True Cost of Owning a Home

I originally set out to write about why owning a home is not an investment and should be looked at as a luxury over other places you could live, like a normal apartment. When I started to dive into intense calculations I realized with so many variables its not so clear cut. So I’ve decided to break this up into multiple posts and focusing today on the hidden costs of owning a home.

Bought my First Home

A little over two years ago I bought a small affordable 1950’s house with cheap taxes and one wicked awesome garage and yard and walked away from cheap apartment living. I did it already knowing it was cheaper to rent and knowing that “building equity” wasn’t worth the higher cost associated short term. I did it as an entrepreneurial endeavor to increase my income. And I was damn lucky I stopped myself from buying a more expensive house in a higher tax area as that entrepreneurial endeavor fell apart within a few months of moving in. Being the frugal guy I am, I was looking for mega deals, houses that even needed a lot of work, I often realized these houses were still overpriced as the cost to get the home to what 95% of people would consider “livable” would cost so much money I’d never be able to get my money back when I sold. I am very lucky to be a person who doesn’t mind grinding the numbers. In the end I picked a low cost older home that appeared well maintained and needed little work. And also being a frugal guy, any work I need to do, I pretty much do it myself and still I’ve spent a fair amount of money already in two years but more on that later.

Average Home Maintenance Cost

It’s obvious though as a homeowner you’ll have to pay for maintenance on the house, but most people don’t actually try to quantify just how expensive that maintenance can be. So I did some research and came up with a reasonable table of costs and lifespans.

 Item  Lifespan  Cost  Cost/year
 water heater  18 years  $1200  $67/yr
 water softener  20 years  $800  $40/yr
 bladder tank & well pump  18 years  $2500  $139/yr
 stove  15 years  $1000  $67/yr
 fridge  15 years  $1000  $67/yr
 dishwasher  9 years  $1000  $111/yr
 washing machine  12 years  $1000  $83/yr
 clothes drier  12 years  $1000  $83/yr
 garage opener  10 years  $400  $40/yr
 lawn mower  10 years  $1500  $150/yr
 furnace  18 years  $2500  $139/yr
 Air Conditioner  15 years  $2000  $133/yr
 sump pump  15 years  $400  $27/yr
 roof  20 years  $8000  $400/yr
 windows  20 years  $8000  $400/yr
 Total:  $1946/yr

On average we’re talking almost $2,000 per year with contractor installation. Sure this is a very loose number that may go up or down depending on the size of your house, what brand and product line you choose and whether you do the project yourself but $2,000 is a reasonable average for most people. This doesn’t even include updating your house or fixing other random issues that will happen. If you’re like me and you have a decent amount of extra cash, you’re not going to just simply continue to live in a home that was last updated 20 or 40+ years ago. You’ll want to update your kitchen, bathroom, living room, etc. It’s going to happen and there is good reason to do it.

Updating your Home

I don’t look at upgrades as an investment opportunity because In my case, and many other people’s too, I’m fairly confident that even if I fully went through and renovated the entire house, It’s still going to be a smaller older home I bought for $155k. It wont compete with newer larger homes selling for $200k. Which means, with most homes, you need to know your limit if you want that money back later. Fully renovated, I think I’d be lucky to get $180k out of it, I’m not even sure I’d get that much and $20k can go quick. $20k can be gone by picking high end products even while doing the work yourself. $50k+ can easily be gone with high end products and hiring contractors. I have a potential to lose over $30k or more if I went wild. If you’re smart you pick low cost upgrades most of which you can do yourself. It’s important to know what you’re neighborhood will bear, My neighborhood wont support much of a return on high end upgrades but yours might. These upgrades add up I’m afraid and even though you will get that money back plus maybe a bit more when you sell, how long will you continue to live there while that money could’ve grown in investments. And even though you’ve gained equity with upgrades you’re unlikely to ever see it. Even if you move, most people are unlikely to pick another home that needs as much work. You’ll probably buy a similar quality home or upgrade. In the end I spend about $1000 per year on upgrades and I’m pretty sure even most frugal people would average closer to $2000.

Total Monthly Cost

These days mortgage interest rates are so low I don’t really see the point in paying cash. But even if you pay cash realize that you’re house is likely to only go up with inflation and no further. In 10 years a $200,000 house may sell for $245,000 or if your area became popular maybe $300,000 but that same money in investments should be closer to $400,000 after 10 years.

For this example we’ll say you were frugal and found a $200,000 home. On a 30 year mortgage with property tax and insurance included we’ll say you’re paying $1400 per month, not far fetched. Remember you’ll average $2,000 on maintenance, money you’ll never see again. And $2000 on upgrades, money you’ll only see again if you sell in the relative near future. Now we’re up to $1634.

And that is how a $1400 mortgage can and likely will cost you on average around $1734 per month.

Soon to come: Part 2  & 3

As I mentioned this post was supposed to compare owning a home to renting an apartment but the calculations got so complex I’ll break it up into its own separate post. I’ll compare and graph finances that could be expected of a $200,000 home vs $1000/month rent

In Part 3 I’ll do a similar breakdown but using an apartment I would rent vs the home I own.

Note: you may have noticed I didn’t talk about down payments, utilities, mortgage or home insurance, property taxes or possible HOA fees. This is because these are all expenses you will be well aware of while searching for your new home. I’ve focused on expenses to expect after purchasing a home.

I’m interested in hearing from everybody if they currently own a home or are still renting and how they’re figuring in their housing into their retirement plan. Also feel free to poke holes in my post, maybe you’ve thought of something I didn’t, we’re all here to learn :).

 

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8 comments on “True Cost of Owning a Home

  • Your numbers are shockingly close to my numbers. I came up $4K per year in “non value added” expenses for my $65K home. This includes maintenance (as mentioned above), taxes, and insurance. I also am guessing about $1-2K per year in furniture and “updates” when amortized over time. Honestly, this is not too shabby in my opinion.

    • Thanks, I was trying not to add items that should be obvious to a buyer, such as taxes and insurance, but as a “no value added” number it makes sense to include them. I think updates like new kitchen cabinets or new bathroom can be iffy as investments. I assume if you don’t sell for 10+ years than there may not be much value added because it’s all starting to look old again. Although it will always help if you went from 1980’s specific decor fad to something that is of timeless design.

      I guess my “no value added” number would be about $4,000 also, mainly because I’m a very DIY person. Although my home came with a 20 year old furnace, water softer, water heater, well pump, bladder tank and air conditioner so a huge chunk of that “average” may hit me hard sooner than later.

  • I really wish that all of the maintenance was automatically included with your mortgage. Like renting and having a landlord… except you own your house! Wouldn’t that be so nice? We keep having multiple things break that we can’t repair ourselves.

    • The closest you would get to that would be to buy a new house with a warranty. I think they’re very short term though. I wouldn’t be surprised if you can buy insurance for some of these maintenance items. That would be a bad idea though.
      Actually I would like it if you could roll in a bit of extra money easily into the mortgage right away to update and maintain items in the house that have most likely been neglected.

  • It’s important not to forget about the cost of insurance for your new home. If you get a larger home, you will be paying significantly more insurance so it’s nice to have that in your mind before committing to a new home.

    • Good point, insurance was included in my later analysis. Since insurance is generally included in an escrow with the mortgage, I just ignored it for now since that is a cost people see and know about, maintenance fees are a bit more hidden to most people. Thanks for pointing that out though.

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