So, I’m still in the middle of wrangling with the mortgage company for the modification on our mortgage. I’ve been considering a short sale as well, just because I’m looking at all the possible options.
One of the things I ran across while I was looking into foreclosures (because if I don’t take this modification that’s a possible option) was this article on whether foreclosure is a good choice from US News.
While I’m not sure I agree with the spirit of the article, I was really interested in the little bit of math kind of stuck in the middle of the article. If you’re looking to determine the difference between renting and buying, you have to look at all the things you pay for when you have a home that you do not if you are a renter.
For us that looks like this:
- Property Taxes
- Mortgage Interest
- Homeowner Insurance
Please Note: If you rent a house you may still pay Water, Garbage/Sewer, and Gas. If you live in an apartment you may be required to pay Gas or just Cooking Gas. My list does not constitute what a “typical” list will look like. It is specific to my situation. Also, I always recommend getting Renters Insurance for your rental. It’s a lot cheaper than Homeowners insurance and, in some cases, when added to your car/home policy discount has ended up costing nothing. Also, for my calculations I determined $1800 annually for maintenance, every slideshow and article I found lists the average maintenance cost as $2,000-$8,000 a year. So our numbers might be significantly lower. This is probably because Mr. Brickie does all maintenance like running plumbing lines and moving sinks to different walls in the kitchen by himself. If we hired people, it would cost substantially more.
The total on those things annually is $13,875. That is before you even consider the actual house payment. On a 30 year mortgage, assuming no tax increases or huge maintenance problems or an insurance rate hike that’s an extra $416,250 that would be paid out over the life of the mortgage.
So, for the cost of a house and the low, low addition of four hundred thousand dollars, I can end up with a piece of property worth the price of the house + inflation. My mortgage insurance is less than $7k a year, so even when the house is paid off I’ll still have an extra $6,000 a year I’ll be paying out that I wouldn’t have to pay if I were renting.
I’m pretty sure with just the $13,000 a year I can put that in a mutual fund (or diversify, you get my drift) and make what my house is worth in a hell of a lot less than 30 years. In fact, let me check that out. You know what $1156 a month gets you in 30 years with a 2% return on investment? $564,854.33 (interest compounded annually – I really tried to make the numbers look as dour as possible) I used this compound interest calculator in case you’d like to play with numbers on your own.
I have to say, my mind was completely blown when I did the calculations. I’ve seen some calculators that say after the sixth year of renting it would have been a better deal to own a home instead, but I’m just not seeing how the numbers bear that out. I finally found out what the big difference is! Here is an article from The Motley Fool that tells you that you might as well buy a home because you’ll just end up blowing the money anyway. It’s your forced savings plan because you can’t be expected to SAVE MONEY now, can you? You’ll just spend it all on Louis Vuitton handbags and purse dog jewelry.
Maybe that’s true for some people. They should buy a home. In the Decki household, we see having as few bills as possible as a badge of honor because as our income goes up (and it will, I’ll explain in a future blog post how that happens) our expenses stay relatively stable (we do have student loan payments coming up in 2014, but we’re preparing for those) and I can assure you we are not the people who need a mortgage to force us to invest.
My frivolous spending is about $20 a month on Starbucks. For real. I occasionally go out for dinner – maybe once a month. To someplace like Chili’s or Applebees. I know where every penny is spent and how it got there and none of it is frivolous.
I’m left to look at the bare numbers without emotion. It seems to me that those numbers support renting. I mean, if you have emotional reasons for having a home, that’s great. I’m not judging anyone else’s decisions in life. Not even a little bit. Sharing my story has no bearing on how I feel about your story. We’re all just doing our best to get through and win with life and money, right?
But I gotta tell you, as the person who just went from the $41/mo. cellular plan to the $10.99/mo. cellular plan – I’m not your normal human and I certainly don’t spend money like a normal person. (I ordered one of those FreedomPop phones but haven’t received it yet. I’m excited to try it out! I paid for it and am not getting compensated for mentioning it.)
Of course, maybe it will turn out I have an absolutely average nature and I’m going to fail miserably. You should really keep reading to find out more. If I fail, I will do so spectacularly.
Before I go, let me leave you with one more calculator! I loved this one. You put in the information for renting vs. buying and it will show you the raw numbers based on length of time in residence! My results?
Don’t misunderstand me! Home ownership is a wonderful thing. It’s nice to be able to put a garden gnome in your yard and, you know, have your own yard. You won’t be kicked out at a moment’s notice and you’re being forced to invest for your future. All those messages we received growing up that owning a home was a sign of success are quiet and happy. I still remember my great-grandmother writing the check for her last mortgage payment. It was such a great day for her and she cried a little. She was so proud of her home and what she had built inside her home. A family. She thrived on the memories in those walls.
When I think back to all the payments I’ve made and money I’ve already spent on this adorable little house and realize I could have bought it one and a half times already while looking at paperwork to reboot the whole thing to another 30 year mortgage, well, I can’t help but think with the right money management (and y’all KNOW I can beat a penny into a nickel) I could be in a position to buy another house free and clear in ten years. I look forward to showing you the numbers on my projections.
I :::LOVE::: projections. I really think they help you stay on the path. You can see – almost immediately – when you’re starting to veer off course! The more variables I’m able to use to create the projection, the more accurate it is. I know that seems obvious, but I get really, really detailed.
For my family the financial and emotional equation seems like it’s becoming firmly stacked against homeownership. It’s starting to look like the grass might be greener on the other side where some landscaping company is paid to cut it regularly. Because landscaping and snow removal are included in my rent – I just choose not to pay for them as a homeowner so they aren’t mixed into any of my calculations.
I have to tell you though, this particular question and the ones surrounding it are one HELL of an Internet rabbit hole. I’ve probably searched from one to five hours a day for over a month now. It’s…really sad the different ways people end up in this situation. Most of them are depressed and feel horrible. Like failures.
In my next blog post I’m going to tell you what I can do with one to two years of no mortgage payments and why the mortgage company picked the worst possible time to offer us a crappy deal. Perhaps I’ll also cover why we are stupid for not contacting a lawyer because the crappy deal becomes partially our fault for not having a lawyer or an organization like NACA to fight for us.
I’ll leave you with this New York Times Rent vs. Buy Calculator if you want to play with percentages. It’s interesting, but there’s a lot that doesn’t go into it. Everyone is trying to oversimplify something that is complex both financially and emotionally. Also a great guest post on Get Rich Slowly that not only covers the rent vs. buy debate in an interesting way but has a bunch of links at the end that are also great resources.
If you have any specific questions you’d like me to address, you can send an email to jenny at my domain up there in the address bar and I will do my best to answer it in a future blog post. If you email make sure to let me know if you’d like to remain anonymous and what name/town you’d like me to use. As always, hateful comments will not be tolerated and will probably be edited to make you look like an idiot. You have been warned.