Things I Didn’t Think About As A Renter – Top 10 Hidden Home Ownership Costs
Our culture constantly bombards us with the message that home ownership is the pinnacle of financial maturity and success. The problem is that there are a lot of factors and costs that are hard to anticipate as a renter. Don’t get me wrong, there are numerous wonderful benefits to home ownership like tax breaks and the freedom to do whatever you want with the property, but it isn’t necessarily the obvious winner over renting.
Below are my top ten hidden costs that I experienced since making the transition from renting:
- Property Taxes – They started at $190 a month and are now $278. A 46% increase in 4 years. This is for our 900 square foot condo in South New Jersey.
- Association Fees – $100 a month when we started. $200 a month now. A 100% increase in four years.
- Sewer Bills – $25 a month
- Maintenance Costs – Since we bought a tiny 8 year old house we haven’t much, but things like new faucets and dryer vent cleaning do add up.
- 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.
- Stuck Factor – With renting you can up and leave at any time. 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.
Owning a house brings a lot of joy and freedom, but there are definite benefits to renting that often get overlooked when you get enamored with wanting to own a home. I know I didn’t have a good sense of what owning a house entailed. I am glad that we learned these lessons with a small inexpensive house!
Sacrifice and Save Money with Store Brands
Forget About Buying Stuff, People Matter
Problem is if you rent forever, when is it going to stop. At least if you own you home, at some point, you will stop paying mortgage (yes, there are still taxes). But you will not be subject to rent inflation at some point in the future.
Mr. credit card – that argument makes no sense. Sure when you rent you have a monthly recurring cost – but the amount of money you save i.e. all the money that you did not sink into the house can be put to good use and generate an alternative income. In a rational economic environment, buying or renting would be exactly equivilent from an economic perspective (when taking into account all costs and all alternative income streams).
We were paying $850 in rent, and moved into a similar sized housed and all house expenses run at least $1300. That is a lot of money that can be invested or freed up to do other things.
Taking the leap into home ownership is a wonderful adventure that should be taken only after you fully explore the complete financial picture. Dealing with a professional team when buying a home will help give you the full disclosure you need to make an informed decision.
When dealing with a Realtor you should be given a closing cost estimate sheet that will show you what your closing cost will be. Thus you will know how much cash you need to bring to closing.
In addition, the Realtor will ensure you are fully aware of any HOA fees or any other obligatory fees that you will be paying as a new homeowner.
The Realtor together with your mortgage broker will also provide you with what your monthly payments will be. You will be able to see how much of your monthly mortgage payment is going to principal, interest, taxes and insurance.
In Jacksonville Florida the local utility companies will provide you with the monthly average utility bills have been for the seller.
Taken together this will give an almost complete picture of your cost outlay for buying the house and your monthly cost for carrying the house.
Rock provides a great list showing many of the costs of homeownership. Should the hassles & maintenance of a single family home seem like it is too much for you then you might consider a condo. Condos associations usually take care of the exterior of the unit. However, you still pay for the maintenance through your condo fees.
The first step to exploring home ownership should be finding a group of professionals that you will give you the advice you need to make the right decision.
Although there are hidden costs associated with buying a home, there are several benefits.
The right off on your taxes for the mortgage interest payment.
Also, the appreciation of your home over time. In some areas of the U.S. home values have increased at up to 10% or more per year. Although there are cycles in property values, if you can hold onto your home for several years, and you’re in a good location, you may make a very good return on your initial investment.
The British have the same mentality when it comes to owning a house, the problem is they are willing to give up on average 40% of their income to own their own property. The Germans have a better system, they buy the land from the church and have repayments over a lifetime, therefore making sure they have plenty of equity to purchase their expensive cars.
Wow, I never knew this hidden home ownership cost. That’s pretty interesting…
I’ve long been a renter for many of these reasons and more. I think there are many hidden costs in addition to these that are almost always ignored or glossed over. It’s not a surprise considering there is an entire industry out there (realtors, home depot, federal state and local governments) that want to convince you that buying is the only thing that makes sense. Who’s advocating for renting? Ikea?
A big big huge huge huge one that is ignored is opportunity costs in personal time. Seems like most house owners are constantly fixing and upgrading etc (whether needed or not). If you make a low income, this can be worth it, but if you are highly paid, many people would be much better off using that time to make more money.
Of course it always comes down to individual situations, but it is good to see posts pointing out some hidden issues.
I was renting for 15 years and now I have been owning for 10 years. The difference I would say is when I was renting, anything that I wanted to do to the unit I had to first clear it with my management office prior to any working being done. I was not able to have a washer and dryer nor a pet. I could not paint without approval nor put down carpet. I had thin walls and heard all my neighbors all the time. Parking was an issue as well. My rent went up every two years at 4%. I first got my apt in early 90’s a one bed room adjusted to my income and my rent was 355.00 a month. After obtaining my Bachelors, a higher position and transferring to a two bedroom, my renting ending in 03 at 760.00 a month and would have continued on upward every two years from that.
But now as a homeowner, I am able to do what I want to do without any problem. I get a healthy tax write off from my interest paid to the bank. I have my own driveway and planning on building a garage, installing a hot tube and grow my own veggies. I pay about 1300,00 in mortgage and happy to do it. Now, I am seeking a grant to fix it up.