Tag: real cost

Real Cost of Home Ownership

Have you ever wondered the true cost of homeownership? I’ve become more interested over the past few years and for good reason.

You see, I used to own a home, in fact I owned two. So, I know how much time and money goes into owning a home.

Most homeowners soon realize that there’s always work to be done and you can always find things to fix and update.

On top of that, I found that hours of my weekends instantly disappeared in thin air, while I cut grass, pulled weeds, trimmed trees, etc.

Since selling my homes, I’ve lived a non-conventional lifestyle. My family moved to South Korea, while I worked at a university abroad.

Upon returning to USA, my family didn’t have any material possessions other than our clothes. We had sold our cars, homes, and just about everything else while living abroad.

We decided not to just buy another house and settle down; that would be too boring.

Instead, we opted to buy an RV and to travel around USA to explore, since neither my wife or I had done much traveling in the States.

I had never been in an RV before, so I didn’t know what to expect. Nevertheless, we bought a large fifth wheel RV and a heavy duty Chevy pickup truck.

We started on our adventure around the country. To our surprise, we found out ways to camp for cheap or free.

Then we began to realize how cheap this full-time RVing lifestyle was compared to owning a house.

We liked this lifestyle so much that we have been doing it for almost 5 years and counting!

You have all the comforts of your home, since you travel with your own bed and belongings. But you have the luxury waking up in a new location each week to explore.

In addition, if you don’t like the cold weather or snow, you can travel year round so that you’ll always be in pleasant 70 degree weather!

It’s much cheaper, more exciting, and less maintenance being an RVing snowbird, rather than buying and maintaining two homes in different locations.

Anyways, you can probably tell that my family really enjoys this RVing lifestyle. We were surprised at how well it suited us and we found out that the smaller space of RV living wasn’t such a big deal after all.

With all the benefits and enjoyment that this non-conventional RVing lifestyle provides, I’m always taken back at why so many people try to convince me to buy a home.

It seems that people are uncomfortable with others living a non-traditional lifestyle. I get the feeling that people view homeownership as “the American Dream”, and the pathway to success.

When I was in my early twenties and owned a home, people would always compliment me and say things like “Good for you!”
“A home is your best investment!”
“It’s good that you’re not throwing money away on renting.”

It seems like everyone in America encourages you to own a home and that you can even get discounts on insurance and other services if you are a “homeowner”.

American Culture makes you believe that owning a home is the “American Dream”

The idea that you’re even reading this article might have some of your neighbors, friends, and family wondering why you would ever question whether owning a home is worth it.

Without further ado, let’s get back to the main point of this article, since I know that you wanted to find out the true cost of owning a home.

According to Federal Reserve Economic Data, the median price of houses sold in 2022 is $428,700. [1]

According to Rocket Mortgage, the closing costs of buying a house are 2% to 5% of the loan amount. So, let’s use 3.5% as the average.

The National Association of Realtors states that the median down payment on a home is 13%. [2]

With this info, we can calculate the average upfront costs of buying a house.

Using the example of the median house price of $428,700, here are the costs:

Downpayment: $55,731
Closing Costs: $13,053
Total Upfront Costs: $68,784

Now, let’s figure out the ongoing costs.

A 30 year fixed rate mortgage at current rates of 4.875% (5.199% APR) will have a monthly payment of $1,974. [3]

In addition to the mortgage, here are the other yearly costs of homeownership according to factual data. [4]

(Add pyramid picture: https://listwithclever.com/research/true-cost-homeownership-2022/ )

Ongoing Annual Costs:
Mortgage: $23,688
Homeowners Insurance: $1,680
Property Taxes: $2,578
Maintenance: $3,018
Improvements: $3,300
Utilities: $4,829
Total Yearly Costs: $39,093

Subtotal Monthly Costs: $3,257

Plus, we need to add in the upfront costs (down payment and closing costs) to the monthly cost.

This would bring our Total Monthly Costs to $3448.

Keep in mind that this cost doesn’t include the time that we spend on cutting grass, cleaning the windows, fixing toilets, etc. If you believe that your time is money, then these costs should also be considered.

“On average, homeowners spend 19 hours a month on home maintenance, repairs and improvements. That adds up to nearly 230 hours each year!” [5]

So, if you want true costs, you could multiply those 19 hours by what your normal hourly wage is. Because ideally, you could have been making more money each month at your regular job than spending it on house work.

Is it Better to Rent than to Buy a House?

WHAT IF YOU RENTED INSTEAD OF BUYING A HOUSE?
The average American renter pays $1,326 a month. [6]

Average rent prices have increased at a rate of 8.86% per year since 1980. [7]

Therefore, after 30 years of rents increasing at 8.86% per year, you would have paid a total of $2,130,000.

Compare this with the total cost of owning a house.

You would have paid $846,501 for your mortgage over 30 years.

Plus, your ongoing yearly costs with 3% inflation would amount to $732,899 over 30 years.

This would bring your total house ownership costs over 30 years to $1,579,400.

Plus, at that time, you would actually “own” your house. Other than still needing to pay taxes, insurance, and ongoing costs of maintaining.

But your mortgage cost would no longer exist. Therefore, after 30 years, your costs would decrease.

If you wanted, you could sell your house, which hopefully would have appreciated in value (possibly by about 3% per year or a similar amount to inflation).

But, keep in mind, if you sell your house, you would still need somewhere to live. House prices would have increased greatly in 30 years, so it’s likely that the money your house would have appreciated by, would just go back into buying another house. Additionally, you’d have to pay upfront closing costs and if you got another loan, you’d incur additional interest costs and the process would start over again.

This information indicates that on average, buying a house is better than renting, if you plan on staying in the same house for 30 years. However, the more times you buy and sell a house to move, the more expensive home ownership gets.

As a result, if you plan to only stay in a house a few years or to move frequently, then renting could be a better option.

Is it Better to Rent and Invest instead of Buying a House?

A BETTER PLAN:
WHAT IF YOU RENTED AND INVESTED YOUR MONEY INSTEAD OF BUYING A HOUSE?

Let’s take the same scenario.
But this time, you decide to rent for $1,326 per month and instead of having the additional costs of house ownership, you invest this money.

Instead of using having a downpayment and closing costs for a house, you invest that original $68,784.

Then, instead of paying $3257 per month towards a house, you add that to your investment account each month after subtracting the $1,326 you need to pay for your rental. Therefore, you’d be contributing around $1,931 per month to your investment account.

You decide to invest in an S&P 500 index fund, which has returned a historic annualized average return of around 10.5% since its inception from 1957 through 2021. [8]

By renting and investing the extra money, after 30 years, you would have $5,566,554!

If you had just owned a house for 30 years, and your house appreciated by 3% per year, you would have a house worth $1,040,567.

Therefore, you would have about $4.5 million more by renting and investing than by owning a house.

Is it Better to Buy a Cheaper Home without a Loan and to Invest?

AN EVEN BETTER OPTION:
DO EVERYTHING YOU CAN TO AVOID A LOAN.

The interest on loans eat away at your money, which could be instead used to grow you money through investments.

Some options include:

• Buy the smallest (low-maintenance) and cheapest house you are comfortable with.
• Pay as little rent as possible by having roommates.
• Pay cash for a house.
• Live with a relative for free.
• Live for free and offer some service to the owner.
• Find a job that provides housing.
• Be a caretaker with housing included.
• Buy an RV for cash and live in it.
• Buy any of the following for cash: house, mobile home, trailer, tiny home, shed with loft, business with living quarters, etc.

The conclusion is that house ownership is definitely not the best option if you want to save or make the most money. It’s ultimately not a very good investment when compared with alternatives.

You basically want to avoid buying any house or car with a loan. Instead, if you can make sacrifices and use the money that you would have paid a loan with to invest, then you will be much better off as a result.

Speaking of investing, I had mentioned about investing in the S&P 500 index fund, which is a great choice if you find a low fee fund.

But if you want to have even more control of your money and invest in companies that you believe in, then investing in individual stocks can be a good option.

There are many good companies that are well-diversified, are low risk and offer returns much better than the average S&P 500 return.

The key is to buy these good company stocks (like Apple, Visa, Johnson & Johnson), when they are selling at a bargain price.

The easy way to do this is to use a stock analyzer, like the BTMA Stock Analyzer, which can tell you instantly what are the best stocks to buy and what is the best price to buy them at.

Try out the BTMA Stock Analyzer for free here.

Sources:

• [1] https://worldpopulationreview.com/state-rankings/median-home-price-by-state
• [2] https://cdn.nar.realtor/sites/default/files/documents/2022-home-buyers-and-sellers-generational-trends-03-23-2022.pdf
• [3] https://www.bankrate.com/mortgages/30-year-mortgage-rates/?mortgageType=Purchase&partnerId=br3&pid=br3&pointsChanged=false&purchaseDownPayment=55731&purchaseLoanTerms=30yr&purchasePoints=All&purchasePrice=428700&purchasePropertyType=SingleFamily&purchasePropertyUse=PrimaryResidence&searchChanged=false&showingStacked=all&ttcid&userCreditScore=740&userFha=false&userVeteranStatus=NoMilitaryService&zipCode=15642
• [4] https://listwithclever.com/research/true-cost-homeownership-2022/
• [5] https://listwithclever.com/research/true-cost-homeownership-2022/
• [6] https://worldpopulationreview.com/state-rankings/average-rent-by-state
• [7] https://ipropertymanagement.com/research/average-rent-by-year#:~:text=Average%20rent%20prices%20have%20increased,appears%20to%20continue%20in%202022.
• [8] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp