This is why people say a home isn’t an investment unless it’s a rental property. What also sucks is even if your house is paid in full the government can still charge you property taxes so you can’t really ever avoid some sort of house payment.
This is true but "apples to apples" it's still best to buy. I'd rather have maintenance, taxes and insurance than maintenance, taxes, insurance, and profit all rolled up in a neat package called "rent" that hardly ever goes down. Plus I can usually make renovations in the house that I want.
@@marinekappa82 Agreed. My initial point is if you have it as an investment (for example live in a multifamily home) you can deduct a percentage of what you mentioned from your taxable income.
And it's not just if the house is paid in full or not. The tax bill will come whether the house appreciates in value or goes down. Looking at it from strictly the point of view of an investment this is different than, say, investments in the stock market or a 401K would behave. Like you said, unless its some sort of rental property it may be difficult to get the full benefit of real estate as an investment.
@@KrystalToddCPA Unless you pay state income taxes like 90% of people are still taking the standard deduction, so it doesn't really matter. The only reason people should buy is either personal preference or a mortgage being significantly cheaper than rent.
Joe Bie More than just the financial system. It's regular people as well. I'm betting on it too. That's how I bought a $650k short sale beach condo on Marco Island for $260k cash in 2008. People are financially stupid,won't read documents or do the math,want that instant gratification and keeping up with the Joneses while still broke.
They aren’t betting on anything. It’s already set up in a way to screw you over they don’t have to bet or hope you do anything. I know people who pay double in property taxes on the same size house that I pay rent on. 😂🤔 even if you own the house you’re going to get screwed over anyways in 2021.
Our culture has done an excellent job of tying home ownership to the concepts of success and being "smart" meaning that people will pay anything to feel smart and successful. Homes are really about turning people into cash machines.
Agreed. Its strange to even consider the idea of a 30 year mortgage, if you think about it, its kind of absurd. To willingly get into lifelong debt and feel proud about it. :) Not many people stay that long in one place, but even if they do, they will be old if its finally payed off, and probably would be better off using the money that they spent half their life paying off. And all those years they thought paying of their mortgage was winning against the bank, when in reality the bank got exactly what they wanted from you, a lifelong payment of INTEREST. The mortgage they dont really care about. When you sell, or die, another on will take over the property and the cycle continues anyway. I "own" an apartment but at least I know what I got myself into. I pay the minimum and invest everything I can into the stock market. And I sure as hell dont see my gigantic personal debt as an investment. :)
Yes, I hear that New Jersey can get pretty spendy in that area. I believe they're actually have the most expensive property taxes (on average) in the country. Definitely an important factor to consider with real estate there.
@@NextLevelLife Thanks for the reply, wasn't expecting it for a mostly joke comment! In the Philadelphia suburbs in Southern NJ where I live, there are around 3.5% per year property tax rates in most of the towns in the area, but since houses are relatively cheap compared to similar areas in the suburbs around Philadelphia and Wilmington, these don't result in an insanely high annual tax cost compared to what you might pay in a comparable area in a neighboring state. Total costs of renting and buying were roughly equal when I compared them using my own methodologies last year. Thanks for the detailed look in your video, as I hadn't figured on testing pegging maintenance and repairs to home size rather than value, or allocating money for renovations as an annual expense rather than waiting until the time comes for it.
Not only is New Jersey one of the most expensive property tax states but they also raise the taxes more than most average states. My taxes have been going up by nearly 3-5% per year for the last 5 years now. And now we have to pay for other failing school districts like Camden and north jersey schools to fund their ludicrous school districts. 2 more years and I’m out of this S$&!hole state.
yeah i liked how he said 1k a month on a hypothetical 300k loan lol depending on where that home is located there's a good chance that payment is closer to 2k a month
@@sdrider8240 The mortgage payment does not include things like escrow, insurance, and property taxes. The mortgage payment is specifically interest and principal towards the loan and nothing else. For a 250K loan for 30 years with 4% interest, the total cost with interest ends up being about 450K. 450K divided by 360 (which is 30 years times 12 months) is 1250 dollars. He split out the rest of the payments for insurance and taxes and utilities later in the video. Definitely important to know the difference between Mortgage payment, and Monthly payment, as the Monthly payment will be significantly higher, especially if you have PMI.
I am sitting in my house that I built thanks to a USDA Rural development loan, no down paymant, no mortgage insurance 30 year loan. My payment is 901 a month, including insurance.
Buy a house you can afford, don't pay MLS retail prices, don't over improve, and don't hire high dollar contractors off of Angie's List or some overhyped site.
I always keep hearing "maintenance" as a con of home ownership. Really? 1%-4% of your home's value per year? $12,000 on a $300,000 home per year in repairs? What are you replacing the carpets every year? Even then carpet replacement is at most $2000 if you hire someone to install it.I have been at my place for over 15 years and the most expensive "maintenance" was putting in tile flooring after the basement flooded. The cost of the tiles were pennies in relationship to the home's value. Maybe $200 at most. And we put in the tiles ourselves. And if your place is constantly falling apart that you need to spend 1%-4% every year then maybe it wasn't worth that much to begin with.
It is an irregular expense. Some years not much but some years more than usual. There is also a lot of time used to keep it up. Without regular upkeep the value of the house will drop the fast.
I thought that was quite an excessive estimate myself as actually I thought all these estimates were quite inflated even more than double or triple the actual costs. I've lived in my house for the last 13 years and as far as spending money on maintenance costs I would say that I spent no more than a few hundred dollars. Granted I have to update it with all new flooring here soon and I really need to update the kitchen appliances and light bathroom updates, but that's not a maintenance cost as that falls into another category. My experience with closing costs seems to be closer to 3 to 4% and that even includes the 1% transfer tax of the total homes selling price NOT upwards of 8%. At the end of the day though it's always better to be high on the cost estimates than too low so there is that, and every homeowners situation is different.
@@michaelb.8953 The maintenance costs may also include mowers, snow throwers (or plow trucks @ $20 per visit), other lawn equipment, water heaters, roofing, repaving a driveway, air conditioners etc. Adds up. Some are cheap, others quite costly.
I think you might be from a rural area or the midwest or whatever. Labor just isnt that cheap in urban areas where many of us need to live for tech jobs.
I bought a house for 95k. 3 bedroom 2 bath, full basement, backyard with a deck and attached garage. Cost 650 total a month. About to rent it for 100k. Don’t rush into buying a 300k houses so you can flex on social media. Buy something that can turn a profit. You’d be shocked at how many people’s first thought when they are looking at a super nice house is the social media post they are gonna make...
Or you could buy "less" home so it's not so expensive and pay the house off early (or even upfront with cash). My house was $130K, and the updates I did didn't come close to what it would be to buy a $330K home. I don't understand the need for these large homes that look like mini-mansions.
Ruth Ann Nordin, you hit the nail on the head.... I have no idea why people think they need to buy more house than they can afford.. its like saying they wont eat out unless its a 5 star restaurant.. you buy and make work what you can afford.
Sounds like you live in an area where homes are affordable. Where I live, a decent single family home starts at around $600k. And that's not a luxurious home. Anything less than that isn't even a house. Anything less than that is a condo with homeowners associations which shouldn't even exist.
@@everydaytech6854 my friend and his wife are on the verge of buying a house just doing the paper works and it's a 2 bedroom house with 1.5 bathrooms and a small yard for 540k (Cali) we live near LA
One thing I have seen friends make a mistake on is buying a home way too expensive. They have no plans to ever pay it off. Meanwhile, mine is paid off and having no mortgage frees up a lot of your money. As long as I pay the taxes I am good and will have a place to stay that I cannot be thrown out of unless I trash the house and it gets condemed.
The other mistake I see is lifestyle creep. Buying things or upgrading the house right away when what’s there still works. Those costs add up over time too.
This is a great video to share to friends or family who are considering buying a home! There's so much information from buying a home to opportunity cost of owning a home or renting! I can't wait to see how you answer the two questions at the end. As always, awesome video!
Thanks for this informative video! I think it's great to shed some light on all of the hidden costs of buying a home. Some of these costs can be greatly reduced if the buyers are willing to wait until they have 20% down so that they can don't have to pay PMI and can get a lower loan amount. Another great strategy to offset costs is to rent out the extra rooms. By renting out the extra rooms to friends or by furnishing and renting them out through Airbnb, your tenants could potentially cover all of your monthly expenses!
Yeah; home ownership is expensive if you do it in the dumbest way possible. Wait till you can put 20% down, and can swing 15 year fixed mortgage payment with no more than 1/4 of your monthly income. Buy only if you're going to live in the area for at least 5 years. Don't do major renovations until after you payed the thing off. Don't pay for someone to move your shit, rent a trailer, and/or throw away all your useless junk.
In my area, the average home is close to $1M. You’d need $200K cash AND about $28K/month income (after taxes?) to buy a home with your logic. Even on a home that’s only $400K, you’d need to make about $150K after taxes to afford a home if you do it your way. That’s not possible for most people. But also, when the average household income is $56K/year, where do you think anyone is going to come up with 20% down? It’s just not realistic for the average person.
Take it easy with the Dave Ramsey. Facts are most people are dumb with money and are told owning a house always beats renting. This video simply goes through a likely scenario where renting is financially better. In all honesty in most states his hypothetical rent payment of $2,250 can be brought down a lot so one could argue he pick a dumb renting scenario as well. Dumb vs dumb is a fair fight lol.
I can assure you that you can’t fix a $80,000 piping issue and replace the entire piping system in 100 year old house after all the pipes burst and destroy your entire foundation/walls/mold.
Preaching to the choir brother. I worked as an appraiser for 15 years. After buying and selling a few homes, I realized the cost not including the down payment averaged about 15% to get in and about 10% to get out. Then you tack on the downpayment and you are looking at a small fortune. After running the numbers, I figured a one or two percent cost for stocks are a bargain. Unless you purchase the home and stay in it for life. Average homeownership time in US is about 7 years. Bad bad bad deal. Not only that, when you go to sell, it could be months or years to find a buyer. Never ever again.
Debt is expensive. First rule of thumb. If you can buy a home free and clear, that cuts out like half of the issues... But homes are big, expensive, and everyone wants them, and few people are able to work and save money long enough to pay cash.
@@mr5timewcwchamp Maintenance yes, it is your best investment as a homeowner. Improvement only if it pays. Don't be like us and think any improvement will pay. We will lose a lot of money on our house because of over remodeling and over paying for remodeling.Never hire or consult an interior decorator or let a home improvement contractor be your guide.
@@mr5timewcwchamp this is a mistake. People remodeling their homes in an effort to sell them are making a Fool's bargain. At best, you often Break Even. Reality is that you often pay more in than you get out. Personally, I would just get an estimate on how expensive the renovation would be. Take that value and deduct it from the selling price. After all, if you perform the renovation and sell the home, at best you will make your money back in most situations and be no worse off than reducing the selling price. Renovation rarely translates to a profit so why sink your upfront cash in hoping for a profit. That or offer to do renovations at buyer's request. Not the greatest idea but it is a possibility. If you slash $10,000 off of the purchase price, not only do you make it much more likely your home will sell (i.e. More buyers can afford driving more offers and flippers see it as an opportunity - leave the renovation ideas to the professionals), but you also avoid the risk of making your home more expensive in the hopes of recouping your losses. Cutting the home price by the value you plan to invest also requires no upfront cash and guarantees your home "renovation" will not cost more than you gain. Rather, it'll make your home much more marketable because no matter what color you redo your bathroom, green is always everyone's favorite color 💵
@@stuarthirsch I'm in the process of getting a house and honestly. I went with something that needs some updating. The nice thing about this yes the house was a bit cheaper for the size, but I can mold the rooms into what I want them to look like. The core stuff is all fine and that is what I cared about. Except the electric baseboards. I might be forking over an arm and a leg for heat come winter. >.>
@@kabloosh699 I agree with this. An up to date house is nice, but I'd rather get a cheaper non-up to date house and then I can update it to my tastes rather than feeling like I paid for an update that isn't quite what I wanted. I think updating before selling should only be done to fix things. If something is broken, then sure bring it up to date when you fix it but otherwise leave it be and the buyer can get what they want in the end. Or if you are frugal and don't mind things being out of date so long as it's functional then there is a lot of money saved for both parties there.
Ok y'all... Bought a house in 2012 for $76k (previous owners did some updates... Paid $508 intially (down payment assistance)... Now paying $460. Since we have been here 1. Paid $1200 to reroute water line 2. Replaced garbage dispoal $150 3. $400 for HVAC repair 4. Paid $4000 for new package unit HVAC (waited 5 years before replacing it) it was a slight inconvenience 5. Paid about $200 for a quick electrial fix... Plan on upgrading panel soon and doing partial rewire All this considered, if I had rented a 3 bedroom apartment, I would have paid way more monthly and had no equity... Paying for somewhere to stay is a service that I would be paying whether I had the house or not. Plus I have my own yard for my children to play, a sense of security, a stable payment, and the abilty to change what I want. By the time I leave, I should at least walk away with $30k and that's fine by me ❤
rent an apartment and buy rental properties...buy a home for yourself cash when time is right. ..nothing wrong with renting if you have decent cash flow from rentals....you want assets not liabilities.
In my case renting was the better deal because the houses available were sooo much more house than I need. It was so extreme that in my case if I had bought in my area I would be paying more in property taxes than I pay in rent. So instead I rented a small home, and after establishing a good relationship we made agreements with the landlord to do our own modifications/repairs/painting. If you have a landlord that just has a few properties and they have found you to be a trustworthy, low maintenance tenant they may be DELIGHTED to have you maintain the place. They also may not raise rent on you for years because they don’t want the hassle of a good tenant moving out and a bad one moving in. I really think that buying a house can be a good deal if you know what you need and know enough about houses to find a well built and maintained one, but you can also shop around for really great rentals/landlords and find great deals that way too. They key is taking time to educate yourself and figure out what your needs actually are.
Being mildly knowledgable in the various trades will save you a vast majority of those maintenance/renovation costs if you know how to do your own work. Sub-contract out what you aren't comfortable doing.
I find it interesting that no where in this video did you mention home equity gain through loan pay down or the average rise in price of homes over a prolonged period. There is also the option to write off the interest cost which leaves some tax savings and over multiple years the locked in mortgage cost effectively slowing the annual rise in cost compared to renting, but those are points that are mostly oriented around ones net worth rather than cashflow which seems to be what you where focusing on today. Personally my plan is to buy a multifamily home, live in one unit and rent out the others, live there for a couple of years until I could rent out my unit at either a break even or profit then proceed to buy another potentially nicer home and proceeding to repeat the process.
Before the home is paid off, it's a cost. I think that is the design of this video. I am not sure it is possible to give a meaningful average rise in price of homes over a prolonged period since it varies a lot by different regions. In each region, the delta from the average can also be huge (in my neighborhood, some homes sale prices are never recovered from 2009 recession, when their property tax assessment value is double of the home price). The "I Love Lucy" renting strategy sounds nice.
He did mention opportunity cost. Instead of all the upfront cost and repairs, maintenance, taxes, headache, etc you could put that money toward other use. A dollar today is worth more than a dollar tomorrow... Also, I rent a 4 bedroom, 2.5 bathroom home in Texas for $1,800 per month. I don’t worry about managing my home. I can focus on managing my investments. I can move to new cities to establish new branches of my business every year. 50% of my profits are plowed back into my business. The other 50% are invested into high yield dividend paying stocks, gold, and bitcoin. If you want to put your eggs in that home equity basket, by all means go for it. Different strokes for different folks.
@@DeRothschild But it's always been that way. Everyone's circumstances are different. Even home-buying advocates have always said if you don't live in a house at least 5-7 years you will lose money by buying. It obviously works in your situation but does not in others. There is never a one-size-fits-all financial rule. I'd also argue in your case, you probably want to expand your business instead of investing in retirement fund. Most people do not have businesses though. Not to mention, the ups and downs of the real estate market can be lucrative. I bought my first condo in 2013 and it has appreciated 50% since 2018. There are people who bought foreclosures that appreciated 150-200% since. Those deals are far better than renting any day. On the flip side, if you bought at a high point of the market, your mortgage is substantially more expensive so renting will most likely come out ahead (rent does not usally go up at the same rate).
Nowadays, with the tax change of combining the standard deduction and personal exemption, tax benefits are not as lucrative. Also combined with the $10,000 SALT (state and local taxes) cap, with high tax states like CA and NY, it’s also less lucrative to consider the tax benefits. It almost equalizes the playing field with renting.
luomio opportunity cost is a HUGE hidden cost that most people don’t think about! I’m doing some calculations now (and this video helps a lot) on whether renting would be cheaper compared to buying. The maintenance cost is what will kill home buying for me, especially if it’s an older home I’m trying to buy. A newer home would be less $ to maintain for me since I prefer small maintenance projects so they don’t become big headaches later. With regards to investing, if people can be disciplined enough to invest the difference in renting vs home buying especially early on, renting can be very lucrative. Otherwise, buying a home “forces” people to save money in their monthly equity build up as they pay down the mortgage, albeit slowly. The flip side to this is there’s no guarantee that equity will be there when you sell. Lots of things can happen too. And now a lot of eggs are in your equity basket which is 1 “investment” vs the market where you can spread your risk across many companies in different sectors and even different geographic regions.
Forgot to mention 2 small things in your hypothetical example that can change things quite a lot. Over the years the equity on the house grows and home values keep up with inflation. So you’re essentially making a profit of 2.5% to 3% on the ENTIRE value of the house each year not just your original downpayment. (Which alone could be a greater return than investing in the stock market your entire downpayment) Some areas appreciate better than others and it’s entirely market area dependent. Great vid 👍
I brought my first in 2017 at 33 years old. I have no kids. I am not married. No credit card debt. No student loans. I live in between Northern Virginia and Southern Virginia. I work in DC. I bank everything. I don't live pass my means.
This video isn't relevant to all states. I live in TX so i was able to find and afford a fairly size home at a great price. Paid it off two years ago. No bank finance or none of that bs, direct from owner.
This video is ridiculous... Don’t buy a $330,000 home unless you can truly afford it. Don’t buy until you have 20% down Buy a modest house and be content with it. Do as much maintenance as you can, hire out the more skilled things. Pay it off early. Quit overthinking it.
This is soo true and more. When something breaks there no land lord to call. You’re responsible, even if you have warranties there’s usually some out of pocket cost. I recommend to save save save because there will be a rainy day!
That's an plus, in my opinion. My landlords never fixed things in a timely manner. Someone you are paying out-of-pocket should take it seriously and do a better job.
My house I bought for 130k. Seller paid all closing cost. Only thing I paid was the earnest money, and inspection thanks to the VA loan. Total cost of the home each month is 850. Thats the mortgage, taxes, Insurance, and principal. Great neighborhood, close to businesses and schools. Beautiful home with a new 30yr roof, new appliances that looks like it cost more than what it is sold for. My realtor said it could easily rent for 1200 minimum and that's before any renovations. I'd rather pay for my home then to rent anyday. p.s renovations prices in this video are drastically decreased if you DIY.
Owning a Home also allows you to be insulated over renting, as renters often pays somebody else's mortgage. In the past 5 years I have seen a 61% increase in my property value vs a 65% increase in rental prices. So home owners get a long term value of 10% increase in property value year over year (50% increase in value in 5 years) My home alone is 180k higher since i bought it. I remodeled it once and spent maybe 10k over the lifespan of the house and gained over 180k in equity. Paid similar rate for HOI vs Rental HOI. Seems like the benefits outweigh the negative this.
Another awesome video Daniel! However it makes me a little sad, since it reminded me of the lost opportunity cost and the never ending property tax and insurance costs not being a homeowner. Although as far as becoming a homeowner goes, I think o did it pretty good considering my wife and I built it on our own, we have no utilities and the total payoff time is less than 5yrs since we pay a little more than double and bi-weekly. The one that REALLY hurts is the opportunity cost; That makes me sad to think about, but I do love my home and if I ever leave it I'll get a good profit from all of that sweat equity.
Andrew, I get what you mean about the opportunity costs. However, every decision has some sort of opportunity cost (whether time reveals the decision to be the ideal choice or not). Here's how you could think of it: What memories or moments would you have missed out on had you not had your home? What is the difference between the quality of life and stability? Not everything is purely about the money (and in fact, most things aren't). It sounds to me like you and your wife did do very well for yourself in terms of housing given your payoff time and sweat equity over the years. Even if you were to look back and run the numbers and find that you could've came out a little better off by choosing a different path that doesn't mean that owning the home was a bad decision. And by the sounds of things I wouldn't think that you would find that to be the case anyway, once all the factors are taken into consideration (remember if you are living in the home without a mortgage payment for a while that may very well make up for the initial opportunity costs of your down payment and other upfront expenses) :)
@@NextLevelLife You make some very good points and when I think about it I would do it all again. Now that you mention it, I'm pretty sure the initial opportunity cost is being recouped because otherwise we would be renting somewhere still and not putting that extra cash into the mortgage (only reason we do is the interest rate isn't very favorable, otherwise it'd be invested instead) and by doing so, when it's paid off we'll be able to boost our savings rate by about 15%... Something we wouldn't be able to do if we continued renting.
Yearly costs are definitely in the $ thousands. I had a pipe (polybutylene) burst over the water heater and my insurance paid for a new water heater (along with insulation, etc). This was fortunate for me because contractors don’t work cheap.
Newsflash: house ownership has initial and ongoing expenses. Another newsflash: home ownership is more expensive in a short term, but is cheaper over the lifetime than renting.
It's not necessarily cheaper over time either. I bought a house in my twenties after having lived in apartments for a few years. A few years into home ownership, I did the math and renting would have been far cheaper, even in the long run. If you need to house a family the numbers change because renting multi-bedroom homes can get expensive. But if you're single or don't plan on having kids, apartment living should be far cheaper when all costs are figured. For me the deal breaker was not having a workshop space while living in an apartment. So even though home ownership is more expensive, if you like a yard, need lots of space for hobbies or the like or just like entertaining large gatherings, it might make the extra expense worth it.
Ownership likely costs more in the long term. It tends to only come out comparable and sometimes ahead if you sell and get to recoup some of your costs. Most people that believe home ownership is an investment or is cheaper than renting are comparing the cost of a mortgage to the cost of renting rather than comparing the total cost of ownership to the cost of renting.
The only thing I don’t like is you used a 20% down payment in your opportunity cost, but 10% with PMI in the other (makes the investing opportunity cost much greater). Also, something often not considered is 30 years down the road, the opportunity cost of not having a monthly mortgage expense (granted I know there will be taxes, etc still). Otherwise, great video! Thanks for all the time and effort. I was literally just asking this question as I’m looking to buy a house in the next couple years.
Generally speaking most people have to have a place to live, so there is minimal opportunity cost, as the alternative is renting. If you can live rent or mortgage free then great, but most can't.
I mean a lot of this is true. However, there are ways people who dont have 50k or more to buy a house. I just bought a 20 year old home for 250k and was able to only put 3% and feel great about it. We had saved up around 20k before buying, put down 3%, negotiated closing cost off. With that we were able to close for about 9k total. After moving in spent about 3k in furniture and remodeling some things. Have insurance and warrantys on everything for 1-5 years. Have an emergency fund dedicated just for the house. Our total mortgage, pmi, taxes, and insurance is around $1500. The rental vaule of our house is close to $2000 and will only increase. Additionally, it's a 4 bedroom home and we have a roommate that pays $550. We do plan on putting around $2500 a year into the house l, only bringing up the value. Overall, for people who can do this the right way, buying a home is a great investment compared to renting.
Jessi, that's great to hear that you managed to do that well in negotiations! Having the renter definitely makes things much, much more viable as it helps to offset the ongoing costs. Having an emergency fund dedicated solely to the house doesn't hurt either 😉. Great job!
It really depends on your situation! I think I’m gonna make a video on my RUclips on the 5% rule because that helps you determine whether to rent or buy a home, thanks for this video!
Ben Kucenski Yup. Just buy what you can afford while still paying all bills,save,etc.. I have an upper middle class 2bed/2.5bath/2car condo in gated community and still paid it off in 9 years. Could have paid it off sooner if I didn't contribute to my 401k,Roth IRA,and other investments/savings.
Exactly! I'm not remodeling a bathroom or a kitchen unless a pipe bursts or there's a fire. I'm not cheap, I just like houses are dated, but functional. The fact that I intend to never sell the place also influences that. As for the furniture, I'm moving the furniture I already have and won't buy any for a decade or so. These huge houses prices are ridiculous. I live in a rural area, so I'm buying with cash, and keeping it under $70,000 and a thousand square feet.
No matter how the nay sayers try to slice it up, Homeownership is always better than renting. Unless you dont plan on living in it long enough to build any equity. Homeownership is a commitment.
Mine is not near this expensive. At all. This video seems off. I bought a 3 bed 2 bath house built in 1951 for $190,000 last year (houses in my city are very affordable still). It had been completely remodeled by investors (new floors, new paint, new real granite counters, all new appliances, new heating and air, new water heater, and new sprinkler system). I put 10% down, so $19,000. My wife and I both have over a 780 credit score, so PMI is only $62 a month. Our closing costs that we had to pay were $2,100. We just save and pay for insurance and taxes on our own, so no escrow. Our payment, with PMI, is $1,112 a month. In 15 months of ownership, I have had one thing I had to replace, the garbage disposal, which was $120. We have done no remodeling, except some landscape work. Also property taxes for me are only about $1,900 a year, which we mostly pay for with our cash back from our credit card that we save up all year which is typically around $1,600 when we pull it out. We also moved our selves as I have a truck, and my dad has a flat bed trailer I used. I guess if you buy a house in a super expensive city, that needs a ton of work, and you don't prepare to buy a house (like saving up money and paying down debt for a few years and having a lower credit score), it can be expensive.
It's actually easier if you don't borrow money ( except for the mortgage), save 10% of your paycheck EVERY payday, have an emergency fund and watch your spending ( buy in bulk). This isn't much of a problem.
Buying a home is an investment nit for the buyer but for the future family. The buyer takes the huge L of buying/paying it but kids and grandkids get a huge advantage in life
Pro tip. to lower your property taxes, start a scrap metal pile in your front yard, quit pruning your trees just stop all landscaping efforts in the front of the property all together hell do doughnuts in your front yard to tear it up really good, only replace the siding on the backside of your home, just make the curb view of your home look like shit in general, the lardass tax man isn't going to get out of his car to evaluate your property.
Here's my two cents. It's not for investment, but more about knowing and being in control of your housing costs especially as you get close to and are in retirement. Yes, property taxes will go up, but rent can go up by 7% or more each year. On a fixed income that's unsustainable.
Mortgage payments annually: $24,000 Renting at $1500 for 12 months: $18,000 First and Last Month: +$3000 Homeowner: $24K Renter: $21K, 3k Refundable. Homeowner accrues equity. Renter gets to start at square one with nothing to show for it. In 12 months I have paid 24k to live while my house has raised in market valuation to 30K.
Much appreciated... We're buying in this market and went 48k over listing which is lower than most in this area to get our house yet it needs some work. Thanks for breaking it down
Like the video shows home ownership is very expensive. Most people don`t realize all those extra costs such as repairs and maintenance. Updating and renovating is also very expensive. Property taxes and Homeowners insurance never go away. HOA fees are forever. And worst of all is all the interest that you pay over 15 or 30 years on your mortgage. 🤥🤕😒😭😥
Nice channel. Here are some ideas for videos that I am hoping to see: 1. how to buy foreclosure home with cash 2. what are the steps and risks to buy a home in an Auction 3. what are the things that first home buyers who are paying cash to know about (no closing cost?) 4. how to avoid being house poor 5. a good strategy to use cash to buy houses for rental 6. a good strategy to use cash to buy houses for flip 7. any good advice for choosing a house for first time home buyers (house related to reduce ownership cost in the long term). My background (and the motivation for the above questions): 400k in stock market investment, no debt, 300k in retirement accounts, single, renting, the average single family resident house purchase price is around 300k in my area but I am hoping to get into the RE passive income field.
Can't really have a video titled the true cost of home ownership without taking into account the financial benefits: renting out a part of the home as a suite or the appreciation in value over the life of the mortgage for instance.
Didn't watch the video on hidden costs? I've cruch numbers like a lunatic in many scenarios I've ball park the difference in most mid tier housing options as buying saving me $50-$100 a month occasionally more sometimes these numbers are flipped negative.
Idk I bought my first place 6 years ago with 20k down, just got it refinanced and found out I have a quarter million dollars in equity now, and my payments are now half of what any of my friends who are renters are paying and my pmi dropped off. I’m so thankful I stopped renting was worth the extra costs if you plan on staying in the same place for many years.
Why was the equity you're gaining over time by owning a house not calculated into the monthly equation at the end vs renting, it's relatively significant.
My first mortgage was 10.15%. We had a period were interest rates were in the teens and then fell a little. That really clobbered prices in my area. The time to buy is when interest rates are sky-high, then refinance as rates fall. And your housing value will then go up with lower rates.
Indeed. High interest is great for home buyers because it means there's less people interested in buying a home, which will definitely show in the prices. It's stupid to assume the home ought to cost X, it only costs X because that's how much people will pay for it when they compete vs one another.
Single family homes are terrible in terms of land use, energy use, water use, and maintenance costs, yet they are a common fixture of television and movie families which adds to the guilt if you don't want one.
I track my spending religiously. So here are some actual numbers for you. Do with them what you will. I bought a house 33 months ago (so just under 3 years) in the suburbs north of Philadelphia. 3 bed, 2.5 bath, single car garage, total living space 1766 square feet. Contract price was $209,257. Total closing costs were $7,451.43. However, $1,032 of that went into initial escrow to cover a portion of the first year's property taxes and homeowner's insurance. I put down 10%. Total cash to close was $23,347.13. The total amount of money I have spent since closing (including Mortgage principal, interest, escrow payments for property taxes, insurance and pmi, utilities, HOA fees, maintenance, etc. is $78,683.70. Now that number does include extra payments I have made to the the principal to pay the mortgage down fast. In total I have paid off $14,644.53 of the principal, meaning that money went to equity rather than to expense. So if you subtract that out my total home ownership expense thus far is about $1,940.58 per month. That number does not include furniture I have purchased, which I track separately. I have spent the last 33 months slowly saving up and buying very nice hand made Amish furniture which should last me a lifetime, rather than buying junky ikea furniture. For comparison the average apartment in Philadelphia right now is 805 square feet and rents for $1,652 per month. The two biggest towns north of me are Allentown and Bethlehem. In Allentown the average apartment is 867 square feet and rents for $1,173. In Bethlehem the average apartment is 935 square feet and rents for $1,364 per month.
The estimated remodeling costs are outrageous. I haven't met a single remodeling-obsessed homeowner that consistently spends 1-4% of the home value every year.
Good, basic info. All home owners (or people looking to own one) should know these things. I'm surprised a lot don't. If it's the largest purchase someone will make, why dont they do a ton of research? 1 extra hour of research can save you thousands. Live below your means.
The economic benefits of homeownership are definitely over-rated, and this is becoming more and more the case with rising interest rates and taxes, and rising insurance costs. And yes, I know landlords pass these expenses onto their tenants, but only PARTIALLY. If a landlord tried to pass all expenses onto their tenant, they would be looking for another tenant pretty quickly.
Way too many 'IFs" and "MIGHTs" in this vid. I can honestly say that home ownership has been one of the most rewarding experiences in my life. I purchased homes that were well within my means and I can put in my own 'Sweat Equity" when required to reduce many of the repair costs that people worry about. People need to be smart about ALL of their financial decisions they make and home ownership is no different.
Sean, I'm glad to hear that your home-owning experience has been a very good one! And you're absolutely correct that people need to be smart and think through all of their financial decisions including where they plan to live. As I said, the thing about real estate is it's a hyper-local item. Depending on numerous factors, some homes are overpriced for the work that needs to go into them, or the area they are in. Others are priced well because the market has recently cooled off, or there is a distressed sale. Some buyers have the time and skills necessary to take care of the majority of maintenance and repair tasks themselves (saving quite a bit of money in those areas in the process), but others aren't so fortunate. You just need to be realistic with yourself when figuring out what you are and are not likely to be able to do with the home, how long you're going to live there, etc. and factor those into your decision to buy it or not 😀 Thanks for the comment!
People who aren't able to fix a majority of things in their house themselves will get absolutely screwed in home ownership, I once saw my aunt pay an appliance repair guy 600 dollars to fix their dishwasher.
I think it's necessary for him to add the if's and might's. Quite literally everyone's situation will be different, so if you're making a video like this you have to speak on the variables that could occur.
You’re one of the lucky ones. I bought a home within my means, but with a $5k heat bill I thought I could lower through improvements. I did that successfully, but my taxes tripled within seven years which devalued the home and increased my PITI payment. In addition to that I found out the day before closing the house was in a fema flood zone. This is upstate ny near the Hudson River, not some beachfront property. The fema insurance was $1k per year but now it’s over $4k. It’s been a harrowing experience financially. People lose their homes in situations like this.
See Millenials...no need to feel so bad about not being able to afford a house. However, I do think some of the running costs are overstated a little and can't just be considered "costs". Refurbishing for example is a signficant upgrade and often a worthy financial investment too.
He forgot one major metric in home ownership, at the end of the day you own a home and for the vast majority of the modern history of home ownership, the owner will at least break even on the cost of the house when they sell it. I have been lucky and worked my way up of a modest home in not the best neighborhood to a nice house in a nice area, not affluent but pretty nice. To me there is just no comparison financially if you plan to live in the house you buy for at least 10 years and take reasonable care and of course are not forced to sell (like a job relocation) in a down market. Remember when you rent, at the end of that 10 years you have zero asset when you move, zero. While equity in your home builds slowly from your payments as the majority of a mortgage payment in the initial years goes to interest, you also get whatever gains there are in your housing market, the appreciation. One other very important metric is maintenance, now few homeowners can deal with replacing a furnace or central AC system but many can handle replacing a water heater, do interior painting, most plumbing repairs, and other repairs from time to time. If you can't do anything but change a light bulb and don't plan to learn then you might be better off with a rented property. For example, to replace a washer in a leaking faucet you are looking at less than a dollar for the new washer and say you had no tools yet, that would be another 25 bucks in tools, so all in worse case 26 bucks, that same washer replaced by a plumber is probably in the 75-100 buck range. Future replacement now that you have the tools will be a buck a pop. A lawn mower will likely set you back a couple hundred bucks and last 10 years so 2 bucks a month, if you have a service do it, 100 bucks a month, and this list gets very long of things like this, get a room painted and you are looking at a few hundred bucks, paint it yourself and you are likely looking at less than 100 bucks and you again net out some tools for future use. The only way home ownership is not financially better than renting is if you will likely be moving around a lot or never plan to do maintenance work yourself.
NO KIDDING! My home is paid off. I pay no mortgage. However, upkeep every year, taxes, yard-work, and even "keeping up with the Jones" cost an average of $5,000 a year. What I mean buy "keeping up with the Jones" is things you do that you really don't need to do, but you put in all those new shrubs around your house to make your home look good for the neighbors. And that is if there is NO major unexpected expensiveness like new furnace (which I had to replace last winter). And a few years back I had a water leak in the line between the road and my home. This can run your yearly cost to $10,000. I bought my first home at 24 at a 15 year mortgage...... BIG MISTAKE! The current home I live in I inherited. So, that is really the only way I justify living in it despite it being an older home that has a lot of repairs.
As someone who has owned a house for almost a decade I haven't spent more than 1000$ on anything.... like through the whole 10 years. Why are you remodeling your whole kitchen / bathroom every few years?
I suppose it depends on the house and buyer in question. Some people enjoy the aspect of owning a home instead of renting because they can make their home their own. Others don't see the same amount of value in that and consequently won't spend as much money on home improvements. Generally, when it comes time to sell you will do some sort of renovating (or just extra repairs) to get the home "market ready" but some people don't have to if they happen to sell when the market they live in is white hot. This, again, displays just how hyper-local real estate can be.
Benefits of buying is long term. You don't want to be renting when you retire. We all know rent goes up each year while the mortgage on a fixed rate stays the same. That's the main long term benefit. Well, that and equity tends to goes up in value over time. Esp commercial property. In turn you can always rent your house out and let it pay for itself if you don't want to live in it anymore. But that too is a whole different can of worms.
Housing crash most likely is come soon. If you have enough down payment, good FICO score and secure job, it is time to buy your own house in cute little town away from big city!
I live in Salt Lake City, I was shopping around my city. 2 bed 1 bath $370k thats low end, but add taxes, fees, closing cost, insurance. Just that average monthly payment for a $370k is $2500 a month times 12 months times 30 years $900,000. That assumes nothing breaks, AC never dies, roof lasts 30 years. So to make a profit in 30 years that 2 bed 1 bath would have to sell for a million dollars. Median rent in Salt Lake if you do 1 bedroom about $1200, but no repair costs, property taxes, interest. So again basic doddle pad math times 12, times 30 = $430,000. That's 400k in your pocket not bad, put that money in stocks bonds over 30 years, that's a mill or 2. house in Thailand 4 bedroom palace in city center free and clear $200k and $1.5 million to spare in retirement. That's a good life.
This is a very good video. The information is not commonly known or considered. Home buyer and financial literacy classes should include this content. Every $ spent on maintenance is a $ not going toward retirement.
A better video would be comparing it to renting. Do not forget to factor in the massive amount extra you will need in retirement if you do not own your own home. Inflation favours buying as rents go up over time while mortgage payments go down in real terms.
In the comparison you forgot the equity you gain from paying down the mortgage and the growth of the property. If you had the home would seem more favorable. Not to mention you get more space with the home then renting some apartment.
It depends. How long are you planning to live in the house or even condo? Can you pay cash for the house? What will inflation do to the price of housing and rents? How old are you?
Another nice thing about rent is that you can move easily to find better opportunities if the need arises. It's much harder to move when a house keeps you rooted to a certain location especially if it still has a mortgage.
Cheaper to rent yes. You dont like owning your own things? You like the fact that every rent payment you make you're making someone else rich? You wanna pay forever right?
I hope the Covid19 showed people how important owning your home is. Having to pay rent is bad but having to pay it while jobless and accumulating debt is worse
@@tylere.8436 I think the question you are trying to answer is : Is it better to own a house/asset at the time you become jobless or not? Tried to put it as best as I could, but you can see what I mean.
People get too tied up with paying off home loans (usually low interest rates) as quickly as possible the reality is that taking a 15 year mortgage and not investing in stocks is a massive opportunity loss given 15 years of compounding growth in stocks even if you start saving those payments in full after paying of your mortgage even allowing for interest "saved" you will never catch up with the person who took a 30 year mortgage but saved the difference in the S&P from day 1. Follow the money guys for a superb explanation of this point.
I paid off my 30yr mortgage in nine years while still saving, investing,and contributing close to maximum to 401k and 100% on Roth IRA while maintaining zero debt. I just bought a home I could truly afford unlike most people.
Probably depends on the age of the and the current condition. If relatively new, small % seems likely. But there's no way everything will be working fine in 15-30 years. Use the savings now for the big items in the future.
I am so sick of people telling me renting is a waste of money.. sure go ahead and tell me how smart "homeowners" are. You never own the home THE BANK DOES. Homeloaners is what they are.
I'm a minute and a half in and I'm already getting a headache with all the eye rolling I'm doing. Serve your country.... earn the ability to qualify for a VA loan.... use VA loan.... 0 downpayment - ever. But.... there are other ways to avoid a downpayment. To pretend the average home is $330,000 is laughable. I'm willing to bet 90+% of people who look at this video can be more than comfortable in a 1400-1800 sqft home.... that was built in the 80s-90s. At least in my area and most of the rest of the midwest a house like that will run you anywhere from $100,000 to about $230-240,000......... NOT $300,000+. As for California and Hawaii.... I have no clue why people live there. This video popped up for some reason in my feed and I was skeptical when I saw it and not even 2 minutes in its pretty much confirming my skepticism. I'll watch a little more but I'm guessing that he doesn't mention the fact that if you rent you're pretty much just avoiding a downpayment (again.... not necessary if you're a Vet or utilize workarounds) otherwise..... renting IMO is at the very least just as expensive as owning a home... if not more expensive. 1) Your rent is covering the mortgage for your landlord..... and then some. The "and then some" goes toward a fund for emergencies and repairs toward that house.... whether they happen or not.... regardless..... you're paying for it. 2) Not only are you paying the mortgage (and by that I mean everything included with a mortgage... the loan principal, interest, taxes, etc.) but you're paying a premium on it meaning on a cost per square foot renting is by FAR more expensive. I have a VA loan... so my mortgage was the purchase price. Let's say it's $250,000. My monthly mortgage payment is $1320/ month (VA loan on a DIRT CHEAP interest rate of 2.75%..... pretty sure interest rates are even lower right now meaning there has never been a better time to buy). That covers the loan and escrow which is shit like taxes and insurance. House is just shy of 2,000 sqft with a 2.5 car detached garage. To get a comparable sized rental in my area..... I'm looking at at least $1700 if not 2,000/ month. My buddy has an apartment and pays over $1100/ month for his 2 bed 1 bath apartment that I think is like 800 sqft.... and has no garage. Rent is by far more expensive. 3) "Hidden costs." I hate when people throw this term around. There is nothing hidden about them. Shit breaks. Shit needs to be replaced. This shouldn't be shocking or a surprise to anyone with a brain. But guess what these fear inciting anti home ownership people don't tell you. Shit breaks FAR less frequently than they put on. I've owned a home for 6+ years and the only thing I HAD to replace because it bit the dust was the water heater at my first house. But guess what.... that's what inspections are for when you go through the buying process. Inspector saw the heater was over a decade old and said it would likely need replacing soon. I asked for $500 if the purchase price as a result. Got it. 2nd house I bought. Same thing. Water heater is 13 years old. Asked for $500 off purchase price.... seller agreed. That's it. 1 water heater biting the dust in 6+ years. And I've gotten a total of $1000 off the purchase price combined between the 2 places. Renters though..... they pay at least $300 OVER whatever the mortgage is.... every.... single.... month to cover such "hidden costs" should they arise. Thing is though, they pay this for someone else's "hidden costs" and again.... are also paying their mortgage for them. Bottom line - renting is stupid. If you HAVE to do it you have to do it, but if you can buy a starter home in the $130-180,000 range..... do it. You're way better off in the long run. I will never understand people who push this notion renting is "smarter" than buying. You're paying someone else's mortgage and then some.... to cover "hidden costs" of ownership.... for your landlord.... every month. Why? Why do this indefinitely? Whatever you're paying in rent you can likely be paying on your own mortgage..... for a larger place.... that has a garage. OR you can get a similar sized place and be paying probably at least $400 less a month with your own mortgage...... which you can use for whatever (smart people put it toward the principle so they pay off their mortgage in, say 15-20 years instead of 30.... but whatever). Renting is by FAR more expensive. It's not even close IMO.
12:15 "Even if you do end up making most of it back from the profits of the sale" That a bad way of looking at it, unless you're buying to flip. If you buy brand new and live there for 20 years, that new carpet/roof/deck/full house paint/appliances you paid for isn't really earning you money, it's literally just maintaining your home. If you DIDNT pay for those things, you could expect to sell the house for a good chunk less than a normally maintaind house.
This video is incomplete at best. Mortgage interest deduction, price increase that result in percentage gain based on the entire value of the property and not just the initial investment, and equity accumulation made real estate a much better alternative than renting and even the stock market.
Rather u like renting or owning, can we at least agree that renting is simpler? I just pay rent, and the landlord handles everything. Even if u argue that I’m paying for convenience and/or that owning is worth it, it is still complex and usually takes money up front.
This is why people say a home isn’t an investment unless it’s a rental property. What also sucks is even if your house is paid in full the government can still charge you property taxes so you can’t really ever avoid some sort of house payment.
This is true but "apples to apples" it's still best to buy. I'd rather have maintenance, taxes and insurance than maintenance, taxes, insurance, and profit all rolled up in a neat package called "rent" that hardly ever goes down. Plus I can usually make renovations in the house that I want.
@@marinekappa82 Agreed. My initial point is if you have it as an investment (for example live in a multifamily home) you can deduct a percentage of what you mentioned from your taxable income.
Yes my home is not an investment. It doesn't make me any money because I live in it.
And it's not just if the house is paid in full or not. The tax bill will come whether the house appreciates in value or goes down. Looking at it from strictly the point of view of an investment this is different than, say, investments in the stock market or a 401K would behave. Like you said, unless its some sort of rental property it may be difficult to get the full benefit of real estate as an investment.
@@KrystalToddCPA
Unless you pay state income taxes like 90% of people are still taking the standard deduction, so it doesn't really matter. The only reason people should buy is either personal preference or a mortgage being significantly cheaper than rent.
The whole financial system is betting on that you have no idea how it works or what you're doing.
Joe Bie
More than just the financial system. It's regular people as well.
I'm betting on it too.
That's how I bought a $650k short sale beach condo on Marco Island for $260k cash in 2008.
People are financially stupid,won't read documents or do the math,want that instant gratification and keeping up with the Joneses while still broke.
@@blackworldtraveler3711 AMEN!
@@blackworldtraveler3711 damn how much is it worth today?
They aren’t betting on anything. It’s already set up in a way to screw you over they don’t have to bet or hope you do anything. I know people who pay double in property taxes on the same size house that I pay rent on. 😂🤔 even if you own the house you’re going to get screwed over anyways in 2021.
Our culture has done an excellent job of tying home ownership to the concepts of success and being "smart" meaning that people will pay anything to feel smart and successful. Homes are really about turning people into cash machines.
Agreed. Its strange to even consider the idea of a 30 year mortgage, if you think about it, its kind of absurd. To willingly get into lifelong debt and feel proud about it. :) Not many people stay that long in one place, but even if they do, they will be old if its finally payed off, and probably would be better off using the money that they spent half their life paying off. And all those years they thought paying of their mortgage was winning against the bank, when in reality the bank got exactly what they wanted from you, a lifelong payment of INTEREST. The mortgage they dont really care about. When you sell, or die, another on will take over the property and the cycle continues anyway. I "own" an apartment but at least I know what I got myself into. I pay the minimum and invest everything I can into the stock market. And I sure as hell dont see my gigantic personal debt as an investment. :)
Absolutely!!
2.5% maximum property tax rate... I wish.
*Cries in New Jersey*
Yes, I hear that New Jersey can get pretty spendy in that area. I believe they're actually have the most expensive property taxes (on average) in the country. Definitely an important factor to consider with real estate there.
@@NextLevelLife Thanks for the reply, wasn't expecting it for a mostly joke comment!
In the Philadelphia suburbs in Southern NJ where I live, there are around 3.5% per year property tax rates in most of the towns in the area, but since houses are relatively cheap compared to similar areas in the suburbs around Philadelphia and Wilmington, these don't result in an insanely high annual tax cost compared to what you might pay in a comparable area in a neighboring state.
Total costs of renting and buying were roughly equal when I compared them using my own methodologies last year. Thanks for the detailed look in your video, as I hadn't figured on testing pegging maintenance and repairs to home size rather than value, or allocating money for renovations as an annual expense rather than waiting until the time comes for it.
Cries in Oregon!
Not only is New Jersey one of the most expensive property tax states but they also raise the taxes more than most average states. My taxes have been going up by nearly 3-5% per year for the last 5 years now. And now we have to pay for other failing school districts like Camden and north jersey schools to fund their ludicrous school districts. 2 more years and I’m out of this S$&!hole state.
Zebra Lady75 I make 80k a year and I live okay, but I’m certainly not living in a mansion with a Ferrari in the driveway
6:20 “Mortgage payments can cost around $1000 or more”. Yikes. Only $1000? What a dream that would be
yeah i liked how he said 1k a month on a hypothetical 300k loan lol depending on where that home is located there's a good chance that payment is closer to 2k a month
@@sdrider8240 The mortgage payment does not include things like escrow, insurance, and property taxes. The mortgage payment is specifically interest and principal towards the loan and nothing else. For a 250K loan for 30 years with 4% interest, the total cost with interest ends up being about 450K. 450K divided by 360 (which is 30 years times 12 months) is 1250 dollars. He split out the rest of the payments for insurance and taxes and utilities later in the video.
Definitely important to know the difference between Mortgage payment, and Monthly payment, as the Monthly payment will be significantly higher, especially if you have PMI.
@@Tapion013 my total payment (mortgage taxes and insurance) is $665 on a $60k loan
@@jcrowley1985Are you just stating a fact, or are you trying to say that 665 is high, or that 665 is low? I'm confused.
I am sitting in my house that I built thanks to a USDA Rural development loan, no down paymant, no mortgage insurance 30 year loan. My payment is 901 a month, including insurance.
Buy a house you can afford, don't pay MLS retail prices, don't over improve, and don't hire high dollar contractors off of Angie's List or some overhyped site.
I always keep hearing "maintenance" as a con of home ownership. Really? 1%-4% of your home's value per year? $12,000 on a $300,000 home per year in repairs? What are you replacing the carpets every year? Even then carpet replacement is at most $2000 if you hire someone to install it.I have been at my place for over 15 years and the most expensive "maintenance" was putting in tile flooring after the basement flooded. The cost of the tiles were pennies in relationship to the home's value. Maybe $200 at most. And we put in the tiles ourselves. And if your place is constantly falling apart that you need to spend 1%-4% every year then maybe it wasn't worth that much to begin with.
sor3999 yea i think alot of the prices were overpriced in this video. great video though
It is an irregular expense. Some years not much but some years more than usual. There is also a lot of time used to keep it up. Without regular upkeep the value of the house will drop the fast.
I thought that was quite an excessive estimate myself as actually I thought all these estimates were quite inflated even more than double or triple the actual costs. I've lived in my house for the last 13 years and as far as spending money on maintenance costs I would say that I spent no more than a few hundred dollars. Granted I have to update it with all new flooring here soon and I really need to update the kitchen appliances and light bathroom updates, but that's not a maintenance cost as that falls into another category. My experience with closing costs seems to be closer to 3 to 4% and that even includes the 1% transfer tax of the total homes selling price NOT upwards of 8%. At the end of the day though it's always better to be high on the cost estimates than too low so there is that, and every homeowners situation is different.
@@michaelb.8953 The maintenance costs may also include mowers, snow throwers (or plow trucks @ $20 per visit), other lawn equipment, water heaters, roofing, repaving a driveway, air conditioners etc. Adds up. Some are cheap, others quite costly.
I think you might be from a rural area or the midwest or whatever. Labor just isnt that cheap in urban areas where many of us need to live for tech jobs.
I bought a house for 95k. 3 bedroom 2 bath, full basement, backyard with a deck and attached garage. Cost 650 total a month. About to rent it for 100k. Don’t rush into buying a 300k houses so you can flex on social media. Buy something that can turn a profit. You’d be shocked at how many people’s first thought when they are looking at a super nice house is the social media post they are gonna make...
How much did you pay for everything?
Or you could buy "less" home so it's not so expensive and pay the house off early (or even upfront with cash). My house was $130K, and the updates I did didn't come close to what it would be to buy a $330K home. I don't understand the need for these large homes that look like mini-mansions.
Agree with you, but good luck buying a house for even 200k in California. The minimum price you're paying for a normal 1500sf house is 300k.
Ruth Ann Nordin, you hit the nail on the head.... I have no idea why people think they need to buy more house than they can afford.. its like saying they wont eat out unless its a 5 star restaurant.. you buy and make work what you can afford.
Sounds like you live in an area where homes are affordable. Where I live, a decent single family home starts at around $600k. And that's not a luxurious home. Anything less than that isn't even a house. Anything less than that is a condo with homeowners associations which shouldn't even exist.
Townhouses in the DC metro area cost more than that. Even 40 miles west of DC
@@everydaytech6854 my friend and his wife are on the verge of buying a house just doing the paper works and it's a 2 bedroom house with 1.5 bathrooms and a small yard for 540k (Cali) we live near LA
One thing I have seen friends make a mistake on is buying a home way too expensive. They have no plans to ever pay it off. Meanwhile, mine is paid off and having no mortgage frees up a lot of your money. As long as I pay the taxes I am good and will have a place to stay that I cannot be thrown out of unless I trash the house and it gets condemed.
The other mistake I see is lifestyle creep. Buying things or upgrading the house right away when what’s there still works. Those costs add up over time too.
Good for u! That’s goals.
“Stupidly expensive” so true! 🔥🔥
This is a great video to share to friends or family who are considering buying a home! There's so much information from buying a home to opportunity cost of owning a home or renting! I can't wait to see how you answer the two questions at the end. As always, awesome video!
Thanks, Erika! I'm glad you enjoyed it. Hopefully the answers to the final questions will be as enjoyable and informative 😀
Thanks for this informative video! I think it's great to shed some light on all of the hidden costs of buying a home. Some of these costs can be greatly reduced if the buyers are willing to wait until they have 20% down so that they can don't have to pay PMI and can get a lower loan amount.
Another great strategy to offset costs is to rent out the extra rooms. By renting out the extra rooms to friends or by furnishing and renting them out through Airbnb, your tenants could potentially cover all of your monthly expenses!
Yeah; home ownership is expensive if you do it in the dumbest way possible. Wait till you can put 20% down, and can swing 15 year fixed mortgage payment with no more than 1/4 of your monthly income. Buy only if you're going to live in the area for at least 5 years. Don't do major renovations until after you payed the thing off. Don't pay for someone to move your shit, rent a trailer, and/or throw away all your useless junk.
In my area, the average home is close to $1M. You’d need $200K cash AND about $28K/month income (after taxes?) to buy a home with your logic.
Even on a home that’s only $400K, you’d need to make about $150K after taxes to afford a home if you do it your way. That’s not possible for most people.
But also, when the average household income is $56K/year, where do you think anyone is going to come up with 20% down? It’s just not realistic for the average person.
If you cant afford that look somewhere else
Robert That’s sounds like gentrification
Robert
People do it all the time in Oklahoma with $50k/yr salary
Take it easy with the Dave Ramsey. Facts are most people are dumb with money and are told owning a house always beats renting. This video simply goes through a likely scenario where renting is financially better. In all honesty in most states his hypothetical rent payment of $2,250 can be brought down a lot so one could argue he pick a dumb renting scenario as well. Dumb vs dumb is a fair fight lol.
I’m a plumber by trade and can fix almost everything with my house.
Can you tell me the most common issues that need fixing?
I can assure you that you can’t fix a $80,000 piping issue and replace the entire piping system in 100 year old house after all the pipes burst and destroy your entire foundation/walls/mold.
@@MobileAura who says his house is 100 years old? Either way he did mention “almost everything” lol why so bitter?
@@jameshumphrey3425 he’s a hater that’s why lol
A great position to be in!
Preaching to the choir brother. I worked as an appraiser for 15 years. After buying and selling a few homes, I realized the cost not including the down payment averaged about 15% to get in and about 10% to get out. Then you tack on the downpayment and you are looking at a small fortune. After running the numbers, I figured a one or two percent cost for stocks are a bargain. Unless you purchase the home and stay in it for life. Average homeownership time in US is about 7 years. Bad bad bad deal. Not only that, when you go to sell, it could be months or years to find a buyer. Never ever again.
Debt is expensive. First rule of thumb. If you can buy a home free and clear, that cuts out like half of the issues... But homes are big, expensive, and everyone wants them, and few people are able to work and save money long enough to pay cash.
Or you could just NOT remodel your home or repair your home constantly. God knows how many land lords seem to get away with that just fine.
Until you try to sell it😂
@@mr5timewcwchamp Maintenance yes, it is your best investment as a homeowner. Improvement only if it pays. Don't be like us and think any improvement will pay. We will lose a lot of money on our house because of over remodeling and over paying for remodeling.Never hire or consult an interior decorator or let a home improvement contractor be your guide.
@@mr5timewcwchamp this is a mistake. People remodeling their homes in an effort to sell them are making a Fool's bargain. At best, you often Break Even. Reality is that you often pay more in than you get out. Personally, I would just get an estimate on how expensive the renovation would be. Take that value and deduct it from the selling price. After all, if you perform the renovation and sell the home, at best you will make your money back in most situations and be no worse off than reducing the selling price. Renovation rarely translates to a profit so why sink your upfront cash in hoping for a profit. That or offer to do renovations at buyer's request. Not the greatest idea but it is a possibility. If you slash $10,000 off of the purchase price, not only do you make it much more likely your home will sell (i.e. More buyers can afford driving more offers and flippers see it as an opportunity - leave the renovation ideas to the professionals), but you also avoid the risk of making your home more expensive in the hopes of recouping your losses. Cutting the home price by the value you plan to invest also requires no upfront cash and guarantees your home "renovation" will not cost more than you gain. Rather, it'll make your home much more marketable because no matter what color you redo your bathroom, green is always everyone's favorite color 💵
@@stuarthirsch I'm in the process of getting a house and honestly. I went with something that needs some updating. The nice thing about this yes the house was a bit cheaper for the size, but I can mold the rooms into what I want them to look like. The core stuff is all fine and that is what I cared about. Except the electric baseboards. I might be forking over an arm and a leg for heat come winter. >.>
@@kabloosh699 I agree with this. An up to date house is nice, but I'd rather get a cheaper non-up to date house and then I can update it to my tastes rather than feeling like I paid for an update that isn't quite what I wanted. I think updating before selling should only be done to fix things. If something is broken, then sure bring it up to date when you fix it but otherwise leave it be and the buyer can get what they want in the end. Or if you are frugal and don't mind things being out of date so long as it's functional then there is a lot of money saved for both parties there.
Ok y'all... Bought a house in 2012 for $76k (previous owners did some updates... Paid $508 intially (down payment assistance)... Now paying $460. Since we have been here
1. Paid $1200 to reroute water line
2. Replaced garbage dispoal $150
3. $400 for HVAC repair
4. Paid $4000 for new package unit HVAC (waited 5 years before replacing it) it was a slight inconvenience
5. Paid about $200 for a quick electrial fix... Plan on upgrading panel soon and doing partial rewire
All this considered, if I had rented a 3 bedroom apartment, I would have paid way more monthly and had no equity... Paying for somewhere to stay is a service that I would be paying whether I had the house or not. Plus I have my own yard for my children to play, a sense of security, a stable payment, and the abilty to change what I want. By the time I leave, I should at least walk away with $30k and that's fine by me ❤
rent an apartment and buy rental properties...buy a home for yourself cash when time is right. ..nothing wrong with renting if you have decent cash flow from rentals....you want assets not liabilities.
You want investments, not assets.
Taxes, insurance, repairs, inspections, fees, interest, mortgage vs renting. Easy choice
Exactly, unless you pay cash for a home, or if you have tenants, renting is financially much better
In my case renting was the better deal because the houses available were sooo much more house than I need. It was so extreme that in my case if I had bought in my area I would be paying more in property taxes than I pay in rent. So instead I rented a small home, and after establishing a good relationship we made agreements with the landlord to do our own modifications/repairs/painting. If you have a landlord that just has a few properties and they have found you to be a trustworthy, low maintenance tenant they may be DELIGHTED to have you maintain the place. They also may not raise rent on you for years because they don’t want the hassle of a good tenant moving out and a bad one moving in.
I really think that buying a house can be a good deal if you know what you need and know enough about houses to find a well built and maintained one, but you can also shop around for really great rentals/landlords and find great deals that way too. They key is taking time to educate yourself and figure out what your needs actually are.
Being mildly knowledgable in the various trades will save you a vast majority of those maintenance/renovation costs if you know how to do your own work. Sub-contract out what you aren't comfortable doing.
All these depends which state or city ..
I find it interesting that no where in this video did you mention home equity gain through loan pay down or the average rise in price of homes over a prolonged period. There is also the option to write off the interest cost which leaves some tax savings and over multiple years the locked in mortgage cost effectively slowing the annual rise in cost compared to renting, but those are points that are mostly oriented around ones net worth rather than cashflow which seems to be what you where focusing on today. Personally my plan is to buy a multifamily home, live in one unit and rent out the others, live there for a couple of years until I could rent out my unit at either a break even or profit then proceed to buy another potentially nicer home and proceeding to repeat the process.
Before the home is paid off, it's a cost. I think that is the design of this video. I am not sure it is possible to give a meaningful average rise in price of homes over a prolonged period since it varies a lot by different regions. In each region, the delta from the average can also be huge (in my neighborhood, some homes sale prices are never recovered from 2009 recession, when their property tax assessment value is double of the home price).
The "I Love Lucy" renting strategy sounds nice.
He did mention opportunity cost. Instead of all the upfront cost and repairs, maintenance, taxes, headache, etc you could put that money toward other use. A dollar today is worth more than a dollar tomorrow... Also, I rent a 4 bedroom, 2.5 bathroom home in Texas for $1,800 per month. I don’t worry about managing my home. I can focus on managing my investments. I can move to new cities to establish new branches of my business every year. 50% of my profits are plowed back into my business. The other 50% are invested into high yield dividend paying stocks, gold, and bitcoin. If you want to put your eggs in that home equity basket, by all means go for it. Different strokes for different folks.
@@DeRothschild But it's always been that way. Everyone's circumstances are different. Even home-buying advocates have always said if you don't live in a house at least 5-7 years you will lose money by buying.
It obviously works in your situation but does not in others. There is never a one-size-fits-all financial rule. I'd also argue in your case, you probably want to expand your business instead of investing in retirement fund. Most people do not have businesses though.
Not to mention, the ups and downs of the real estate market can be lucrative. I bought my first condo in 2013 and it has appreciated 50% since 2018. There are people who bought foreclosures that appreciated 150-200% since. Those deals are far better than renting any day. On the flip side, if you bought at a high point of the market, your mortgage is substantially more expensive so renting will most likely come out ahead (rent does not usally go up at the same rate).
Nowadays, with the tax change of combining the standard deduction and personal exemption, tax benefits are not as lucrative. Also combined with the $10,000 SALT (state and local taxes) cap, with high tax states like CA and NY, it’s also less lucrative to consider the tax benefits. It almost equalizes the playing field with renting.
luomio opportunity cost is a HUGE hidden cost that most people don’t think about! I’m doing some calculations now (and this video helps a lot) on whether renting would be cheaper compared to buying. The maintenance cost is what will kill home buying for me, especially if it’s an older home I’m trying to buy. A newer home would be less $ to maintain for me since I prefer small maintenance projects so they don’t become big headaches later.
With regards to investing, if people can be disciplined enough to invest the difference in renting vs home buying especially early on, renting can be very lucrative. Otherwise, buying a home “forces” people to save money in their monthly equity build up as they pay down the mortgage, albeit slowly. The flip side to this is there’s no guarantee that equity will be there when you sell. Lots of things can happen too. And now a lot of eggs are in your equity basket which is 1 “investment” vs the market where you can spread your risk across many companies in different sectors and even different geographic regions.
Forgot to mention 2 small things in your hypothetical example that can change things quite a lot. Over the years the equity on the house grows and home values keep up with inflation. So you’re essentially making a profit of 2.5% to 3% on the ENTIRE value of the house each year not just your original downpayment. (Which alone could be a greater return than investing in the stock market your entire downpayment) Some areas appreciate better than others and it’s entirely market area dependent. Great vid 👍
I brought my first in 2017 at 33 years old. I have no kids. I am not married. No credit card debt. No student loans. I live in between Northern Virginia and Southern Virginia. I work in DC. I bank everything. I don't live pass my means.
@Ken A. Thank you. Be blessed and safe.
This video isn't relevant to all states. I live in TX so i was able to find and afford a fairly size home at a great price. Paid it off two years ago. No bank finance or none of that bs, direct from owner.
This video is ridiculous...
Don’t buy a $330,000 home unless you can truly afford it.
Don’t buy until you have 20% down
Buy a modest house and be content with it.
Do as much maintenance as you can, hire out the more skilled things.
Pay it off early.
Quit overthinking it.
Agreed. I have no idea why people are afraid of old or small houses these days.
This is soo true and more. When something breaks there no land lord to call. You’re responsible, even if you have warranties there’s usually some out of pocket cost. I recommend to save save save because there will be a rainy day!
That's an plus, in my opinion. My landlords never fixed things in a timely manner. Someone you are paying out-of-pocket should take it seriously and do a better job.
My house I bought for 130k. Seller paid all closing cost. Only thing I paid was the earnest money, and inspection thanks to the VA loan. Total cost of the home each month is 850. Thats the mortgage, taxes, Insurance, and principal. Great neighborhood, close to businesses and schools. Beautiful home with a new 30yr roof, new appliances that looks like it cost more than what it is sold for. My realtor said it could easily rent for 1200 minimum and that's before any renovations. I'd rather pay for my home then to rent anyday.
p.s renovations prices in this video are drastically decreased if you DIY.
Owning a Home also allows you to be insulated over renting, as renters often pays somebody else's mortgage. In the past 5 years I have seen a 61% increase in my property value vs a 65% increase in rental prices.
So home owners get a long term value of
10% increase in property value year over year (50% increase in value in 5 years)
My home alone is 180k higher since i bought it. I remodeled it once and spent maybe 10k over the lifespan of the house and gained over 180k in equity.
Paid similar rate for HOI vs Rental HOI.
Seems like the benefits outweigh the negative this.
My guy. The average home appreciates at around 3% a year. Not 10.
@@berniepina860 depends on how lucky you are with the popularity of your neighborhood
Another awesome video Daniel! However it makes me a little sad, since it reminded me of the lost opportunity cost and the never ending property tax and insurance costs not being a homeowner. Although as far as becoming a homeowner goes, I think o did it pretty good considering my wife and I built it on our own, we have no utilities and the total payoff time is less than 5yrs since we pay a little more than double and bi-weekly. The one that REALLY hurts is the opportunity cost; That makes me sad to think about, but I do love my home and if I ever leave it I'll get a good profit from all of that sweat equity.
Andrew, I get what you mean about the opportunity costs. However, every decision has some sort of opportunity cost (whether time reveals the decision to be the ideal choice or not). Here's how you could think of it: What memories or moments would you have missed out on had you not had your home? What is the difference between the quality of life and stability? Not everything is purely about the money (and in fact, most things aren't).
It sounds to me like you and your wife did do very well for yourself in terms of housing given your payoff time and sweat equity over the years. Even if you were to look back and run the numbers and find that you could've came out a little better off by choosing a different path that doesn't mean that owning the home was a bad decision. And by the sounds of things I wouldn't think that you would find that to be the case anyway, once all the factors are taken into consideration (remember if you are living in the home without a mortgage payment for a while that may very well make up for the initial opportunity costs of your down payment and other upfront expenses) :)
@@NextLevelLife You make some very good points and when I think about it I would do it all again. Now that you mention it, I'm pretty sure the initial opportunity cost is being recouped because otherwise we would be renting somewhere still and not putting that extra cash into the mortgage (only reason we do is the interest rate isn't very favorable, otherwise it'd be invested instead) and by doing so, when it's paid off we'll be able to boost our savings rate by about 15%... Something we wouldn't be able to do if we continued renting.
Yearly costs are definitely in the $ thousands. I had a pipe (polybutylene) burst over the water heater and my insurance paid for a new water heater (along with insulation, etc). This was fortunate for me because contractors don’t work cheap.
Newsflash: house ownership has initial and ongoing expenses. Another newsflash: home ownership is more expensive in a short term, but is cheaper over the lifetime than renting.
It's not necessarily cheaper over time either. I bought a house in my twenties after having lived in apartments for a few years. A few years into home ownership, I did the math and renting would have been far cheaper, even in the long run. If you need to house a family the numbers change because renting multi-bedroom homes can get expensive. But if you're single or don't plan on having kids, apartment living should be far cheaper when all costs are figured. For me the deal breaker was not having a workshop space while living in an apartment. So even though home ownership is more expensive, if you like a yard, need lots of space for hobbies or the like or just like entertaining large gatherings, it might make the extra expense worth it.
@@siggyincr7447 Try renting in an oil boom. Each year we saw rents get jacked up by a few hundred bucks. No mortgage will ever do that!
Also, if you live in or near a rural area, a low income area, you can get houses for a lot cheaper if you're cool with a commute of 1hr or more
Ownership likely costs more in the long term. It tends to only come out comparable and sometimes ahead if you sell and get to recoup some of your costs. Most people that believe home ownership is an investment or is cheaper than renting are comparing the cost of a mortgage to the cost of renting rather than comparing the total cost of ownership to the cost of renting.
Most people don't stay in the same house their whole life. Meaning a new mortgage for most.
The only thing I don’t like is you used a 20% down payment in your opportunity cost, but 10% with PMI in the other (makes the investing opportunity cost much greater). Also, something often not considered is 30 years down the road, the opportunity cost of not having a monthly mortgage expense (granted I know there will be taxes, etc still). Otherwise, great video! Thanks for all the time and effort. I was literally just asking this question as I’m looking to buy a house in the next couple years.
Generally speaking most people have to have a place to live, so there is minimal opportunity cost, as the alternative is renting. If you can live rent or mortgage free then great, but most can't.
Not really if you plan smart like myself. Rent one room, currently converting garage to rent out studio and rent driveway to Rv
Great video as a kid of immigrants I explain this to my parents all the time. Buying a home vs renting isnt always as simple.
I mean a lot of this is true. However, there are ways people who dont have 50k or more to buy a house. I just bought a 20 year old home for 250k and was able to only put 3% and feel great about it. We had saved up around 20k before buying, put down 3%, negotiated closing cost off. With that we were able to close for about 9k total. After moving in spent about 3k in furniture and remodeling some things. Have insurance and warrantys on everything for 1-5 years. Have an emergency fund dedicated just for the house. Our total mortgage, pmi, taxes, and insurance is around $1500. The rental vaule of our house is close to $2000 and will only increase. Additionally, it's a 4 bedroom home and we have a roommate that pays $550. We do plan on putting around $2500 a year into the house l, only bringing up the value. Overall, for people who can do this the right way, buying a home is a great investment compared to renting.
Jessi, that's great to hear that you managed to do that well in negotiations! Having the renter definitely makes things much, much more viable as it helps to offset the ongoing costs. Having an emergency fund dedicated solely to the house doesn't hurt either 😉. Great job!
It really depends on your situation! I think I’m gonna make a video on my RUclips on the 5% rule because that helps you determine whether to rent or buy a home, thanks for this video!
The people who sell this nonsense are the landowners trying to convince you to rent from them instead. A home is as expensive as you make it.
Exactly what I was thinking when I clicked on this. Oooh let's see what the disinformation is saying! Lol.
Ben Kucenski
Yup.
Just buy what you can afford while still paying all bills,save,etc..
I have an upper middle class 2bed/2.5bath/2car condo in gated community and still paid it off in 9 years.
Could have paid it off sooner if I didn't contribute to my 401k,Roth IRA,and other investments/savings.
Exactly! I'm not remodeling a bathroom or a kitchen unless a pipe bursts or there's a fire. I'm not cheap, I just like houses are dated, but functional. The fact that I intend to never sell the place also influences that. As for the furniture, I'm moving the furniture I already have and won't buy any for a decade or so. These huge houses prices are ridiculous. I live in a rural area, so I'm buying with cash, and keeping it under $70,000 and a thousand square feet.
Comparing buying a single family home with renting a single family home would have been a little more apples to apples.
Title search and title insurance are junk fees too, in most cases
My home costs me about £900/ month. But has appreciated by £1458.33/ month since I’ve owed it.
That's awesome, Marc! Glad to hear that the appreciation has outpaced the expenses thus far. Hope it continues 🙂!
Next Level Life thanks for your encouragement. Of course my rental properties give a much better return.
No matter how the nay sayers try to slice it up, Homeownership is always better than renting. Unless you dont plan on living in it long enough to build any equity. Homeownership is a commitment.
Its crazy that we buy properties worth many multiples of our salaries.
This is what happens when debt spirals out of control. Debt causes inflation.
iunnor
You must be still in high school.
The home I bought was twice my income and paid off in 14 years
Mine is not near this expensive. At all. This video seems off. I bought a 3 bed 2 bath house built in 1951 for $190,000 last year (houses in my city are very affordable still). It had been completely remodeled by investors (new floors, new paint, new real granite counters, all new appliances, new heating and air, new water heater, and new sprinkler system). I put 10% down, so $19,000. My wife and I both have over a 780 credit score, so PMI is only $62 a month. Our closing costs that we had to pay were $2,100. We just save and pay for insurance and taxes on our own, so no escrow. Our payment, with PMI, is $1,112 a month. In 15 months of ownership, I have had one thing I had to replace, the garbage disposal, which was $120. We have done no remodeling, except some landscape work. Also property taxes for me are only about $1,900 a year, which we mostly pay for with our cash back from our credit card that we save up all year which is typically around $1,600 when we pull it out. We also moved our selves as I have a truck, and my dad has a flat bed trailer I used. I guess if you buy a house in a super expensive city, that needs a ton of work, and you don't prepare to buy a house (like saving up money and paying down debt for a few years and having a lower credit score), it can be expensive.
It's actually easier if you don't borrow money ( except for the mortgage), save 10% of your paycheck EVERY payday, have an emergency fund and watch your spending ( buy in bulk). This isn't much of a problem.
Buying a home is an investment nit for the buyer but for the future family. The buyer takes the huge L of buying/paying it but kids and grandkids get a huge advantage in life
Manny Jean Pierre no,a house to live in is a liability
You can sell from owner not using an agent
Pro tip. to lower your property taxes, start a scrap metal pile in your front yard, quit pruning your trees just stop all landscaping efforts in the front of the property all together hell do doughnuts in your front yard to tear it up really good, only replace the siding on the backside of your home, just make the curb view of your home look like shit in general, the lardass tax man isn't going to get out of his car to evaluate your property.
Here's my two cents. It's not for investment, but more about knowing and being in control of your housing costs especially as you get close to and are in retirement. Yes, property taxes will go up, but rent can go up by 7% or more each year. On a fixed income that's unsustainable.
Mortgage payments annually: $24,000
Renting at $1500 for 12 months: $18,000
First and Last Month: +$3000
Homeowner: $24K
Renter: $21K, 3k Refundable.
Homeowner accrues equity.
Renter gets to start at square one with nothing to show for it.
In 12 months I have paid 24k to live while my house has raised in market valuation to 30K.
Much appreciated... We're buying in this market and went 48k over listing which is lower than most in this area to get our house yet it needs some work. Thanks for breaking it down
Like the video shows home ownership is very expensive. Most people don`t realize all those extra costs such as repairs and maintenance. Updating and renovating is also very expensive. Property taxes and Homeowners insurance never go away. HOA fees are forever. And worst of all is all the interest that you pay over 15 or 30 years on your mortgage. 🤥🤕😒😭😥
Indepth and unbiased understanding on home buying cost. Great work.
Glad it was helpful!
Dont exceed your budget. It can be so much cheaper than rent.
Great video, Daniel, as always! 😊
Thanks, Belinda 😀
Nice channel. Here are some ideas for videos that I am hoping to see:
1. how to buy foreclosure home with cash
2. what are the steps and risks to buy a home in an Auction
3. what are the things that first home buyers who are paying cash to know about (no closing cost?)
4. how to avoid being house poor
5. a good strategy to use cash to buy houses for rental
6. a good strategy to use cash to buy houses for flip
7. any good advice for choosing a house for first time home buyers (house related to reduce ownership cost in the long term).
My background (and the motivation for the above questions): 400k in stock market investment, no debt, 300k in retirement accounts, single, renting, the average single family resident house purchase price is around 300k in my area but I am hoping to get into the RE passive income field.
A great info for those who are planning to buy their own house.
Can't really have a video titled the true cost of home ownership without taking into account the financial benefits: renting out a part of the home as a suite or the appreciation in value over the life of the mortgage for instance.
For me buying a house was kind of a no brainer as my mortgage is less then what I was paying in rent by about 250 dollars a month
Didn't watch the video on hidden costs? I've cruch numbers like a lunatic in many scenarios I've ball park the difference in most mid tier housing options as buying saving me $50-$100 a month occasionally more sometimes these numbers are flipped negative.
Idk I bought my first place 6 years ago with 20k down, just got it refinanced and found out I have a quarter million dollars in equity now, and my payments are now half of what any of my friends who are renters are paying and my pmi dropped off. I’m so thankful I stopped renting was worth the extra costs if you plan on staying in the same place for many years.
Why was the equity you're gaining over time by owning a house not calculated into the monthly equation at the end vs renting, it's relatively significant.
My first mortgage was 10.15%. We had a period were interest rates were in the teens and then fell a little. That really clobbered prices in my area. The time to buy is when interest rates are sky-high, then refinance as rates fall. And your housing value will then go up with lower rates.
Indeed. High interest is great for home buyers because it means there's less people interested in buying a home, which will definitely show in the prices. It's stupid to assume the home ought to cost X, it only costs X because that's how much people will pay for it when they compete vs one another.
Single family homes are terrible in terms of land use, energy use, water use, and maintenance costs, yet they are a common fixture of television and movie families which adds to the guilt if you don't want one.
I track my spending religiously. So here are some actual numbers for you. Do with them what you will. I bought a house 33 months ago (so just under 3 years) in the suburbs north of Philadelphia. 3 bed, 2.5 bath, single car garage, total living space 1766 square feet. Contract price was $209,257. Total closing costs were $7,451.43. However, $1,032 of that went into initial escrow to cover a portion of the first year's property taxes and homeowner's insurance. I put down 10%. Total cash to close was $23,347.13. The total amount of money I have spent since closing (including Mortgage principal, interest, escrow payments for property taxes, insurance and pmi, utilities, HOA fees, maintenance, etc. is $78,683.70. Now that number does include extra payments I have made to the the principal to pay the mortgage down fast. In total I have paid off $14,644.53 of the principal, meaning that money went to equity rather than to expense. So if you subtract that out my total home ownership expense thus far is about $1,940.58 per month. That number does not include furniture I have purchased, which I track separately. I have spent the last 33 months slowly saving up and buying very nice hand made Amish furniture which should last me a lifetime, rather than buying junky ikea furniture. For comparison the average apartment in Philadelphia right now is 805 square feet and rents for $1,652 per month. The two biggest towns north of me are Allentown and Bethlehem. In Allentown the average apartment is 867 square feet and rents for $1,173. In Bethlehem the average apartment is 935 square feet and rents for $1,364 per month.
The estimated remodeling costs are outrageous. I haven't met a single remodeling-obsessed homeowner that consistently spends 1-4% of the home value every year.
Good, basic info. All home owners (or people looking to own one) should know these things. I'm surprised a lot don't. If it's the largest purchase someone will make, why dont they do a ton of research? 1 extra hour of research can save you thousands. Live below your means.
The economic benefits of homeownership are definitely over-rated, and this is becoming more and more the case with rising interest rates and taxes, and rising insurance costs. And yes, I know landlords pass these expenses onto their tenants, but only PARTIALLY. If a landlord tried to pass all expenses onto their tenant, they would be looking for another tenant pretty quickly.
All depends on the opportunity costs... lower down payment may be better if you can invest it and make you money...
Way too many 'IFs" and "MIGHTs" in this vid. I can honestly say that home ownership has been one of the most rewarding experiences in my life. I purchased homes that were well within my means and I can put in my own 'Sweat Equity" when required to reduce many of the repair costs that people worry about. People need to be smart about ALL of their financial decisions they make and home ownership is no different.
Sean, I'm glad to hear that your home-owning experience has been a very good one! And you're absolutely correct that people need to be smart and think through all of their financial decisions including where they plan to live.
As I said, the thing about real estate is it's a hyper-local item. Depending on numerous factors, some homes are overpriced for the work that needs to go into them, or the area they are in. Others are priced well because the market has recently cooled off, or there is a distressed sale. Some buyers have the time and skills necessary to take care of the majority of maintenance and repair tasks themselves (saving quite a bit of money in those areas in the process), but others aren't so fortunate.
You just need to be realistic with yourself when figuring out what you are and are not likely to be able to do with the home, how long you're going to live there, etc. and factor those into your decision to buy it or not 😀
Thanks for the comment!
People who aren't able to fix a majority of things in their house themselves will get absolutely screwed in home ownership, I once saw my aunt pay an appliance repair guy 600 dollars to fix their dishwasher.
I think it's necessary for him to add the if's and might's. Quite literally everyone's situation will be different, so if you're making a video like this you have to speak on the variables that could occur.
You’re one of the lucky ones. I bought a home within my means, but with a $5k heat bill I thought I could lower through improvements. I did that successfully, but my taxes tripled within seven years which devalued the home and increased my PITI payment. In addition to that I found out the day before closing the house was in a fema flood zone. This is upstate ny near the Hudson River, not some beachfront property. The fema insurance was $1k per year but now it’s over $4k. It’s been a harrowing experience financially. People lose their homes in situations like this.
See Millenials...no need to feel so bad about not being able to afford a house. However, I do think some of the running costs are overstated a little and can't just be considered "costs". Refurbishing for example is a signficant upgrade and often a worthy financial investment too.
He forgot one major metric in home ownership, at the end of the day you own a home and for the vast majority of the modern history of home ownership, the owner will at least break even on the cost of the house when they sell it. I have been lucky and worked my way up of a modest home in not the best neighborhood to a nice house in a nice area, not affluent but pretty nice.
To me there is just no comparison financially if you plan to live in the house you buy for at least 10 years and take reasonable care and of course are not forced to sell (like a job relocation) in a down market. Remember when you rent, at the end of that 10 years you have zero asset when you move, zero. While equity in your home builds slowly from your payments as the majority of a mortgage payment in the initial years goes to interest, you also get whatever gains there are in your housing market, the appreciation.
One other very important metric is maintenance, now few homeowners can deal with replacing a furnace or central AC system but many can handle replacing a water heater, do interior painting, most plumbing repairs, and other repairs from time to time. If you can't do anything but change a light bulb and don't plan to learn then you might be better off with a rented property. For example, to replace a washer in a leaking faucet you are looking at less than a dollar for the new washer and say you had no tools yet, that would be another 25 bucks in tools, so all in worse case 26 bucks, that same washer replaced by a plumber is probably in the 75-100 buck range. Future replacement now that you have the tools will be a buck a pop.
A lawn mower will likely set you back a couple hundred bucks and last 10 years so 2 bucks a month, if you have a service do it, 100 bucks a month, and this list gets very long of things like this, get a room painted and you are looking at a few hundred bucks, paint it yourself and you are likely looking at less than 100 bucks and you again net out some tools for future use.
The only way home ownership is not financially better than renting is if you will likely be moving around a lot or never plan to do maintenance work yourself.
NO KIDDING! My home is paid off. I pay no mortgage. However, upkeep every year, taxes, yard-work, and even "keeping up with the Jones" cost an average of $5,000 a year. What I mean buy "keeping up with the Jones" is things you do that you really don't need to do, but you put in all those new shrubs around your house to make your home look good for the neighbors. And that is if there is NO major unexpected expensiveness like new furnace (which I had to replace last winter). And a few years back I had a water leak in the line between the road and my home. This can run your yearly cost to $10,000.
I bought my first home at 24 at a 15 year mortgage...... BIG MISTAKE! The current home I live in I inherited. So, that is really the only way I justify living in it despite it being an older home that has a lot of repairs.
You can grow plants from seeds yknow.
As someone who has owned a house for almost a decade I haven't spent more than 1000$ on anything.... like through the whole 10 years. Why are you remodeling your whole kitchen / bathroom every few years?
I have zero plans to remodel a single thing around my house. I find it a waste.
@@SeanBaker That will catch up to you when it comes time to sell
I suppose it depends on the house and buyer in question. Some people enjoy the aspect of owning a home instead of renting because they can make their home their own. Others don't see the same amount of value in that and consequently won't spend as much money on home improvements.
Generally, when it comes time to sell you will do some sort of renovating (or just extra repairs) to get the home "market ready" but some people don't have to if they happen to sell when the market they live in is white hot. This, again, displays just how hyper-local real estate can be.
I'm with you on that. However, a major plumbing issue may make a remodel necessary. Our luck held up for 22 years and then, WHAMO!
@@robmckee5295 Did you have insurance?
Counterpoint: Landlords suck
So my question is what are the benefits of renting and what are the benefits of buying. I've rented all of my adult life.
Benefits of buying is long term. You don't want to be renting when you retire. We all know rent goes up each year while the mortgage on a fixed rate stays the same. That's the main long term benefit. Well, that and equity tends to goes up in value over time. Esp commercial property. In turn you can always rent your house out and let it pay for itself if you don't want to live in it anymore. But that too is a whole different can of worms.
@@rmfinance1781 thx
Housing crash most likely is come soon. If you have enough down payment, good FICO score and secure job, it is time to buy your own house in cute little town away from big city!
I live in Salt Lake City, I was shopping around my city. 2 bed 1 bath $370k thats low end, but add taxes, fees, closing cost, insurance. Just that average monthly payment for a $370k is $2500 a month times 12 months times 30 years $900,000. That assumes nothing breaks, AC never dies, roof lasts 30 years. So to make a profit in 30 years that 2 bed 1 bath would have to sell for a million dollars. Median rent in Salt Lake if you do 1 bedroom about $1200, but no repair costs, property taxes, interest. So again basic doddle pad math times 12, times 30 = $430,000. That's 400k in your pocket not bad, put that money in stocks bonds over 30 years, that's a mill or 2. house in Thailand 4 bedroom palace in city center free and clear $200k and $1.5 million to spare in retirement. That's a good life.
And an HOA $30,000 to $90,000 over 30 years. No Thanks
But not everyone wants to retire in shitty thailand 😂
This is a very good video. The information is not commonly known or considered. Home buyer and financial literacy classes should include this content. Every $ spent on maintenance is a $ not going toward retirement.
Thanks, Sander!
A better video would be comparing it to renting. Do not forget to factor in the massive amount extra you will need in retirement if you do not own your own home. Inflation favours buying as rents go up over time while mortgage payments go down in real terms.
In the comparison you forgot the equity you gain from paying down the mortgage and the growth of the property. If you had the home would seem more favorable. Not to mention you get more space with the home then renting some apartment.
ya who would want shelter it's so nice outside
Still a lot cheaper in the long run than renting
Mortgage protection protects you and your family from job loss or from a tragic event.
In the past the tax laws were more friendly to homeowners, now there is $ 10,000 limit on deductions. Still I'm better off buying than renting.
It’s cheaper to rent
And usually less of a headache
Killor Bekilled take the money you save and invest it in dividend kings to bear the market and make an income!
It depends. How long are you planning to live in the house or even condo? Can you pay cash for the house? What will inflation do to the price of housing and rents? How old are you?
Another nice thing about rent is that you can move easily to find better opportunities if the need arises. It's much harder to move when a house keeps you rooted to a certain location especially if it still has a mortgage.
Cheaper to rent yes. You dont like owning your own things? You like the fact that every rent payment you make you're making someone else rich? You wanna pay forever right?
I hope the Covid19 showed people how important owning your home is. Having to pay rent is bad but having to pay it while jobless and accumulating debt is worse
Are you saying that owning a hose when jobless and accumulating the debdt is better deal?
@@andriyshapovalov8886 Yeah, because you could sell the house if jobless... can't really sell anything with rent.
@@tylere.8436 I think the question you are trying to answer is : Is it better to own a house/asset at the time you become jobless or not?
Tried to put it as best as I could, but you can see what I mean.
People get too tied up with paying off home loans (usually low interest rates) as quickly as possible the reality is that taking a 15 year mortgage and not investing in stocks is a massive opportunity loss given 15 years of compounding growth in stocks even if you start saving those payments in full after paying of your mortgage even allowing for interest "saved" you will never catch up with the person who took a 30 year mortgage but saved the difference in the S&P from day 1. Follow the money guys for a superb explanation of this point.
I paid off my 30yr mortgage in nine years while still saving, investing,and contributing close to maximum to 401k and 100% on Roth IRA while maintaining zero debt.
I just bought a home I could truly afford unlike most people.
@@blackworldtraveler3711 Why would you do that when you could invest even more in stocks?
15:58 ?
Our family (3) spends
Probably depends on the age of the and the current condition. If relatively new, small % seems likely. But there's no way everything will be working fine in 15-30 years. Use the savings now for the big items in the future.
Yep especially if you live in a state with high prop tax. Then if you do not have a handy man background you are paying more monthly fees.
I am so sick of people telling me renting is a waste of money.. sure go ahead and tell me how smart "homeowners" are. You never own the home THE BANK DOES. Homeloaners is what they are.
The video never mentioned school taxes which can be much higher than property taxes. Add at least another $300/mon to the mortgage bill.
Get a USDA loan, no PMI lol No down payment and up to $10,000 seller assist towards closing costs.
I'm a minute and a half in and I'm already getting a headache with all the eye rolling I'm doing. Serve your country.... earn the ability to qualify for a VA loan.... use VA loan.... 0 downpayment - ever. But.... there are other ways to avoid a downpayment. To pretend the average home is $330,000 is laughable. I'm willing to bet 90+% of people who look at this video can be more than comfortable in a 1400-1800 sqft home.... that was built in the 80s-90s. At least in my area and most of the rest of the midwest a house like that will run you anywhere from $100,000 to about $230-240,000......... NOT $300,000+. As for California and Hawaii.... I have no clue why people live there.
This video popped up for some reason in my feed and I was skeptical when I saw it and not even 2 minutes in its pretty much confirming my skepticism. I'll watch a little more but I'm guessing that he doesn't mention the fact that if you rent you're pretty much just avoiding a downpayment (again.... not necessary if you're a Vet or utilize workarounds) otherwise..... renting IMO is at the very least just as expensive as owning a home... if not more expensive.
1) Your rent is covering the mortgage for your landlord..... and then some. The "and then some" goes toward a fund for emergencies and repairs toward that house.... whether they happen or not.... regardless..... you're paying for it.
2) Not only are you paying the mortgage (and by that I mean everything included with a mortgage... the loan principal, interest, taxes, etc.) but you're paying a premium on it meaning on a cost per square foot renting is by FAR more expensive. I have a VA loan... so my mortgage was the purchase price. Let's say it's $250,000. My monthly mortgage payment is $1320/ month (VA loan on a DIRT CHEAP interest rate of 2.75%..... pretty sure interest rates are even lower right now meaning there has never been a better time to buy). That covers the loan and escrow which is shit like taxes and insurance. House is just shy of 2,000 sqft with a 2.5 car detached garage. To get a comparable sized rental in my area..... I'm looking at at least $1700 if not 2,000/ month. My buddy has an apartment and pays over $1100/ month for his 2 bed 1 bath apartment that I think is like 800 sqft.... and has no garage. Rent is by far more expensive.
3) "Hidden costs." I hate when people throw this term around. There is nothing hidden about them. Shit breaks. Shit needs to be replaced. This shouldn't be shocking or a surprise to anyone with a brain. But guess what these fear inciting anti home ownership people don't tell you. Shit breaks FAR less frequently than they put on. I've owned a home for 6+ years and the only thing I HAD to replace because it bit the dust was the water heater at my first house. But guess what.... that's what inspections are for when you go through the buying process. Inspector saw the heater was over a decade old and said it would likely need replacing soon. I asked for $500 if the purchase price as a result. Got it. 2nd house I bought. Same thing. Water heater is 13 years old. Asked for $500 off purchase price.... seller agreed. That's it. 1 water heater biting the dust in 6+ years. And I've gotten a total of $1000 off the purchase price combined between the 2 places. Renters though..... they pay at least $300 OVER whatever the mortgage is.... every.... single.... month to cover such "hidden costs" should they arise. Thing is though, they pay this for someone else's "hidden costs" and again.... are also paying their mortgage for them.
Bottom line - renting is stupid. If you HAVE to do it you have to do it, but if you can buy a starter home in the $130-180,000 range..... do it. You're way better off in the long run. I will never understand people who push this notion renting is "smarter" than buying. You're paying someone else's mortgage and then some.... to cover "hidden costs" of ownership.... for your landlord.... every month. Why? Why do this indefinitely? Whatever you're paying in rent you can likely be paying on your own mortgage..... for a larger place.... that has a garage. OR you can get a similar sized place and be paying probably at least $400 less a month with your own mortgage...... which you can use for whatever (smart people put it toward the principle so they pay off their mortgage in, say 15-20 years instead of 30.... but whatever).
Renting is by FAR more expensive. It's not even close IMO.
12:15 "Even if you do end up making most of it back from the profits of the sale"
That a bad way of looking at it, unless you're buying to flip. If you buy brand new and live there for 20 years, that new carpet/roof/deck/full house paint/appliances you paid for isn't really earning you money, it's literally just maintaining your home. If you DIDNT pay for those things, you could expect to sell the house for a good chunk less than a normally maintaind house.
You forgot to consider the increasing value of the equity in your home. There's more to it than just budget items. Buying a home is an investment.
Not to mention you can do a cash out refinance in a few years and invest that money in whatever you want then.
This video is incomplete at best. Mortgage interest deduction, price increase that result in percentage gain based on the entire value of the property and not just the initial investment, and equity accumulation made real estate a much better alternative than renting and even the stock market.
Rather u like renting or owning, can we at least agree that renting is simpler? I just pay rent, and the landlord handles everything. Even if u argue that I’m paying for convenience and/or that owning is worth it, it is still complex and usually takes money up front.