Friday, October 18, 2013

Myths of the American Dream: Part I

One idea that is continually spoken as fact is that home ownership is always a sound investment. Renters are perceived as throwing their money away, while home owners are building equity!

Home ownership is the expected thing, the thing many aspire too. It's what you're supposed to do.

Often, I'm not sure if home ownership is all it's cracked up to be. Never was, but I bought this little house anyway. I wouldn't say I regret it, exactly, but I think you really have to make sure you know what you're getting into before you buy. Heck, before you go to an open house and fall in love with a property even.

About that throwing away money on rent...let's just look at the numbers shall we?

First, if I take the full 30 years to pay off my mortgage, I'll end up paying more than double the purchase price, and that's WITH a heavy 20% down payment. It would take more than two years of my entire current salary to pay the interest alone.

My mortgage may equal what I paid in rent before I bought this house (which is only because I bought a tiny house), but consider that I'm paying double that with interest and then add an extra 40% for property taxes.

I haven't even gotten to maintenance yet. If you own a home then eventually something is going to break or need replaced. And sooner or later than something is going to be expensive.

The day I signed the purchase papers and got the keys to my house I came over and found a leaking faucet, a roof leak in the kitchen  and a leak in the furnace room. none of these things were there a few days prior. Luckily, with some help from my stepdad, none of them were very expensive, but still you get my point. In the seven years I've owned min hus I've paid for chimney repairs (twice), replaced the AC/furnace, repaired the roof, replaced the hot water heater, bought two dehumidifiers for the basement, and spent hundreds of dollars on paint, painting supplies, tools, sandpaper, and miscellaneous repair expenses. If I hadn't had lots of kind help in making those repairs (thanks boyfriend!!, stepdad!) it would have cost three times as much. And I'm sure there are others I'm forgetting.

Have I mentioned the lawn and garden equipment I never had to own as a renter? Or all the projects that still
need to be done?

Call me a pessimist, but with the drop in home values I don't see how I'm going to get all that back if I sell anytime soon....and probably not when I sell it no matter how long away that may be.

Why is paying rent "throwing money away," but paying interest, taxes and maintenance aren't?

Don't get me wrong, if you want to own your home for other reasons then great. If you want something to call your own, decorate as you like it, by all means. Maybe you enjoy DIY and maintenance, and in that case, boy will you love owning a home! Buy an old one for extra fun. Just don't buy a home because you think it's an investment or something adults do.


  1. Thank you so much for saying everything I've been thinking lately. We've only owned a home for 3.5 years (lived in it for 3)...and poured thousands upon thousands into it. Now we're renting, and I love most of the freedom that comes with that. The whole pet policy is my biggest beef along with having to wait for simple repairs the hubby can do, but otherwise, I really enjoy the freedom to move almost whenever I want with few repercussions.

    1. Thanks Megyn. I agree, renting with pets can be a pain. And repairs are an issue all-around. As a renter, I was often frustrated by having to wait a long time for repairs, or landlords tried cheap fixes that didn't hold. But now I have to pay for them and make sure persistent problems are fixed, and that's a whole other level of stress. And oh, I had so much more free time as a renter!

  2. I have often felt this way, people have always thought I was nuts when I don't necessarily buy into the whole "owning a home" is security and a good investment while renting is throwing your money away. Me and hubby though after renting for years and years are looking into buying however we will stick to our cash only policy and only buy a tiny tiny place up north for 10 grand or under so we own it outright without a lengthy mortgage. At least that is the plan right now, I could change my mind come spring because there ARE advantages to repairs! LOL Love your blog!

    1. Thanks for the kind words and taking the time to comment! Yes, the home ownership is an investment myth runs deep. I'm sure there are exceptions even today when it works out. finding a really good deal and using cash-only are two great ways to make it the odds turn in your favor....unfortunately I did not do these and I bought right a the height of the bubble....the one thing I did do right was to buy only what I needed and less than my max budget (and way, way less than lenders were willing to lend).

    2. Well that "one thing you did right" is pretty darn major! That was a great thing only buying what you needed and way less than what would have been loaned. :) That is a pretty good thing to have done!

  3. Gosh. Well, I think that much depends on the particular home you purchase, the market you buy into and many other factors. For me personally, buying a home was the best financial decision I ever made.

    I bought my home in 1995 for $63K, and I shopped for well over a year before I found a home that was bargain priced. Two years later it was appraised for $180K. That was the boom before the crash, so I think its value is lower now, but it's still worth more than twice the purchase price.

    But for me the biggest thing was just being sheltered from ever increasing rent payments. I've been making extra principal payments for years now, and even with the principal, interest, taxes, insurance and extra principal payment added together, my 900 square foot house with a full basement, separate 2.5 car garage and enormous yard costs far less than it would cost to rent a studio apartment. And in less than two weeks, I'll make my final mortgage payment and at then all I'll have to pay is taxes and insurance, which comes to about $120/month.

    It's not that I haven't put money into repairs and upgrades, because I certainly have, but learning to do so many things myself has meant that I can do it on the cheap, and with a few notable exceptions, I've been able to take my time with it. Of course, I have a high tolerance for things like avocado green shag carpeting and plastic bathroom tiles, but owning my home has given me the ability to choose time and freedom over fancy home remodeling, whereas if I were renting I wouldn't have that choice, and the cost of keeping everything "just so" would be built into my monthly payment.

    All that being said, I completely understand why people who bought at the height of the market don't see it the way I do. When I hear about the enormous mortgage payments that so many people are locked into, it just makes my heart break because the payments are generally WAY more than my entire monthly income!

    Anyhow, I guess what I take away from all of this is that it depends. Just going out and buying a house, any house, is not necessarily going to be a good investment. In fact, even with the improving market, it's very likely NOT to be a good investment unless you do some careful homework. But I do think that if one approaches it carefully, and avoids form over substance expenses, it still can be one of the keys to financial freedom.

    1. Thanks Cat. I agree, it all depends.

      It sounds like you found a great deal, and maybe made some tradeoffs others wouldn't. From my experience it seems more common for people to spend too much, and/or lose value, or not gain more than they put in, rather than be super savvy about it like you are.

      I too pay ahead on the principal so that I won't pay quite so much in interest, but I didn't find a great deal like you did, nor was I as patient when shopping. And the difference between renting a similar size space and my mortgage payment on the house were the same when I bought it. But when you add in taxes, insurance and maintenance things tilt in favor of renting. Your taxes sound pretty reasonable to me. I pay $240/mo on 740sq ft and it goes up every. single. year.

      But the current wisdom seems to be you can't go wrong when buying and I just don't think that's the case, nor do I think that should be the main motivation for most home purchases.

  4. Here's another take on why owning a home isn't always a sure bet as an investment, from Forbes.

  5. as one of my friends says, "first you buy the house. then you must feed the house...mwahahahah!" What we like, though, is that we have more control over what gets fixed and how well it does. I'm asthmatic, and it was awful living in our previous (very expensive) apartment before, where the management company's definition of cleaning the HVAC vents meant sticking a vacuum in the first foot of ductwork for a few seconds and calling it done. Since we bought our condo I've gone off my asthma meds completely. Totally worth the pain of a 15-year mortgage and horrendously large condo fees!

    But that's not to say that we haven't sunk a ton of money into the place, like you, that we don't expect to get back. What my husband said to me before we bought was, 1.) don't expect to come out financially head just by buying and 2.) look at what you're buying. You're never buying a house -- you're buying advantages and disadvantages over living in an apartment. For us, our mortage didn't buy us a condo, it bought better health, more living space, and quieter neighbors. If we make any money off the deal in the end that'll be a bonus prize.

    Great post!

  6. I agree, I've always felt that renting is not "throwing your money away" by any means. I mean, you're paying for shelter, for crying out loud, how is that a waste of money?

    I'm currently a renter, and I enjoy not having to pay for repairs, but I really long to have a sense of permanence and a place to call home.

  7. I did buy for some of the reasons you mention, but I did actually enjoy decorating it and fixing things. Thankfully apartments are a small step into home ownership, no roofs to leak :p I hope I'll get ahead, but if I don't, I'm ok with that. I bought it cause I wanted to live there, and now that I don't, it's rented, and that's ok with me too.

  8. The number one reason I own a house is for privacy - not having to deal with other people's habits in the parking lot, hallways, elevators, and so on, or dealing with noises and odours, or worrying about other people's pets or arguments. I feel that there is a growing disregard for courtesies among tenants. It might be nice to share a building with a group of people who have rented it together and agree on some ground rules - like a cooperative!


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