patrick.net

utilities

#6 is very flexible, unfortunately can go much beyond 1%. A lot of houses that are sold lately in our area are in very poor condition, costs a lot to maintain.

insurance - kind of same thing, depends on where you are located and insurance type. in some areas around here you would need fire, earthquake, flood, and mudslide insurance.

utilities - usually much higher in the house. Can be several hundred to a thousand a month easily if heating/cooling/pool are inefficient.

A lot will really differ from house to house.

http://www.fivecentnickel.com/2011/06/22/the-cost-of-living-in-a-paid-off-house/

I include most of those costs in my calculator. Example:

http://patrick.net/housing/calculator.php?forsale_ID=1657440

To get the monthly cost, just divide by the number of months in the "length of ownership" assumption.

my maintenance is less than 1% a year, but I consider myself a Do-It-Yourself kind of guy. If you plan to hire contractors for most jobs, 1% would be more accurate.

If your'e interested in a specific house, you can usually look up the tax bill for a specific address on the county website. At least you can in Alameda and Contra Costa county.

Re #5:

You say HOA is easy, but how do you assume they change over time? For condos I'm seeing them increase rapidly thanks to lack of payers. You also get nice special assessments.

If you are going to buy, there are a lot of things to look out for.

1) When it was build, how has it been maintained. You don't want to buy something that will cost you double to fix up over next few years. This happens a lot in our area because squatters usually don't care to keep anything in the house so these start to fall apart after a while. Sellers are usually unaware of pretend not to be aware of these problems.

2) If there is HOA talk to locals about it. We live in HOA, and I hate their guts, they spend too much money and provide very little. Incompetent. Yet another HOA 2 blocks from us is ran very well and saves money with bulk pricing.

3) Taxes you can calculate yourself. Plus $100 flat fee for schools that passed a few years ago.

4) Insurance will depend on the area again. Some places require just fire, while others require flood, mudslide and earthquake on top of that. And of course some areas are pricier to insure if they burn periodically.

5) Maintenance, especially if you have a pool can be expensive. House isn't something you buy and forget, it requires constant repairs small and large. You can see for yourself, if house is abandoned it falls apart in a year or two because no one is maintaining it.

6) Older houses are usually not up to code. For example many have only one drain in the pool, or heating units right inside the house. It's a one time expense, but these do cost a pretty penny right away. Slimy realtors will usually ignore those things, but you shouldn't since its your money.

7) Utilities are usually high if the house is old, best bet is to simply ask those who live in the neighborhood how much they pay. If a house is not efficient it can be a drain on electricity. Also be aware of houses where guest house is hooked up to electricity, your electricity will be billed at a higher rate as a multiunit making it very costly.

There isn't a standard formula for it all, so you basically have to make your own research, plug those numbers into patricks calculator and see if that one place makes sense.

Some more hidden costs according to "The Happy Rock"

http://www.thehappyrock.com/2008/02/16/thing-i-didnt-think-as-a-renter-top-10-hidden-home-ownership-costs/

Association Fees – $100 a month when we started. $200 a month now. A 100% increase in four years.
Sewer Bills – $25 a month

Hassle Factor – When the refrigerator breaks as a renter, you call the landlord and it should quickly be replaced at no cost. As an owner you must quickly rush to the store and buy a refrigerator yourself.

Utilities Formerly Covered By Rent – When I was renting we were shielded from the true costs of thing like water and gas, but these can run hundreds of dollars a month depending on the house.

Mortgage Interest and PMI – I know there is a tax write-off, but it is depressing to see 80% of you mortgage payment going to interest. Plus, to get a tax right off you have to give the bank thousands of dollars a year. Giving your money to a charity of choice gets you the same write-off, but your money goes to a good cause. For Private Mortgage Insurance we were paying $50-80 a month, because we didn’t put 20% down. Luckily our house appreciated fast and we were able to get rid of that cost.

Closing Costs – Renters rarely realize how big a check you need to write at closing, often thousands of dollars that isn’t part of your down payment.

Desire To Upgrade and Furnish – When you rent your desire to paint and buy decorations is usually tempered, because you know the place isn’t yours. Once we had our own place, we wanted to paint, decorate, upgrade, and furnish. Often more than once in the same room.

And, most importantly if incalcuably are the Opportunity Costs" (Stuck factor) – With renting you can up and leave at any time and take advantage of job apportunitese elseware. Also investmant opportunitiese may be compromised by becaue with a house, you have to sell before you can do anything. If the market is down or prices drop, you may even be stuck in your house or have to shell out money at closing to sell it.

That is just as bad as the NAR propaganda. Why can't people just post the actual advantages and disadvantages instead of exaggerating?

I think anyone over the age of 25 knows what utilities cost. Even if they are included in the rent, they are still factored into the cost of housing. I don’t know anyone who pays $1000 a month. Even my brother who lives in a 6000 sq. ft. monstrosity doesn’t pay $1000 a month.

I think this is poor assumption. In my experience, as a renter for the last 6 years, utilities have come in around 150% to 250% more than what the leasing agent told me. In 2 of those years, I used plastic on the windows from October to April since this is the midwest and older homes + brutal winters = heating the birds nest on the window ledge.

Water is usually included in rent, but not in owned property. And, if you're in a PUD, plan for special assessments resulting from poor HOA management.

Something you can't plan for but happens all the time is extortion by your mortgage-holder. Veeeery common. Like force-placed insurance. Or in my case lender claims you missed payments when you didn't, but you can't beat them. If they want an extra 5 or 10 grand, they can just claim you haven't made any payments for the last 6 months and all the proof you have is useless. You pay it or they foreclose. Extortion of borrowers by lenders has been well-documented everywhere from 60 minutes to MSFraud.org.

SF ace says

7) any other costs I should consider?
Mortgage interest deduction. That is actual money you do not have to pay to uncle fed and auntie state.

This only matters if you have a mortgage larger than $275,000, or a number of other deductions, which, when added to the interest, will put you above the $11,000 standard deduction for a married couple.

And, as the mortgage is paid down, progressively smaller amounts will go to interest, which means that your deduction is less likely to help you do any better on your taxes than the $11K standard deduction.

SF ace says

7) any other costs I should consider?
Mortgage interest deduction. That is actual money you do not have to pay to uncle fed and auntie state.

Its the money going to too big to fail uncle lender instead.

"Opportunity costs" both in lost flexibility to move freely for career or better home purchase opportunities.

Also lost investment opportunites due to capital tied up in (now flat or declining) home equity.

I am an owner and a renter. So here is my take.

The biggest thing people are forgetting is that once the mortgage is paid off, the incurring costs are minimal.

The home can be turned into income. I know, i have one property that allows me to take home $4k a month. Sure, as a landlord, there are repairs, I have to replace the stove every 3 years, I have to pay insurance, etc.. However, my wife doesn't need to work. We have income that will pay for my kids' college. We are using that income to pay for our current rental in a better neighborhood.

A $250,000 house can be paid off very quickly in 5-10 years if the owner double/triple up on their payments. I know quite a few people who do this. They pay off their loans as fast as they could.

A comparable rent would be $1200 a month. Let say you want to live there for 30 years. You found the perfect rental. If you pre-paid that rental for 30 years, that would be
(1200 X12 months) X 30 years = $432,000 with zero rental increase. A 250K house, w/ 30 year fix loan will have a total payment of $372K.

The owner who doubles or takes out short term loans will be better off. For example, my 250K house w/ a 20% ($50k down).
A 15 year fixed 4.65% loan and an extra principle payment of $2,000, the owner will have his house free and clear of a mortgage in 9 years, 8 months. Total payment with interest will be $226,117.42.

The renter,if lived in the same rental for 9 years, 8 months would pay a total of $139,200 in rent with zero equity. Sure,the renter will have an opportunity cost to do other things and make other investments. The owner can at least re-coup some of his money even if housing price continues to deteriorate. Even with a 40% drop in value, the owner who paid off his house in 9 years would have a property that he can sell for $140K. The renter, has zero equity.

If you plan to live somewhere for more than 10 years, it is better to own if is affordable and within your means (less than 30% of your income).

eastbaydude says

They live in a 3000 sq ft with 6 bedrooms. Their house was appraised at 1.5 million in 2006. It may be worth 500K now (if you want to be a pessimist). They can go into a retirement home and rent their place for at least 4K a month (if you check comparable rents).

Do they live in the East Bay like you? Where do they live and how much do you think their house is actually worth? (you can even give a Zillow estimate if you think that's helpful)

That $500K vs. 4K/month estimate makes no sense. There are houses that are selling for $500K or more in certain parts of the Bay Area that rent for 40% lower than that at minimum.

MillennialFalcon says

Re #5:
You say HOA is easy, but how do you assume they change over time? For condos I’m seeing them increase rapidly thanks to lack of payers. You also get nice special assessments.

+ All the crazy rules they have, I'll never own a condo/home with HOA.

eastbaydude says

The biggest thing people are forgetting is that once the mortgage is paid off, the incurring costs are minimal.

I don't think anybody on this site recommends renting for life. The debate here is that renting a same home vs buying the same in the current time makes sense or not and most like renting makes sense as long as home values keep tanking YOY or even if it stays flat.

burritos says

The wear and tear on a place where there’s a lot of rain/snow can’t be the same as a place where it doesn’t.

Also consider things like being near the ocean or being somewhere extremely hot or somewhere where there are massive temperature swings during a day (desert and certain mountain areas).

Just doing some math...As I mentioned, my father-in-law's roof estimate was more than $25K, and his house originally cost about $250K new. The roof alone, after 20+ years, is ~11 years of 1% maintenance, which is about half. There is definitely other stuff that needs to be fixed -- I'd call it "deferred maintenance" :)

eastbaydude says

A comparable rent would be $1200 a month. Let say you want to live there for 30 years. You found the perfect rental. If you pre-paid that rental for 30 years, that would be
(1200 X12 months) X 30 years = $432,000 with zero rental increase. A 250K house, w/ 30 year fix loan will have a total payment of $372K.

That buyer will absolutely spend more in just property tax and maintenance than the $60K difference over 30 years. $60K x 2 is not unreasonable. Property tax varies widely depending on location. Then there are roofs, HVAC, flooring, landscaping, windows, appliances (more than once), etc. I don't think most renters own a wheelbarrow, extension ladder, lawnmower, power tools, and a well stocked tool box.
How much will rent really cost over those 30 years? Rents escalate over time. Double in 30 years? The other unknown is how much the home will be worth in 30 years. And how much will it cost to sell it.
Sorry my crystal ball is broken.

corntrollio says

Just doing some math…As I mentioned, my father-in-law’s roof estimate was more than $25K, and his house originally cost about $250K new. The roof alone, after 20+ years, is ~11 years of 1% maintenance, which is about half. There is definitely other stuff that needs to be fixed — I’d call it “deferred maintenance”

That quote sounds very high. I just did a roof on a 2300 sq. ft. house and it was ~$5K. Not that you're lying--I just think that house may be the exception, not the rule.

Payoff2011,

Use this calculator:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html

250K house, 20% down w/ 4.65 vs 1200 a month rent.
Assume 2% appreciation vs 3% rent increase.

this calculator is pretty good; taking into account down payment, property tax, maintenance cost, lost opportunity cost,etc..

Suppose you settle down in a community to raise a child from birth to High School graduation.

In 18 years, you save $82,000 by buying.
In 30 years, you save 290,000 by buying. Plus you own the house with an equity of approx 250K.

bubblesitter says

eastbaydude says

The biggest thing people are forgetting is that once the mortgage is paid off, the incurring costs are minimal.

I don’t think anybody on this site recommends renting for life. The debate here is that renting a same home vs buying the same in the current time makes sense or not and most like renting makes sense as long as home values keep tanking YOY or even if it stays flat.

Right! I don't have any problem with owning if it's cheaper than renting the same thing.

Most people grossly underestimate the recurring costs of owning, especially the lost use of that capital tied up in the house. The lost interest alone could be more than the cost of renting.

tatupu70 says

That quote sounds very high. I just did a roof on a 2300 sq. ft. house and it was ~$5K. Not that you’re lying–I just think that house may be the exception, not the rule.

My guess is that you are talking about nailing a new roof on top of the old roof with a quote that low. Also, as you might guess it is dependent on location/climate and actual materials used. If you are in Tahoe, for example, where there are a relatively low number of contractors and all the work needs to be done within the warm weather months, and you can count on having a foot or two or more of snow on the roof for extended periods of time, expect to pay more.

If you remove the old roof and do other work (waterproofing, sheathing, gutters, downspouts, dry rot, random carpentry work, etc.), then it can be considerably more than just nailing on more roofing material. It also depends on how steeply your roof is pitched, because that makes it harder to work and requires more roofing materials for the increased surface area, although my FIL's isn't that steeply pitched. The quote he got is higher than the 15-20K I've heard from other people for approx. 2000 sqft homes (his is a little bigger), but I honestly don't know the details -- as I mentioned, there was likely some "deferred maintenance."

Most people grossly underestimate the recurring costs of owning, especially the lost use of that capital tied up in the house. The lost interest alone could be more than the cost of renting.

Can you do a sample calculation please?

$500k house with 20%down, so 100k tied up as you say. Let's see, interest on 100k would have to be around 2600/month because thats what it would cost to rent the place. How do you make $2600/month with 100k??

Savings accounts pay 1% as an average - that's nothing. Might as well keep it under the pillow. And if you invest it in the stockmarket then you are subject to lose it all.

I am curious what you mean.

House ownership is a fun experience, for those who can afford(including these costs y'all are discussing). These owners have freedom to do whatever they want in their home, and even take a hobby of learning or fixing things around the house. If you cannot afford, or not inclined to doing housework/cleaning, the best is to stay as a renter or purchase a less expensive condominium property, and as a way to have some feel good experience, end up rewarding selves with luxury items like coach bags, bmw, smartphones.

SubOink says

Most people grossly underestimate the recurring costs of owning, especially the lost use of that capital tied up in the house. The lost interest alone could be more than the cost of renting.

Can you do a sample calculation please?
$500k house with 20%down, so 100k tied up as you say. Let’s see, interest on 100k would have to be around 2600/month because thats what it would cost to rent the place. How do you make $2600/month with 100k??
Savings accounts pay 1% as an average - that’s nothing. Might as well keep it under the pillow. And if you invest it in the stockmarket then you are subject to lose it all.
I am curious what you mean.

Sub, all of this depends on a property and on the buyer.

As of late problem with housing has been that people tie up almost their entire income in housing, and several years down the line realize they are left with nothing because the banks have conned everyone in a giant ponzi scheme. It's money one will never get back, but most importantly years of life one will never recover.

Several thousand of interest paid out to the bank every month is several thousand not being used for more important things like business. Even if one is unable to run a business themselves you can invest into other peoples businesses, our stocks have been averaging roughly 5% per year gains. And it compounds. And we do own, but we bought before all the craziness happened when it made sense to buy. Back in the days you could mow lawns and buy a house, today one has to pay a 30 year toll to the banks.

ChrisLA says

Several thousand of interest paid out to the bank every month is several thousand not being used for more important things like business. Even if one is unable to run a business themselves you can invest into other peoples businesses, our stocks have been averaging roughly 5% per year gains. And it compounds. And we do own, but we bought before all the craziness happened when it made sense to buy.

This is what I don't get. If the rent is comparable to the mortgage, what difference does it make. I'm finding in some cases, rent is higher than mortage in certain markets. For example, I was looking at home SFR homes in Martinez,CA. It will be $400 cheaper for me to buy (with mortgage, insurance & monthly property tax) than to rent.

If you're paying $2000 a month rent vs $2000 a month mortgage. Even though you are paying "rent" to the bank, you will eventually get something out of it. The extra cost is property tax, maintenance, but you still get something out of it down the line in 30 years. It is not like the renter will have the extra "opportunity" cost income to invest somewhere else. Both renter and owner are negative $2000 a month regardless.

The only difference is the home owner paid a deposit and a closing cost.
On a $300K house, that comes out to approx $68K (20% down and closing cost). The renter would have to be a prudent investor of that $68K to really come out ahead. Most people aren't good at investing the stock market (myself included).

The mortgage "interest" is indeed rent, in my eyes, but like I said, the home owner will eventually gain some equity. Now the issue is whether or not it is financially wise for the individual to rent or buy in this current economic times.

eastbaydude says

This is what I don’t get. If the rent is comparable to the mortgage, what difference does it make. I’m finding in some cases, rent is higher than mortage in certain markets. For example, I was looking at home SFR homes in Martinez,CA. It will be $400 cheaper for me to buy (with mortgage, insurance & monthly property tax) than to rent.

What don't you get? Isn't the whole point of the site is to educate potential buyers of potential costs of ownership and to teach them to buy when it is financially favorable? To teach people to buy without screwing themselves over in debt.

There is even a calculator that will tell you when it's better to buy than rent. If you plug in all the numbers correctly you should have your answer. The only part of the answer that most struggle with is inflation/deflation of the price. I'm inclined to say that it will deflate because it now costs way more than most can afford to pay. But nothing is guaranteed in life, you still have to make your own judgement calls.

eastbaydude says

If you’re paying $2000 a month rent vs $2000 a month mortgage. Even though you are paying “rent” to the bank, you will eventually get something out of it.

The key word to the whole issue is eventually. Up to a certain point the cost of buying and selling will exceed the forced savings. If your situation has any possibility of not going past that point then renting would probably be better, unless the home ownership thing is worth the extra cost. All this is a personal choice. There is no better, just what is better for you.

I would certainly consider water as this is definately the cost of woning a home but not typically a cost associated with renting...

SubOink says

And if you invest it in the stockmarket then you are subject to lose it all.

This seems overbroad. If you invest in something that's a common index fund (e.g. S&P 500 or something in bonds), when would you ever lose it all? If that apocalypse scenario did happen, why do you think your housing value would do better?

Sure, if you put it in penny stocks, you could lose it all literally.

E-man says

#8- Budget $1k/month for cars replacement if you and your spouse buy new cars every 5 years or so.

Depends on what kind of car. $1000 seems like a big budget.

If you get a 4 year loan at 2.99%, you could get a $45,000 loan for $996/mo. Capital One Auto Finance would allow you to get a 6 year loan at that rate, I believe, but I'm being more conservative in this calculation and you said you are only keeping the car 5 years as an assumption. I guess if you are getting a BMW 3-Series or Mercedes E-Class, you could get a new one every 5 years at that price. The insurance would drop slightly per year as would car tax in California over those 5 years, but not by much, so maybe it's a $42-44K car, even with 0 down.

If you got a 5-year loan, it'd be $55K with 0 down.

But why are we including this in housing costs? :)

If you aren't living in the place for 10+ years, you have no business taking out a 30 year mortgage. Rent will always come out over that. Maybe even 15+ years, given the current financial charade--if not in dollar terms, then in standard of living.

This is not always true in places like Florida or Michigan. . . .

What if you plan on buying a home, living in it for the first few years...lets say 3-5, but keeping it as a rental, and move onto buying your second home to live in...

How are you supposed to use these calculators in that case?

UAVMX says

How are you supposed to use these calculators in that case?

You don't, at least you don't use this calculator exclusively. If you are planning to do that, you should be able to calculate return on investment, as well as any number of other things. If you don't get enough return, having a rental property doesn't make sense.

E-man says

That’s a budget for 2 cars, not one.

Oh, okay, that makes more sense. I was really confused.

But why are we including that in housing cost generally? The only reason I can think of is, for example, if you were comparing living in San Francisco and working in San Francisco and did not buy a car vs. living in Oakland and working in San Francisco and did buy a car. (of course, if, like many San Franciscans, you have a car, then this doesn't work)

E-man says

Permanent Marker,
That’s a budget for 2 cars, not one. Knowing PM’s nationality, I guess that budget should be adequate or a little bit on the generous side for a couple of Toyota and Honda sedans.

lol Eman!