Renting Vs. Owning in Hindsight
Owning a home vs renting.
In December of 2017 Matt and I decided to buy a house. It wasn’t a decision we made lightly, it really took us a long time to decide. Over the course of 2 years in an apartment (with us living together), we felt restrained most weekends by the inability to change our apartment. We craved DIY projects, painting the walls, and building a workshop to play in. We talked about it all the time and tried to justify that living in an apartment helped us save money because we couldn’t spend money on projects that an apartment just won’t allow you to do. We had a small yard at our apartment for our two dogs and we paid right at $1300 a month for rent. We thought if we could get into a house and pay close to $1300 a month then it would make more sense to own. We would build equity, get to spend our weekends doing the projects we craved, and have more space for the dogs, a garden and hopefully a workshop in the garage.
We have now lived in our home for a year and a half and here is our hindsight perspective on the rent vs own dilemma. If you have the money to put down on a house and not have it effect your standard of living while maintaining a mortgage amount that is comfortable and realistic, owning may be better for you. However, the down payment and the mortgage rate is just the beginning. You also need to take into consideration how long you plan to live in the same place. Those factors can also impact whether you should buy or not. As much as we tried to restrain ourselves from spending too much on home improvement right away, we really couldn’t. So, imagine this, you find a good $200,000 home you love and put down $10,000 and have about $4,000 in closing costs. You are now $14,000 out of pocket. When you move in if you want to paint, build a fence, fix that leaky toilet and buy blinds or decorate your new additional rooms you are now $5,000 or more out of pocket. Most people spend $5,000 to $8,000 on a new fence alone. Add that into your next 12 months of mortgage and you’ve spent way more that year than you would have if you stayed in an apartment.
Inevitably, you will spend way more your first year in a home.
Unless it is a brand-new home and you don’t see yourself adding anything to it; but even than you will still probably need to purchase furniture to fill the house, a guest bed maybe or curtains. However, the second year, when the projects are (mostly) done, and the need to improve has died down a bit, you have the potential to save more. Now, let’s take a moment and talk about property taxes. Property taxes, property taxes, property taxes. During your first few years owning a home your (more than likely) paying into an escrow account that then automatically pays your property taxes. That means you don’t have to worry about it right? Nope! It’s not as hands off as you might think. Each year your mortgage can change, just like rent, it fluctuates and that hardly ever means it will decrease; all thanks to property taxes. Each year your home will (hopefully) increase in value, as it does the amount of property tax you pay also increases. Your city can also adjust and increase the tax rate as well. Both can contribute to a very surprising increase to your monthly mortgage. If your mortgage is $1500 a month that first year you will spend $1500 x 12 = 18000 plus your down payment, closing costs, and home improvements. We all hope to get all of that back when we sell the house but that doesn’t matter in the present moment that’s a joy for future us.
If you stay in an apartment you will save more money over time. Renting affords you the ability to move easily. It also affords you the savings from not spending at Home Depot, Lowes, furniture stores, and on contractors. You won’t have to fix anything that breaks unless you or your pet is the culprit. You will have zero yardwork, so dropping $100’s on that curb appeal isn’t your problem either! You will not gain any equity in an apartment, but you could put money in a mutual fund while you live an apartment and invest your money in a different way. Which could, if done right, give you more or the same return as someone investing in their home and property.
All in all, both options are completely individual, and it is a decision you’ll have to make for yourself. In hindsight, we are happy to have the space for a guest, our dogs, and our tools. However, there are times when we miss the simpler life of an apartment. The Saturday afternoons by the apartment pool sipping a frosty beverage because we didn’t have a yard to mow, or a project that we were itching to do. Both choices have their pros and cons, and both can help shape your future financially. Invest in something no matter what. Whether that is a home, or a Roth IRA. Make your money work for you and your life.