“Renting is too expensive, so I’m going to buy a house.” I hear some variation on this statement at least once a week. This perspective worries me, because further discussion usually uncovers some misconceptions about the cost of owning a home.
Airman Mildollar, the author of the currently-on-hiatus-but-hopefully-coming-back-one-day Military Dollar blog, introduced me to a saying that has become a new favorite:
“When you rent, you never pay more than your rent each month. When you buy a house, you never pay less than your mortgage each month.”
Unfortunately, neither Airman nor I know the source of this brilliance. I would totally send them a gushing note and maybe even some Fairytale Brownies. (Those things are the bomb.)
Owning A House Is Complicated When You’re Military
I spend a lot of my days raining on people’s house buying parade and basically trying to talk military families out of buying a house. There are a ton of reasons why buying a house in the military is a risky business. In addition to the usual risks of homeownership, military buyers are faced with:
- Ahigher likelihood of putting down too small a down payment or not having sufficient cash reserves to manage homeowner surprises (due to the VA loan program)
- Moving before they have built up enough equity to cover the selling costs
- Inability to “wait out” downturns in the local real estate market
- Increased chances of needing to rent the property at a loss because they can’t sell
All of these things are good reasons why military families should rarely buy houses while they’re still on active duty. Not never, rarely. But the simplest reason is the reason listed in the quote above: Renting controls your costs. Buying a house opens you up to a whole host of expenses you probably haven’t even thought about.
It’s Hard To Estimate Expenses
Anticipating the expenses of owning a home is hard, especially if you’ve never owned a home before. You just don’t know what you don’t know. Even people who have owned a home can get their estimates wrong.
I’ll use myself as an example. I’ve owned a couple of houses over the years, and I still underestimated expenses on our current home. There have been a lot of things I didn’t consider in my budget, despite 25 years of experience and having lived in this area three times now.
- The heating bills on this house are astronomical. It is heated with propane. We’ve had propane before, but not in the US. We’re bleeding money from November to April each year.
- This house has very steeply pitched roofs that are high off the ground. In our previous houses, my husband would happily go up on the roof to clean out the gutters a couple of times a year. I would have a heart attack if he did that here, so we hire a gutter service.
- Our property taxes have gone up $3000 per year from the previous owner. We did some renovations, so I know they would go up, I didn’t anticipate it would be that much.
We are still technically within the amount of money I had allocated for total housing expenses, but we aren’t able to build up that reserve of cash that is required for maintenance and repairs as they come up. I had to increase our monthly housing budget to build up that reserve, and we are delaying work that should/could be done because it’s not in the budget. I simply failed to accurately predict the cost of keeping this house going. And these are mostly expenses that would belong to the landlord if we were renting…because they are the homeowner.
What Kind of Expenses Happen?
Houses require a lot of upkeep. This includes the stuff you should anticipate, but it also includes the stuff you can’t reasonably anticipate. If you own a house, you need to be prepared for both the things you can anticipate and the things you can’t anticipate.
Obviously, there are a million articles and resources and websites about the kinds of repairs that houses might need and how much they might cost and how frequently they might occur. This article is one, but there are many more. You don’t need me to write a whole maintenance list here, but I will throw out a few examples, just to get your mind going and inspire you to do more research.
Expenses you should anticipate:
- Kitchen appliances need repair or replacement on a somewhat random basis
- Annual servicing: pest control, HVAC service, gutter cleaning, fireplace inspections, etc.
- Major household systems (hot water heater, furnace, roof) will need to be replaced on a semi-predictable basis
- Some sort of maintenance issue will come up regularly – I’d estimate at least every few months. Electrical outlets stop working, tub shoes come apart from tubs, gutters have branches fall on them, driveways require upkeep, garage door springs snap.
Expenses you can’t anticipate specifically, but you should anticipate that something will happen from time-to-time:
- Rodent/bug infestation
- Major plumbing leaks that require tearing out whole sections of your house
- Foundation issues
- Cracked water/sewer lines under yard
- Flooded basem*nts
- Broken windows
The Cost Of Selling
Getting out of a home that you own costs you money. The average home sale in the United States costs 11% of the sales price, but the time you add in realtors commissions, transfer taxes and fees, the cost to prep the house to sell, possible vacancy costs while it sells, and all the other surprise expenses.
The last house I sold, had over $40,000 in expenses attributable to the sale. Thankfully, we had enough profit to cover those costs, but not every home sale does. It’s not uncommon to have to bring money to closing to SELL your house.
Getting out of a home that you rent is fairly simple. If it’s the end of your lease term, or you are able to break the lease using the Servicemember’s Civil Relief Act, then there may be no cost at all. If you’re breaking the lease under a break lease clause, there may be a month or two’s rent in fees. Worst case scenario, you only owe until the end of your lease term.
So How Do You Plan For This?
It’s a big job to anticipate and predict every cost of owning a home. What’s the best way to do it?
In a perfect world, we’d each have a spreadsheet to track the major and minor systems of your home and plan for the costs. But let’s be realistic – most of us aren’t going to do that.
A short-hand way to accomplish the same thing is to set aside a certain amount of money each month to go into the home maintenance fund. Experts recommend 1-3% of your home’s value each year, so for a $400,000 house, that’s $4,000 to $12,000. I encourage you to use the high end of that number when building your budget. If you have low expenses, and build up a solid house maintenance fund, then you can cut back until a big expense hits. But what you absolutely do not want is to estimate low. You don’t want to get into a situation where you have a large, urgent expense (like a cracked sewer line) and you don’t have the money to pay for it without doing extreme things.
Do All The Math
You’ll often hear people say, “I’m going to buy because rent is so much higher than a mortgage payment.” That’s often a true statement, but it doesn’t represent 100% of the truth about the cost of renting vs. the cost of owning. If you’re thinking you want to buy to save money, you might want to go back to the original quote:
When you rent, you never pay more than you rent each month. When you buy a house, you never pay less than your mortgage each month. Click To Tweet
It might just change your budget, or your life, in a good way.
