Buying a Home Over 30 Years

Hamburger Flipper — Fri, 16 Mar 2007 18:36:22 -0000

Oh, and I have followed the numbers for quite a while...in the 1980s, median renter income was about 55 percent of median homeowner income. The last numbers I have seen (data from circa 2005) suggest median renter income has fallen to about 45 percent of the homeowner median. IOW, renters are becoming relatively poorer compared with homeowners. Which makes sense to me since the low interest rates and subprime lending of recent years has allowed millions to buy who would not have previously qualified for financing. So there has been more "creaming" of the renter pool, skimming off the top level(s), as those people bought homes and left the renter pool, resulting in a poorer pool of remaining renters.

Re: The Cost of Buying a Home Over 30 Years

Hamburger Flipper — Fri, 16 Mar 2007 18:29:48 -0000

As a low income working person, I look at homeownership through a defensive lens. That is, I'm not looking for huge appreciation and a cap gains windfall down the road. (Nice if it happens but I don't expect or feel entitled to it.) I'm looking at stabilizing my housing costs, protecting myself from inexorable rent increases beyond my ability to pay. I also see the ability to supplement my income by renting out spare bedrooms, plus being in the happy position of choosing who I live with. (As a student I once got into a summer situation, sharing a house witb other students whom I did not choose - landlord remodeled one house in summer and put those tenants into "my" house for the summer.) Having said that, no I do not own a home, I only wish, but I think I'm looking at it the right way.

Re: The Cost of Buying a Home Over 30 Years

MossySF — Fri, 16 Mar 2007 17:55:24 -0000

Dorky Dad -- you made one *HUGE* mistake with your numbers at the end. You compared owning ending bank balance versus rental total costs. Absolutely not the same thing. Instead, the correct final number should be:

Owning equity: $12476
Renting equity: $0

And this calculation only holds true if you the renter either paid more for rent or blew the difference. If the renter saved the difference in 4% CDs from 99-07, you end up with the following after-tax numbers:

$100 diff: $9195
$150 diff: $13792
$200 diff: $18390

The cutoff point where renting matches your $12476 number is $135/month less than owning.

Re: The Cost of Buying a Home Over 30 Years

Saving Advice — Fri, 16 Mar 2007 04:29:43 -0000

I would argue that the costs are even higher than those mentioned. A house is bigger and therefore requires more things to fill it. It has a yard that needs to be maintained. It uses more utilities than an apartment. When you start adding all the little things a house can be a lot more expensive.

Re: The Cost of Buying a Home Over 30 Years

Dorky Dad — Fri, 16 Mar 2007 03:19:50 -0000

Yes, Flexo, the WSJ article approaches and addresses the home in which you live as an investment just as Ben Stein did.

My point is that the alternative to buying a home isn't the purchase of another investment; it's to rent a place to live. Therefore the critical analysis should be between buying and renting.

In the WSJ article, it indicates that the national median home price in 2006 was $222,000, and yet they chose $290,000 as their "typical single family home" which is 30% higher than the median!

If you're wanting analysis, I'll give you my real numbers (living in Metro Atlanta). This isn't for bragging rights; this is simply evidence that the WSJ doesn't represent the norm for me or most of those I know.

Original purchase (7/99) price: $163,000
Down payment: $16,300
Other closing costs: $2,887
Interest thru 3/07 on 30-yr 1st mtg @ 6.67% = $63,542.86
Interest thru 3/07 on 10-yr 2nd mtg @ 7.28% = $6,249.46
Total interest thru 3/07=$69,792.32 (after 33% bracket) = $46,760.85
Taxes & insurance @ $1860/yr x 9 yrs = $16,740
Maintenance* @ $385/yr x 9 yrs = $3,465
Major repairs & improvements** = $6,175
Total cost thru 3/07 = $93,497.85

Today I'd be able to sell my home for $230,000 (much of the appreciation is because of improvements) without a broker. The payoff on my 1st and 2nd mortgages is $122,025.49, so my gross would be $107,974.51 - $2,000 in random fees/costs = $105,974.51 - $93,497.85 (from above) = $12,476.66 net proceeds from sale of home today.

Compare that with renting a single family home in Metro Atlanta. Using a cost of $1100 per month for the 1st 5 years and then $1250 per month thereafter (since 7/1/04), you'll arrive at - $105,300.

So I calculate the difference as:
+ $12,476 (own) vs - $105,300 (rent)
No, the rate of return in owning a home isn't the greatest, but the difference of $117,776 means that it sure beats renting.

* 2 lawnmowers @ $200 each/9 yrs = $45 per yr + $20 gas per year + pressure washing @ $120 per year + $200 misc per year

** new bamboo floors = $1800 + tankless water heater = $425 + paint & drywall mud = $500 + new lighting = $200 + carpeting = $2000 + french doors = $250 + repair front stairs =1000 + low-e insulated windows (sash replacement kits) = $1200 (ALL work done myself)

Re: The Cost of Buying a Home Over 30 Years

debttodreams — Thu, 15 Mar 2007 21:00:59 -0000

I found that to be a very thought provoking article considering that I am still renting for at least a few more years.

The question I have is why do they publish this article now when we are seeing weakness in the real estate market and not 3 years ago when everyone was trading up to the biggest house they could afford?

Hindsight is always 20/20. Perhaps they figured their readers wern't ready to accept reality at the time when their house was appreciating 10-20% a year.

I also agree with LazyMan, $300,000 is a bit on the high side for improvements even over 30years.

Re: The Cost of Buying a Home Over 30 Years

Harlan Landes — Thu, 15 Mar 2007 17:05:51 -0000

Dorky: While your comment above provides less analysis of the WSJ article than my comment above, I clicked through to your blog to see what point you would like to make.

You're talking about something completely different than the WSJ article. You are talking about single family rental properties, and the WSJ article is discussing the home in which the owner lives.

Also, 15 years isn't long term, and one person's experience is anecdotal evidence at best, while the numbers in the WSJ article summarize many persons' experiences.

Again, the WSJ article is dealing with lived-in, non-cash-flow-generating properties that owners mistakenly believe to be sufficient retirement investments while the comments in the post you linked to are about the benefits of owning several cash-flow-generating rental properties.