Wednesday, May 25, 2011

Home Pwnership

Ok, so Mr. White is writing interesting things about magic, money, and apocalypse living for the rest of us. Very interesting things. The last installment I read addressed home ownership and how we've all been sold a lie for the last three generations.

I have a different perspective. I happen to own my home, and while I've been through some issues as a result, I still prefer it to renting for a living.

So I did some research. First off, I thought, it's an investment. You buy a house, spend 30 years paying it off, and yeah, you spend a lot in interest, but you'd spend about that on rent anyway, and when it's paid for, it's worth more than when you bought it. It's gone up in value, and you sell it at a profit! How can you go wrong?

So I checked the figures.


That chart's from Standard and Poor's Case-Shiller's home price index. As you can see, the value of a home obviously does go up over time. If you bought your house in 1900, your investment would have doubled if you managed to sell it at the peak of 2008. You just have to have long term views, and, uh, know when the market's going to crash again...

Ok, even I, with my amazing powers of bullshittery, couldn't sell that to myself. Look at the figures! Pretty much, if you ever buy a house and pay for it for 30 years, you're going to be lucky if you can sell it for what you paid for it. Once in a while the prices spike, but then they collapse. It's a long shot, and chances are pretty good that you're going to lose if you're trying to get rich owning a home.

Ok, so what about taxes? I just filed a shitload of taxes, and I got back a lot of money because of my house. Repairs are tax deductible, interest is tax deductible, just about everything I spend that I can say is related to the house is tax deductible. Altogether I get back a lot of money by owning a house, and renters don't get that, so nyah nyah nyah.

So I figured out how much I spent on my house in a year, including maintenance, mortgage payments and interest and taxes and all that, and the tax deductions I earned offset that a bit, but not really enough to make a solid case for home ownership.

So then I compared it to renting, straight up. I ran the numbers based on all the pros and cons from that Freakonomics article, and this is what I came up with based on my experience and actual numbers.

For a $200,000 house, you spend about $690,000 over the lifetime of your mortgage on your house. It's mostly interest, which gets you a tax rebate each year, for now, until Obama cuts that deduction. Renting a place with as much space as I have here would cost me about $662,000 over 30 years, including the storage unit I'd need for all the stuff in the garage. You could argue I don't need that stuff, but I'd argue back, so the fuck what, it's my stuff and I don't have to pay extra to be happy. At the end of 30 years, I will have spent $28,000 more than the renter, but I'd own the property, and it would probably be about worth what I paid for it, give or take a couple grand. So over 30 years, I'd be making $172,000, or $5,733 a year. That's around $477 a month. Not bad for a side revenue stream. In bad times, I can get a low interest loan if necessary. And it's 30 years of living in a house however I want to, not in an apartment, and no landlords rummaging through my shit when I'm at work.

Now there are a lot of variables that can be thrown into this kind of argument. Most people own for five to ten years and then sell before they've really paid a lot on their mortgages. After the dust settles, they walk away with roughly what they started with when they bought the house, or less. Some get more, once in a while. Other people set up bi-monthly mortgage payments that drastically reduce the interest payments and get the house paid off a lot faster, and they walk away with even more money. Other people buy foreclosed homes and flip them, and I know a lot of contractors (I live in a blue collar neighborhood, and there are four contractors on my block doing this, plus a couple parents of my kids' friends at school) who bought houses at auction that are making a killing even in this economy renovating them themselves and selling them cheap. There are more ways to skin this cat than I can think of.

So overall, owning a house can be a profitable investment, financially speaking, even if you spend three times what it's worth over the life of the loan.

But on the down side, it's a pain in the ass. The neighbors can complain about your cats shitting in their bushes. You're going to have about $2500-$4000 a year in unexpected expenses (which I factored into the total cost) that you'll have to figure into your budget. You have to file all those fucking Home Depot or Lowes receipts to get the deduction. You have to mow the lawn or the neighbors will call the city, so you're going to need a lawn mower and a weedeater. You'll have flower gardens and pools, if you have a spouse into making your house look good, or kids to entertain in the summer, and that's more expense. You'll need siding, a roof, and your gutters will fall off. And no one will fix it but you, unless you pay someone to do it, and chances are good that your DIY project is going to cost all the materials you buy, plus the contractor you hire to fix it when it gets all fucked up. The plumbing...

Jesus, did you know that plumbers just basically go into a house and plumb it however the fuck they want? As long as the water goes down the right hole, it's pretty much legal. I'm pretty sure the people who plumbed this house over the last 60 years were dabblers in the Necronomicon. If I ran all the faucets and flushed all the toilets at the same time, Marduk would appear in the living room, no lie.

So there's a lot of headache in home ownership. I spend probably 32 hours a month taking care of my house. If I'm making $477 a month, that's only $15 an hour, and I won't get paid for 30 years.

But you know, neighbors in general suck. Ever notice how many hot foot powder anecdotes involve neighbors?  Neighbors bitch about you no matter how close or far away they live. I lived in the country a mile and a half away from my nearest neighbor as a kid, and people bitched about my dog getting out and chasing their cows. It happened ONCE, and I heard about it for years. I was ten. Those old ranchers gave me shit about it til I moved at 13. "Keepin' an eye on yer dog?" Fuckers.

But in apartments, the neighbors are right the fuck there. I hate that shit. The closer you are to someone separated from you by two sheets of drywall, the more irritating bullshit you're going to hear from them and they're going to hear from you. Condos are the same, and so are town houses or row homes. People too close bitch at each other. At least in my house, they're far enough away that I only hear from them when the cats are shitting in their bushes. And I've only heard about that shit once in 4 years.  They're cats. Cats shit in bushes. They also kill rats and those little bunnies you hate eating your hastas. But I'll keep them inside, fine, see how you like it. I'm not bitter. Fuckers.

And I have a lot more privacy and freedom of choice about my immediate living environment. Yeah, I can knock down the walls when I feel like it, and I can do about anything I want as long as it's safe and legal. I have fewer restrictions about how I can decorate my life. I can go out in my backyard and grill up a steak or barbecued chicken kabobs whenever I want, without having to go to some park that lets you use their grill. That Freakonomics guy writes that off, but fuck him. I like it, it makes me happy, and that has intrinsic value in and of itself. Making me happy is important to me.

I'm also rooted in one community. That's important for people, especially people with kids. Successful people are generally not moved around every couple years of their lives as kids. They grow up knowing people who get ahead, and in turn help them to get ahead. They have somewhere they're from. They have friendships that last lifetimes. Kids like me who moved around a lot growing up tend to be shiftless vagabonds all our lives. I'd still be nomading about if it weren't for my Capricorn wife nailing me down to one spot. I had no idea how nice it is to be established in one place until she managed to do that. There are perks to working in the same area for a decade too.

Now the dude in the Freakonomics article says that renters have more cash in the bank than people buying homes. Uh, how many of you renters see that "extra money" you have? Anyone? Right. Because what you don't spend on your rent, you spend on something else. Are you a brilliant savvy investor? Hell, can you even save money in an interest bearing account? I can't.

But I can pay my mortgage.

So what's the value of renting? Really, the things that are best about renting instead of owning boil down to preference. You're not making as much money, unless you're disciplined with your cash, but you have fewer responsibilities. You have fewer liberties too. And you're right up your neighbor's (or landlord's) asshole all the time, and they're right up yours, and generally not in a pleasant way.

So yeah, there could be a three-generation ad campaign that's programmed me to think a certain way, but when I do the math and look at my life, my preferences, my skills, my goals, and my responsibilities to my family, home ownership is a better option. Gordon's life is better suited for renting, and his mind is better suited to taking advantage of all that extra cash he's got from renting than mine. My brain power that would go towards that is spent on kid-management and such. If I were single and disciplined, maybe I'd find his approach more appealing, but I'm not. I'll take the home.

And for the record, I'm aiming to go on the bimonthly mortgage payment that gets me out of the interest 15 years ahead of schedule, so when the dust settles, I'll be making a lot more than $15 an hour for this investment. It just takes strategy.

10 comments:

  1. Great article. It's good to see that other people also do the sums and SWOT analysis of whether it is worth buying or renting.

    When I was renting my finances were not very well managed. Since deciding to buy a house my finances are managed a lot more efficiently.

    The difference for me was that the latter necessitated that I manage my finances whilst the former made it seem like an optional 'good to do'.

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  2. Nobody would let me have 9 cats and 2 dogs in a rented home. Thus, I own, and will probably always own. Nonetheless, in the future if I get more land and can grow some of my own food, and rescue animals.

    There's also the spiritual value of having an increased relationship with your land.

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  3. It depends on the part of the country in which you live, but in a lot of cases you can get more space for your money when buying versus renting. My first house was 1400 square feet and my mortgage payment was less than the rent on the cheapest 1-bedroom apartment I could find.

    Now I'm an amateur renovator, so I've gotten deals on "handyman special" properties, but there are a lot of cases where those mostly just need cosmetic work that you can take care of as your schedule allows.

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  4. "Jesus, did you know that plumbers just basically go into a house and plumb it however the fuck they want? As long as the water goes down the right hole, it's pretty much legal."

    *Inappropriate workplace laugh*

    @Simon A couple of my friends say the same thing. They put it down to the terror of not having enough in the account when the mortgage comes out.

    But it's all good. If you know where you want to live, etc etc, then go for it. I'm a double migrant and I haven't finished migrating yet. :) Different strokes, eh?

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  5. @simon - Agreed. For slags like myself, home ownership forces financial planning something I am super sucky at in a family of Ferengi.

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  6. I fucking *hate* having room mates, so yeah. I think I can deal with a neighbor whining occasionally about cats shitting in bushes, but room mates are fucking god damn nosy and petty little snots. Fuck them.

    I will be happy as fuck to have a place of my own when life afford that opportunity for me. I like to live on my own accord, and that can be difficult with nagging little snots running around whining about dumb shit that doesn't matter. "Fuckers."

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  7. @Gordon, indeed different strokes :-)

    You manage to juggle a lifestyle that would leave me a burnt out wreck - so you get a lot of respect from me for that.

    @Deborah, there goes my theory on how family can shape a person's finesse at managing finances :-)

    In truth it's my wife who keeps my spending on the straight an narrow. If I had it my way, I'd have an awesome occult library with thousands of books that I would likely never get around to reading.

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  8. I think the lie we were sold for the past 30 years is that home ownership is an investment that "pays off" in something other than the expected result of having shelter. We were encouraged to think of real estate as a purchase that would always increase in value with the idea that when we reached retirement age we would sell the big family home that we had needed to raise kids in the school district, etc. and net enough to buy into the retirement community of our choice with money left over to chug around the country in a huge RV or other recreation of our choice. Or, if we were a little more short sighted, we would use the equity in the home as an ATM for vacations, kid's college, buying a boat, etc. The equity loans that were originally sold for home improvement like an additional bathroom, swimming pool, new kitchen or other alteration we could convince ourselvew would add to the value of the home for its ultimate resale became an all purpose goodie bag with the advantage that, since it was a mortgage, the interest was deductable. People who fell for this never got ahead of their mortgage. Banks had discovered that they could make more money encouraging irresposnibility than they had by enforcing good financial planning.

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  9. As someone who was raised being taught principles like paying off credit cards every month, not taking out loans you can't pay back at least twice as fast as you "have to", driving your car out to an ungodly number of miles before getting a new one, etc, this sort of thinking is refreshing to hear.

    To me, the liberties that owning these things provide far, far outweigh the small amount of responsibility that goes into managing them.

    I hear credit card vendors and auto finances get called "evil" all the time... and yet these people can't be fucked to think about what they're getting into when they sign a contract for something they can't afford, or spend money they don't have. When I hear that we've "been lied to" about home-ownership, that the whole real estate market is a crock we've been unwillingly sucked into, I think it's mostly people reassigning blame for getting themselves into a situation they're entirely responsible for.

    And the last sentence of Rita's comment is gold :-)

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  10. Also, I almost fell out of my chair when I read the Marduk bit. I'm glad I've trained myself to keep my drinks safely away from my laptop.

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Thanks for your comments, your opinions are valued, even if I disagree with them. Please feel free to criticize my ideas and arguments, question my observations, and push back if you disagree.