alt Hacker NewsThe real cost of owning a home
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The article details costs and leaves two big ones out. First, opportunity cost: lot of folks rent instead of own on the basis of keeping assets in higher-performing market sectors. Second (and perhaps actually an expression of the first), anything that prevents a working professional from changing cities can exert downward pressure on future economic opportunity.
>"renting is just throwing your money away"
Unless you think landlords are running a charity, some part of your mortgage is going to them as profit (over a large enough sample of renters anyways), and some percentage of your rent is covering 'bad tenants' (which you're not, right?).
Their entire improvement section is also something renters tend to not think about. It's a weird situation when renting that you aren't incentivized in any way to make improvements to where you live. You might not even be allowed to.
With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add. Though you also get the luxury of being able to ignore the value add if you just really want to paint that room neon pink for some reason.
Beyond the financials, the psychological impact of both being able to make greater-than-superficial changes, and having extremely predictable payments for years without worrying about substantial rent increases, is substantial.
I redid/improved the bathroom to exactly what I wanted. I renovated the kitchen. I added paneling to the walls. I added a few outlets to rooms that needed more. I wouldn't do these things in an apartment, because rent could go up any year and exploit me for liking my home. Property value has gone up by 50% in the years since I bought.
On the other hand, renting comes with hidden (and some not so hidden) costs too.
The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowing that you might need to go through the hell of apartment hunting and moving annually is awful.
It’s been much nicer to have a mortgage with more or less locked in monthly payment, even with the maintenance costs that come with the territory. It’s more predictable and frees up mental bandwidth for other things.
It is suggested to set aside 1%-3% of your home's overall value for repairs every year.
Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth.
Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. So far this year I've had nearly 10K in random expenses pop up (!!) and based on the life expectancy of my HVAC system I expect I'll have some more major expenses next year.
If there is one near to you, join a tool library. It is a huge savings over buying specialized tools for one off jobs. Tool libraries are an amazing community resource.
Find a good reliable handy man, even if you know how to do things yourself. Hopefully one you can trust with your door code so if your neighbors report running water while you are away on a trip you have someone you can call who you know will take care of it.
I am a DIY-er by nature with construction experience, I enjoy it, so when we wanted a bit more outdoor space, we moved from a suburban cul-de-sac to a slightly more rural property on some acreage, and chose an aged luxury home, feeling comfortable generally in my ability to be able to rehab it over time. After all, we're not in any sort of rush, and wanted the kids to experience putting work into the place where they live.
I misjudged the scale. Going from .5 acre to 10 I feel like the amount of time I spent on home and property maintenance before could all be allocated to just one bucket titled "nature." Mowing, whether it's lawn, meadows, trails, tree line, all on different schedules. Trees die, they fall, hang up. The volume of brush, invasive species, pulling it, burning it. When we bought it, I made a mental note: "we'll have to replace the driveway." That driveway is asphalt, and 1000 feet long. The quotes for that alone are in price territory of a luxury vehicle. Irrigation, 12 zones, repairing, winterizing. Septic is another ticking clock. When that goes, you're in for 5 digits. Don't have a suitable secondary location? Engineered system, multiply everything by like 3.
So remove that time from my schedule, that's what I have left for home improvement work.
We're deep into it and really enjoy aspects of it. But if I could talk to my pre-purchase self, I would advise that the scale difference is huge, and consider the amount of time that goes into baseline maintenance when deciding how much of a "fixer upper" to take on, especially when acreage is involved.
I think 1% per year is insufficient for repairs. Even a paint job will cost more than that these days.
There's also a potential HOA fee, even in many neighborhoods with freestanding homes.
But there are tax benefits of home ownership too. The interest deduction used to very significant, although less now since they raised the standard deduction. There's also a $250K/500K non-taxable capital gains benefit when you sell a house for more than you paid.
With a mortgage, you are forced to save money. In other words you have no way around being disciplined. So yes in theory you could probably make more money with aggressive investing, but chances are most people would risk too much and lose a lot and never have the mental discipline of saving the excess they have no matter what happens in their life.
Relevant: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
If you're just looking at the numbers, it's worth doing the math. Obviously many things will be estimates.
Most people don't do apples to oranges comparisons, because a 2-bedroom, 1.5 bathroom you're living in is not comparable to a 3-bedroom, 2 bathroom, quarter acre house on a lot you're considering buying.
So it's obviously not just math, but also preference, or need.
Local house prices, tax rates, utility rates, services for maintenance and upgrade... they'll all vary greatly depending on the area. And if you're moving from an urban apartment to a suburban house, you're changing how much you'll drive, maybe even need an additional car. But maybe you turn in your rail pass, and decide to cook at home more, and eat out less.
If you think you can decide this based on a formula (or some folk wisdom), well you probably can, for yourself. But of course there's no one universal right answer that applies to most people, because there are too many variables and too many options.
Is the author accounting for the equity built up? Cash has to go out whether it’s a mortgage or rent. With a mortgage you are building equity. This changes the true math when you sell (leaving aside your ability to now get a HELOC).
Great article, love that you enumerated all the costs in buying a home. I don't like how renters romanticize home ownership and fail to understand how many costs are involved.
> You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on.
However, this statement doesn't exist in a vacuum. You need some place to live, and you have to compare the cost of renting to the cost of owning.
To give an example, the typical rent in Toronto is $1000~2000/month, and the typical home ownership cost (including principal, interest, taxes, and maintenance) is $2000~3000/mo. We can just pretend that both are around $2000/mo.
If owning is still $2000/mo but suddenly rent is $500/mo, then renting suddenly becomes a great deal - even though you are still literally "throwing money away". You can use that differential $1500/mo to invest in a savings account, stocks, etc.
And speaking of that, I realized that the biggest cost in owning a home isn't the mortgage (and you correctly pointed out that paying down the principal doesn't change your net worth). The biggest cost is the opportunity cost of the down payment, when you could have instead invested in the stock market at 7~10%/year.
Continuing with the Toronto example, if you bought a home for $500k with 20% down, then the counterfactual if you had continued renting is that the $100k chunk of money could've generated $7000~10000/year = $580~$830/mo, which is a substantial fraction of the $2000/mo rent.
Shoutout to this article again: "You Are Naturally Short Housing" https://thezikomoletter.wordpress.com/2012/12/10/you-are-nat...
The Repair section of the article could have been mitigated by a inspection and negotiation before buying.
Always negotiate repairs into the offer price.
In the US, median homeowner tenure is about 12 years. If the local price-to-rent ratio is high, (greater NYC metro for example) then you may have to stay 20 years to come out ahead financially. In a case like that, renting can be a very attractive strategy for building wealth.
While this is true, I think the bar should be lower - the real question should be "and how does it compare to renting" - there is very possibly a universe where owning is cheaper than renting even if your home depreciates. Because paying some amount for years to be left with a fraction of what you put in is better than getting none of what you put in.
However many of us knowingly exceed that point. For example we pay ~$500/mo over that point. Though there is no really comparable rental, we definitely could have chosen a more cookie cutter rental to be about +$6000 / year.
Over short term windows it’s very possible for renting to make more sense. Over the long term it’s very difficult for renting to come out ahead. If you’re talking about the same town over say 20 years then the chances of renting coming out ahead is near zero.
In the US at least the tax system is also heavily setup to favor home ownership. Mortgage interest and real estate taxes (which are baked into rent) are tax deductible for the home owner and not for the renter. That’s another big difference that adds up over time.
Aren't quite a few of these concerns alleviated by owning a condo?
people might scream about corporates owning housing - but one thing that's a blessing is if corporates sink their money into apartment blocks | buildings instead of single family homes.
you can rent for multiple years at a favorable rate - then save some money into the stock market.
however in america - people have been fed the propaganda you need to live in a single family home.
Buying a home is a hedge against inflation.
Renting has no similar protections. Your choices are, "Pay the (increased) rent" or "Move"
It's interesting to put this article in the context of all the local-model vs. frontier-subscription inference discussions occurring recently.
How can anyone (financially) justify the cost of owning your own compute?
How can anyone (ideologically) justify the cost of not owning your own means of compute?
> I bought this house new, and didn't live there very long
End of story. That's the entire conversation right there.
Note how much money he made on the house he lived in for a decent amount of time... (~330k, minus minor investments on repairs)
Renting is better than buying if you're not going to live in the house for any real duration (real meaning 5+ years).
Otherwise... at least in the US... the financials around 30 year mortgages and a target inflation rate mean buying is going to work in your favor.
Will this blow up at some point? Meh, maybe? But for now, owning is FAR better assuming you actually hold onto the property. The longer you hold, the better it gets.
If you have some spare cash flow, you can pay extra principal on your loan. Since early years are mostly interest, this can make a big difference in ultimately paying off the loan early if you plan to live there that long.
> You can save a lot of money in maintenance and repairs by doing your own work whenever possible.
True. But even if you have the physical ability, skills, tools, and equipment handy - you can spend a lot of time on maintenance & repairs. Just ask anyone who's done yard work for a few years, or has repainted a house, or ...
The numbers miss a key aspect - risk management
Landlords do whatever the hell they like with zero consequences. Thats not a game I’d like to play with a 40 year horizon of unknowns.
With a mortgage the risk is interest rates. And on that I’m confident I can carry far more exposure than my peers. So if that blows up in my face then the entire country’s financial system is cooked anyway
“Smart” people always tell us to rent. But ask any regular person if they’d rather own a home or rent and they will say own. Who cares about xyz costs or a lower investment return. The entire point is to have a stable base from which you and your family can thrive.
People act like owning a home and coming out financially ahead is an inviolable law of physics. It is not. Buying a house is like purchasing an option to have something at a set price in the future. That option can be overpriced to the point where it is not profitable.
This isn't to say that there are not emotional aspects to owning, but that is a separate discussion.
If you're in SF and weighing this decision, it's easy to get tilted in the buy direction because the rental stock is so horrific. Landlords have very little incentive to update properties or provide basic amenities that people take for granted in other major cities (good luck getting a washer/dryer).
My house is twice the size of my last apartment and my utility bill is half. apartments just generally don't have as good insulation or as efficient HVAC at least where I live.
The person also discounts the impact of horrible neighbors, stomping and barking at all hours of the day. That can happen in houses but they are not right next to you
This is nonsense.
The person counts the 12 month escrow prepayment during closing as "cost to get a loan" It's not. It's the cost of 12 months of taxes and insurance on your property.
Also notable is the "1 year insurance premium" either they're double counting the escrow, or this 1 year insurance premium is mortgage insurance where the bank makes you take out insurance to protect them. This can be prepaid, split paid, paid monthly, or you could put down 20%.
The lender makes you purchase title insurance for them, but this person also purchased title insurance for themselves. This is mostly just pure profit for the title company. The cost for the insurance is for the company to do the research, if they found an issue, they wouldn't insure the bank. Buying it for yourself is mostly just lighting money on fire.
A lot of those closing costs are shoppable, you can find better lenders. Before closing, you're given a truth in lending disclosure with all this carefully spelled out. If you don't do even basic due diligence, I question if you have the financial literacy to own a home.
I'll also note, they didn't mention in their closing costs paying for a home inspection (beyond termites). This is likely why they had to pay for real repairs on the house.
One of their "repairs" is new water pipes. There's no reason listed for this, but this is often pushed by door to door salesmen telling you need to do it to protect your property/health and is mostly, like all door to door sales, a scam.
That note about counting the cost of heating and cooling is similarly nonsense. They claim "apartments are almost always smaller than houses" which isn't true, and count electricity rate increases as cost of ownership, rentals have to pay that too. They also assert, with clearly no evidence that heating and cooling is half their electric bill. There's easy ways to figure this out, an emporia can do it easily.
The whole premise is flawed. They note that in the beginning only 20% of their payment goes to principle and A) you can control that (bigger downpayment so no PMI, less interest), bigger more frequent payments or a shorter loan, and B) exactly 0% of your rent payment goes to your principle.
This might better be an examination of "can I afford a mortgage with the same rent payment as I make today" and the answer, not surprisingly, is no, if your rent payments are a the top end of what you can afford.
This isn't an overly apples-to-apples comparison. It factors in costs like "updating your kitchen", making things more stylish, etc.
The author also seems to assume you'll be paying more to heat and cool your house because if you're renting you're in an apartment? Just down the road from him, four of the five homes I rented before buying in 2021 are larger than the home we bought.
"Less than 21% of my monthly payment is going towards paying off the loan" - well, yes, because it is front-loaded with interest. And as you get through the loan, 80%+ will be paying off the loan.
Maybe different loans are different, but generally your home insurance and property taxes are rolled into the mortgage (and often paid on your behalf by the servicer) - indeed, it seems like there's a double dipping of breaking down his mortgage payment and the component that is tax and then saying below "I currently pay $515 in taxes monthly".
There absolutely are additional costs to owning a home, to be very clear.
But there's definitely a contingent (and this post isn't the "worst" of them) that likes to paint home ownership as nothing more than opening your check or pulling out a credit card every month for "the next four digit expense".
Especially in Western Washington where the property market 2010-2020 was "a good one". (I put down 10% and at the contractual "year-and-one-day" on my loan for the soonest I could remove PMI I was able to because I'd hit 20% equity on value increase - only making my regular payment), something that he benefits from, too:
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. I've put a lot of money into it catching up on maintenance, repairs, and improvements, but the appreciation will definitely exceed whatever I've put into it when I decide to sell it.
I zero'd out almost all these costs by building a shack myself and leaving it uninsured. Maintenance cost almost zero because I own all the tools and much the spare materials already form building the house. Cost of house $60,000 post COVID, there is a similar ready-built house next to me for sale almost $300,000.
Having your own home and property where no one on earth can tell you how to live: priceless.
Maybe home ownership is becoming a luxury, but humans don't exist in financial spreadsheets. The intagibles of SFH ownership are worth literally everything to me after a lifetime of renting.
It's also absolutely a class differentiator in the US. If you're behind on your rent and getting evicted, that's seen as a personal moral failure. If you're behind on your mortgage and getting foreclosed, it's considered a tragedy, and there are many options for support like forebearance. Just look at what happened during COVID; red state renters were getting knocked on by the sheriff within 90 days, while it can take years for someone to lose their house.
Is there someplace that takes all of these inputs. Then graphs them over 10 or 20 years and include some adjustment for inflation? I didn't see in article any discussion about mortgage rates versus appreciation versus inflation.
Article did sum all the inputs/outputs, and came out at loss. I'm just wondering if there is some other trends over 10 or 20 years that make the house better.
When I was a homeowner (I recently exited), I found it incredibly discouraging how every vendor who came over for this or that looked at you like a walking sack of dollar bills after driving up to your home in a brand new pickup truck. When you do hire them, the owner never even shows up for a final inspection. There's a large part of the economy who knows their customers will treat their equity like a bank and prices accordingly.
>You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
If you take literally anything away from this article, this opening line is it. People who say this bought their house decades ago and have no clue what the present situation is.
Yep. Yet many on here (and other specific online forums) will tell you that your only options should be owning a home or renting an apartment because they don't feel the single family home they desire is within their price range, and resort to advocating for short-sighted, draconian policies as an means to an end that is favorable for them.
where does OP live? these costs are absurd lol
I'm firmly in the renting camp and I'll only own a home if I can buy some land and build it, probably. From a US perspective, I see too many people buy a house because that's what they're "supposed" to do since that's the American Dream. They end up with projects every weekend, stressing about repairs, and dealing with random BS from the local government and Karens.
I also despise the culture around owning a home and the insane things that we do to prop it up. Zoning restrictions, absurd mortgage terms (what other country does 30-year fixed rates?), overbearing building codes all so we can live up to this arbitrary life goal of Owning A Home.
I have a ~2000 sq foot ranch. A new roof was $25k. New siding was $55-85k depending on the material (vinyl vs james hardie). Gutters are $7k. I had a bunch of trees removed and a forestry mulcher out: $7k.
Everything is so fucking expensive.
You will own nothing and be happy.
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You experience more than 100% of all of these costs as a renter, while you have none of the up-front costs and less liability you also have no agency and no equity. It can be a trap though, as selling isn't free and if you didn't have enough equity built up you can end up losing money to move. Some housing ends up as rentals because of this, makes more sense to not sell and to rent it.
Renting is definitely the better option for certain people, if you intend to move often, or want to live in an apartment your overall costs are likely to be lower. If you want a single-family home and don't want to move often (or be moved out) Buying is worth it. Even setting aside the satisfaction of home ownership if you can mange to pay off your property you pretty much can't live cheaper at the same scale.
that said I've rented, I've owned, and I've been a landlord and I'd take home ownership in a heartbeat. It's not all rosy, and being responsible for maintenance is no joke but not being subject to the affairs or whimsy of someone else's finances along with the pride and sense of actual ownership is is wonderful.
I'm old enough to have owned a number of homes in a number of jurisdictions, so I'd caution that these numbers will differ significantly depending on where you live. For example, insurance is hugely influenced by fire risk, so a rural or semi-rural home can easily cost 4-5x as much to insure.
Similarly, taxes will depend on the locality, loan costs depend on the lender and the loan amount, etc. So your totals could be easily 30% or 300% of what's outlined in the article.
The one important point that the article makes is that your ongoing costs will also vary dramatically depending on how much work you're willing to do yourself, especially in high-regulation, high-labor-cost areas such as SFBA. A basic job, such as replacing a leaky flush valve, can be hundreds of dollars in plumber costs, or $19.95 if you go to Home Depot. Hiring a painting contractor can cost thousands. Etc, etc.
I've also seen several homeowners outright taken advantage of. My main example in the US are various "mold remediation" contractors, who can help you in some really bad situations, but they're just as happy to charge you $20,000 to do nothing of value based on vague fears.