The Hidden Costs of Owning a Home

Owning a Home – Investment or Expense?

owning a homeOwning a home has long been the American Dream.  A recent survey by the National Association of Homebuilders (NAHB) uncovered that 75% of Americans still believe that owning a home is the best long-term investment they can make.  This is in stark contrast to a recent report by The Federal Reserve that states $7 Trillion, or more than half of home equity has been lost since 2006.

Many homeowners include home equity as an important component of funds that will be used in retirement.  According to AARP, 32% of adults over the age of 50 report that the value of their home has declined substantially over the last 3 years.  Since many people plan to sell their home and buy a smaller home when they retire, the decline in home values has forced many to postpone retirement.  Future retirees planning on smaller mortgage payments from downsizing have little options available to make up for that added expense.

Costs of Owning a Home

HOA Fees and Assessments – HOA fees are collected to cover insurance, maintenance, landscaping, water, sewer, garbage costs, an community recreation centers for condominiums and planned communities.  Special Assessments are sometimes necessary when there are inadequate funds to cover major expenses such as building repairs, fence and wall repair, and repairs to other HOA owned property.

 

Private Mortgage Insurance – If you put less than 20% down you will be required to carry Private Mortgage Insurance (PMI).  According to the Homeowner’s Protection Act of 1998 (HPA), lenders must now automatically cancel PMI on most loans once the outstanding loan balance reaches 78% of original value or 77% for high-risk loans provided you are current on your payments.


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Property Taxes – Property taxes vary widely depending on region and obviously the value of your home.  NHAB estimates the National Average for property taxes at $2105 per year.

Hazard Insurance – Hazard insurance is required by your lender and covers certain types of damage to your home.  NAHB estimates the National Average for hazard insurance at $654 per year.

Utilities – Water and garbage are some expenses that are often included in a rental that are an additional cost of owning a home.  In addition, many rental apartments and condominiums provide amenities such as internet and cable free of charge.

Landscaping –  Having a nicely landscaped yard is one of the joys of owning a home but it comes at a cost.  Average starting cost for landscaping is around $4000 and can run into the tens of thousands and up.  Costs of landscaping includes irrigation, maintaining and replacing trees and plantings, and tools and equipment.

Maintenance – NAHB estimates the National Average for maintenance at $558 per year.

Other Costs of owning a home you may not have thought about:


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  • HVAC (12-18 years)  $3000-$15000
  • Hot Water Heater (10-12 years)  $250-$1500
  • Water Softener  (10-15 years)  $500-$3000
  • Reverse Osmosis (7-10 years)  $400-$2500
  • Dishwasher (10 year life)  $300-$700
  • Refrigerator (15 years)  $600-$2500
  • Range (8-12 years)  $500-$4500
  • Washer/Dryer (13 years)  $400-$1200
  • Garbage Disposal (10 years)  $100-$400
  • Microwave (11 years)  $300-$650
  • Garage Door Opener (10 years) $135-$250
  • Swimming Pool Pump (3-5 years)  $500-$1500
  • Lawnmower (7-10 years)  $250-$800

Taking the replacement costs of the above items you would spend roughly $7200-$34000 over a 10-15 year period.  Spreading this cost over 15 years would cost approximately $480-$2300 per year.  Clearly owning a home has many benefits but those benefits come at a substantial cost.

Do you feel owning a home should be considered an investment?  

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34 Responses to The Hidden Costs of Owning a Home

  1. Budget Glamorous 03/04/2012 at 11:41 am #

    Rent, on the other hand, is an investment with absolutely no chance of return, lol. A lot depends on perspective. I have never looked at my home as a source of equity, though I know the possibility exists. I consider it shelter, more or less — shelter that one day I can own the deed to free and clear. At least with owning your home, there is good chance to get your money back. Even if you don’t everything you put into the house, you most certainly won’t get anything back (except your security deposit, if you’re lucky) by enriching someone else through your rent payments, no matter how good the cable deal is. On top of that, just because you’re renting doesn’t mean you’re immune to recession issues that affect housing. While I was renting, my landlord experienced some difficulty making his mortgage payments on our property, so there were a few months where I had to worry about moving because he might lose the property!

    This is a great article. I do think there are certain things to consider before home ownership and they have been mentioned already. I also plan on living in this small but very comfortable home for as long as I possibly can. While there are expenses, once that mortgage is paid off, my cost of living goes down quite nicely. Additionally, I live in an area where the rent is actually higher than the mortgage payments are, unless you have horrid credit. When I bought my home, my mortgage payment was $150 cheaper per month than my rent for a place that was far less nice with next to no yard. And that payment included my property taxes and insurance! So the cost of living in the area matters as does how long you plan to stay in the home. I’ll be plenty happy and a lot more secure when I own that shelter outright. 🙂

    Great article.

    • Paul 03/04/2012 at 2:48 pm #

      Obviously there are many reasons why people own a home. Renting is an option that may make more sense for others. Glad you found the article useful!

  2. Shilpan 03/02/2012 at 6:01 pm #

    I have a huge house. After reading your article, I added up my yearly cost. And it runs into around 18K. I’ve been contemplating an idea to sell lately due to all the costs especially since our house is an empty nest with my daughters attending college in other states.

  3. Wayne @ Young Family Finance 02/24/2012 at 9:05 pm #

    On the maintainance front. It’s not just the cost either. It’s the time. I’m costantly working on my house. Sometimes its because I’m remodeling and sometimes I’m fixing important things. Regardless, it’s a hanful and I could be making money doing something else.

    • Paul 02/25/2012 at 1:20 pm #

      Great point Wayne. I did not address the amount of time involved in taking care of a home and that is definitely something to take ito consideration when buying.

  4. PK 02/21/2012 at 10:19 pm #

    Maintenance and its evil cousin, upgrades. We knew going in our house was going to require work, but you’ll be happy to note we’re a kitchen and a sun-room away from a total makeover. We put a decent amount of cash into the house, but most of the cost was in sweat equity. Blood, sweat and (my wife’s) tears, for the win!

    Well, we’ve got to do the yard(s) too. Don’t remind me!

    • Paul 02/21/2012 at 11:05 pm #

      You should see a nice return on you wife’s sweat equity PK! I remodeled our master bath and saved a boatload of money. Now if I can only see some of that when it is time to sell!

  5. SB @ One Cent At A Time 02/21/2012 at 7:29 pm #

    I am aware of these costs and that’s an important factor why I am delaying on buying a home right now. Every home buyer should be aware of them.

    • Paul 02/21/2012 at 8:04 pm #

      If I had the cash I would be a buyer in Phoenix right now. On paper, we lost about $200k in equity in our home from the market peak….Ouch! Luckily we had quite a bit of equity to start with.

  6. UltimateSmartMoney 02/21/2012 at 6:29 pm #

    Property tax is a big one that people tend not to research before they buy a house. It tends to go up higher after you buy a house if the purchase price is bigger than prior assessment.

    • Paul 02/21/2012 at 8:02 pm #

      Property tax rates are also something to take into account when relocating. Love the Northeast but property taxes are out of site!

  7. Dannielle @ Odd Cents 02/20/2012 at 4:36 pm #

    Yes, I think it’s an investment. In Barbados, land and homes are hot commodities. I’m hoping to build a pair of townhouses on my land, so that I can maximise my investment. I will have somewhere to live and make some money at the same time. But the only think I’m scared of is the maintenance.

    • Paul 02/21/2012 at 4:20 pm #

      Sounds great Dannielle! My dream retirement is on the fron porch of my cabin by a lake!

  8. Hank 02/20/2012 at 4:12 pm #

    I definitely think that owning a home is definitely an investment. Like other investments, there are potential ups and downs, but it is worth it in the long run.

    • Paul 02/21/2012 at 4:23 pm #

      Can be Hank, it is going to depend a lot on location for several years. There are regions in the US that are still seeing values fall while areas like Phoenix are seeing small increases. Many people who bought a home in 2006-2007 may never regain the equity lost.

  9. Kay Lynn @ Bucksome Boomer 02/20/2012 at 1:28 pm #

    For us owning a home turned out to be an investment; bought for $46,000 and sold for $390,000 30 years later.

    I don’t think it our replacement home as an investment but it certainly is an asset in our portfolio.

    • Paul 02/20/2012 at 1:54 pm #

      My Parent’s enjoyed similar gains on our home when they sold. We won’t see anything like those gains again.

  10. Jackie 02/20/2012 at 1:00 pm #

    I think that it depends on what home you own, where you live, and how long you plan to be there. If you’re going to buy a home and live in it for 30-50 years, yes, you could probably consider it an investment, because you’ll probably be able to sell it for more than you paid eventually. If you’re buying a home because everyone’s talking about how great the market is and you’d better get in now, then no, you’re either buying out of fear or gambling. In other situations, it’s much harder to tell.

    • Paul 02/20/2012 at 1:19 pm #

      I agree with you Jackie. The region where you live has a great deal to do with whether you will see any appreciation in market values.

  11. Padgettshcom 02/20/2012 at 8:27 am #

    The idea with owning a home is that its value will increase over time (at least, you know–recession, depression, etc). A CAR is an expense, loses value as soon as you buy it.

    Real estate is *supposed* to increase in value over time.

    • Paul 02/20/2012 at 8:41 am #

      At least one would hope the value of a home would increase over time. When one accounts for the expenses of maintaining and operating a “home” the increase in value or equity is much less. My point in this article is that for many people it may make more sense to rent a single family home in this declining market then purchase a home if that option is available. The belief has been that your money is safe in a home and that you will be able to sell at a profit over the long-term. That is simply no longer the case.

  12. Josh @ Live Well Simply 02/20/2012 at 7:49 am #

    Rent removes the risk. However, in the long term, home ownership is a good idea. Especially at this point in time now that housing has “shed the fat” of the bubble.

    • Paul 02/20/2012 at 8:23 am #

      I’m not so sure owning a home is the best option for everyone. Most regions will continue to see decreases in housing prices due to the forecasted number of foreclosures yet to hit the market. Phoenix is one of a very few markets that will see any appreciation in 2012 and we are talking about 1%-3% forecast. Housing values are forecast to remain flat for an extended period of time, some forecasts project out to 10 years. Hard to say if those are valid predictions but most of the forecasts I have seen agree that real estate will not see any substantial appreciation for an extended period of time. This will have a major impact on consumer spending and the future retirement plans of many individuals.

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