“It’s Financial Suicide To Own A House” has some great explanations for why you don’t want to buy a house:
The other day my sink broke. …
My house is 150 years old. It used to be a hotel. Things break. Pipes crumble in the hands of the plumber.
I email the landlord, who calls a plumber, who gets new pipes that are paid for by the landlord. The landlord wasn’t expecting it but that’s what they signed up for.
Meanwhile, I read a book on the couch in the other room.
The same thing when Hurricane Sandy came over the river. People were canoeing in the street outside my house. The water filled two feet in my house.
“This is the first time in 100 years the water got this high,” the landlord told me. So he ripped up floors, cleaned out mold, fixed furniture, and took care of it.
This time I was upstairs reading a book.
…
It’s a lot of work to own a house also. Have you ever spent time in the Death Star? I mean Home Depot. That place is huge. And I only need that one special color of paint.
But where is it? The stormtroopers at Home Depot are never around when you need them.
And what about that “snake” that can clean my toilet. Where is it? And how do I use it? And is it gross? Why do they call it a snake?
It’s no wonder that plumbing is one of the highest paid professions in America.
And how long does it take to paint a house. Or who do I go to? And will they overcharge me if they pave the driveway?
Did I calculate that into my total cost of owning a house?
Related:
- Rick Santorum’s “flat tax” proposal in the Wall Street Journal, whose central feature for personal income tax turns out to be … encouraging Americans to keep buying houses by preserving the mortgage interest deduction (up to $25,000 per year)
- Economists: Homeownership leads to unemployment
- Economist magazine argues against tax-deductible debt
Whether or not it makes sense to own a house depends on local prices for real estate vs. local rents and interest rates. Sometimes it’s cheaper to rent than to own and sometimes it isn’t. There are large firms that make a profit owning residential real estate (usually multi-family) and renting it to others even after paying for sink repairs and floods (that’s what flood insurance is for) so unless these firms are really stupid (which I doubt), owning real estate sometimes makes sense. (At other times, these same firms convert their buildings to condo and sell their buildings off to owner occupants – as I said before, the answer varies over time).
Here in Europe it’s common to buy an apartment. You get the best of both worlds.
I like the arguments about not having to deal with minor repairs, but he loses me when he gets into abstract stuff with roots. Mortgages shouldn’t be considered the American Dream.. but owning a home outright seems like a reasonable goal.
He doesn’t explicitly say it, but I think it’s pretty clear what ultimately happened to the house he used to own, which might bias him a bit.
My top advice for homeowners (which I learned the hard way):
Don’t buy your first house in the year 2007.
Izzie: A firm that owns 20,000 units can do maintenance in a different way than a homeowner would. Even if the firm is making a profit it doesn’t necessarily make sense for an individual to try to replicate what the professional real estate management firm is doing. P&G makes a profit manufacturing soap but that doesn’t motivate me to try to start my own personal soap factory with an output of two bars per month.
[A firm that owns 20,000 units also can diversify away the risk of a city collapsing. It can own 1,000 units in each of 20 cities, where 10 of those cities are outside of the U.S. Thus the collapse of a city such as Detroit isn’t a major event for a properly diversified commercial property firm.]
If you think that you can stay put for a long time, owning and occupying a modest well-located single family house is about as close as you can get to a no-lose proposition. You can still lose, and 2015 does not present many attractive opportunities in my area simply because prices have risen to a very high level and it is reasonable to think that we are near the end of a positive business cycle. On top of that, interest rates have nowhere to go but up, which, all other things equal, would tend to force prices down.
Izzie L. and Raleigh make perfectly sensible points.
At the moment, in 2015, home ownership in the US and car ownership in the US have tons of hidden costs. They are net losses that make sense to bear in very particular circumstances, and quite frankly if you have high recurring costs for either you and your spouse should be looking to see if alternative lifestyles should be possible or better. To get a clue, look at where the federal subsidies go.
Professional management cuts both ways – in a professionally managed building if a lightbulb in the hall needs to be changed or some minor repair needs to be made, they have to pay someone to do it, while in your own home you can do these things yourself. There are both economies and DISeconomies of scale. In any case, single family home ownership isn’t about saving money. Many Americans prefer to live in a detached home with a yard and in nice suburban areas the stock of rental housing is very limited.
“you can do these things yourself” = work that you are doing but not accounting for, thus making homeownership look more attractive economically than it is. Leisure time has a value. If you really enjoy fixing little things around a house and chasing after contractors for the big stuff you can take a side job as a property manager or handyperson and get paid for doing that. A person who is currently spending 10 hours per week on home and yard maintenance, for example, could live in a rental property where the landlord does all of that and sell those 10 hours per week to homeowners at $30 per hour. That would work out to about $1350/month in extra income. That’s a pretax number but is actually more than the median gross residential rent in the U.S. (see http://www.deptofnumbers.com/rent/us/ ).
Phil, how is arranging for someone to do the work not considered work? Most lightbulb changes are faster than a call and I am not even counting the invasion of privacy. What are the chance that maintenance will come in a convenient time? Just answering the door and making small talk is more work than changing the it yourself.
And this is even if you have helpful landlord which doesn’t seem likely. I have had only one that tried to be helpful but was incredibly inept and often made things worse. At the end I think I hated him most. Look at the average staff rating for most places:
http://www.apartmentratings.com/ma/cambridge/
I don’t spend anything near 10 hrs. /week on home maintenance.
If you really believe this, why do you (and 2/3 of all Americans) own your own home? Are 200 million Americans, including you, all deluded and irrational? Or are there intangible benefits to home ownership as well as unpaid labor?
Yeah, really, nobody spends 10h/week on maintenance, unless you are building the structure while living in it. Allegedly, some rednecks do this.
Phil, anybody doing 10 hours of home maintenance per week lives in a dive that is not collapsing just because of all this maintenance. Aside from basic life management (cleaning after yourself), which is needed irrespective of ownership, a normal property should require 10 hours of maintenance per semester. Also, I would be surprised is yard maintenance (by far the most likely source of work) is not the responsibility of tenants in any case. I would not let a property without the clause ‘tenant will maintain the yard, or part or all of their deposit will be used for remedial work on that’. I would also expect tenants to show they have a insurance in case they cause any damage to the property. Am I being too hard nosed?
> Are 200 million Americans, including you, all deluded and irrational?
Billions of flies also cannot be wrong…
http://www.cafepress.com/+eat_shit_flies_cant_be_wrong_postcards_packa,31250970
I just paid off my house here in Austin. I feel really good about that, both from an emotional and fiscal point of view.
Since I bought a 1980s vintage suburban house rather than a crumbling old hotel my maintenance expenses are reasonable (building new homes are not yet banned here). I’m also a part owner of a small airplane, and since here in Texas your homestead cannot be part of a liability aware, so I’ve got that going for me.
Austin is being swamped with a wave of Californians who are escaping from that economic disaster area, and these new Texans are bidding up the prices of houses dramatically, at least by our standards. So if I ever retire I could sell this place and pay cash for a really nice place in Dime Box, and have change left over.
For what my friend who just moved to the bay to work for one of the big tech giants paid for a 1000 square foot 1950’s tract house one could buy a mansion in a gated community here. So to the Californians all our houses are cheap here.
I don’t plan on ever moving, but I could see taxes driving me out of Austin, since many of our California escapees seem to want to recreate here the economic conditions that drove them out of California in the first place.
You guys have never seen anyone spend 10 hours/week on a home and yard? How long does it take to (a) keep a lawnmower maintained, (b) pull a lawnmower out of the garage, (c) mow what could be a substantial lawn (this is America, after all), (d) put the lawnmower back in the garage, (e) add fuel to the lawnmower, (f) repeat all previous steps but with weed trimmer, (g) put gloves on, (h) head out to pull the weeds, etc.? To keep a suburban yard as neat as a professionally managed building’s yard is a huge time-sink.
So, the problem with home ownership is maintaining the yard.
Yard work seems to be a problem solved by mostly immigrant labor around here, for what it’s worth.
@valley dude: unless you are building the structure while living in it. Allegedly, some rednecks do this.
Allegedly, some protected class members destroy the structure while living in it.
In my county, dozens of yahoos advertise on Craigslist offering to mow, edge, and trim the standard quarter-acre lot for $25 per cut, no contract required. Last year, I had one guy do it for $20. The problem is, these guys are all ex-cons and substance abusers, and can’t get hired for a regular job anywhere; and they’re not reliable about showing up. I finally gave up and inherited an old Briggs & Stratton push mower out of my father’s garage and mow my own lawn. It takes me 90 minutes including edging, trimming, and clean-up; I just turn it into my workout, and do a better job than the Craigslist guys. I’ve got to mow every 12 days from May – Sep, and once per month the rest of the year. Plus less than an hour per month for hedge & tree trimming. It’s actually kind of rewarding.
Over the past 25 years, I’ve purchased two foreclosures, one FSBO, and two estate sales. I’m currently living in one w/o any mortgage (that would rent for $1200/mo.) and rent out another netting $700/mo. And, I rented for ten years over that period as well, at about $1000/mo.
Home ownership has been quite a bit of hands-on work and costs, though manageable; and my long-term appreciation has been 7% per year, and w/o any mortgage my housing costs have been low and savings rate high.
You’ve all probably seen the very good NYT Buy vs. Rent calculator here:
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?abt=0002&abg=0&_r=0
But an even better one is here:
http://michaelbluejay.com/house/rentvsbuy.html
I think the calculators show that high taxes and high maintenance costs support the case for renting. Low purchase price, low down payment, low taxes support the case for buying, given no need for relocation flexibility.