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In this post I will not ask you to not have a house of your own. This post will simply state a few expense that you will be incurring when you are a home owner, probably unknowingly, over your house. Just be aware of them and see if you can somehow put a plug in the hole.
After getting the money to finally purchase a house for yourself, the best advice you will give yourself and the best advice you will get from family and friends will be to buy the absolute best house that your money can buy. Following this advice, you look for the best location to buy your house; some of the things you look into include the neighborhood and all it has to offer in addition to the views you will get among other amenities.
Before buying the house, you might have thought that buying a house is easy, simply look for the one you like, pay for it and its all yours! Unfortunately, oftentimes, being a house owner comes with a few headaches of its own, top most being losing money on it, especially since a house is supposed to let you earn money not lose it!
A look at ways in which your house is losing you money:
1: Through taxes
Picture a scenario where you bought a house to make a statement, a house that will show whoever cares to look that you paid top-dollar for it. You figure, let me buy the house at today’s price, sometime down the road, I will be able to sell it for a profit, after all it is a glamorous house in a glamorous neighborhood.
Unfortunately with the house come taxes, which ultimately mean you are losing money on your house.
Take an example of a house bought at $400,000 in an up-scale neighborhood. Depending on the city in which it stands, there is a percentage price levied on properties, meaning that if yours is levied at 2% for example, then when you make calculations, you will have paid over your purchase price.
As if that is not enough, when you finally decide to list your property, the listing prices of other properties may not measure up to your asking price, since they cost less, this means that you will ultimately have to drop the price or take it off the market!
2: Through Interest Expenses
This is especially for the case of people who don’t buy the property with upfront payment from themselves, because unfortunately, the average person may not afford a house all on their own minus making use of a mortgage. Your house may also lose you money through interest expenses.
In other words, your interest expense will relate to the cost of borrowing money.
3: Through Upkeep
Your house needs to be maintained, especially if you desire to sell it off later in life. With maintenance comes money spent, which equates to money lost. Granted there are also scenarios where in the long-run, the money you spend on maintaining your house will pay off at bigger rates.
Every year, you will need to shell out money that will go towards maintaining and repairing your house. With this being the case, you might want to think real hard before purchasing that really expensive property, because its upkeep may end up costing you an arm and a leg.
In your calculations, you might come to realize your maintenance and repair budget equals a heart-stopping percentage of your principal and interest payment.
On the flip side, for a house that is purchased for investment purposes, it is assumed that it will grow in value over time. This may not be the actual case if you consider that in America, home values go up to approximately 4% on any given year.
4: Through Energy Leak
As described in a previous post is energy leaking through your window, leaks and tears are responsible for heat leak during winter and higher AC bills during summer months. More the rooms and more the windows are in your home, there more chance of energy leaking.
Now if you factor in inflation which will mean an increase in maintenance costs that always equates to 1% of the home’s value, then technically, your house only gains 3% per year.
There are other ways you may lose money being a home owner. These are just a few. Readers what other expenses you may incur due to your negligence or otherwise?
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So true. A house does cost you money, that’s clear. Taxes, maintenance, repairs, energy issues and everything in between. In our case the taxes are pretty small (we just pay a city tax, no community taxes or fees), but the other costs to add up.
It’s definitely important to consider ALL expenses (not just the mortgage) when buying a house. If you can’t afford all of the miscellaneous expenses associated with your house, you can’t really afford the house.
That said, most of these expenses are also included in monthly rent payments, so I have a hard time calling them “losses.” Especially since property taxes pay for all of your local services (street maintenance, snow plowing, leaf pick-up, etc.) and public schools.
Yeap, we just got our property tax bills. It’s no fun paying those big bills before the holidays.
Don’t you just love the timing of property taxes? Those and unexpected major home repairs are always fun when owning a house.
Great info!Energy is an important one especially with old houses. It would benefit most home owners to have an energy auditor I think that’s what theyre called, to come out and check their house out.
Some obvious ways to save money on home maintenance is to do as much as you can yourself. One seemingly big maintenance chore that may only come up every ten years or so is house paint. Painting a house may seem difficult, but it is actually quite easy and can be done in a few days. You will save thousands over hiring professional painters if you do it yourself.
We do most of our own upkeep unless it involves the roof or the HVAC system. I also stay away from all but the most minor electrical and plumbing repairs. The rental on a house this size would cost far more than I pay in mortgage and property taxes combined, so it is hard to make an apples to apples comparison.
True! Buying and maintaining a house really cost money, but so is renting a place. Though, it definitely cost less to rent than to buy a house, but at the end of your stay, you will have nothing to show for the money you spent doing so.
Property tax is always a killer. It always goes up every year as the city, county and state take their bite of your hard earned money. Plus, you’re at the mercy of the assessor’s office hitting you with a reassessment when the tax coffers are getting low.
This is why I always plan for paying 1.5x the property tax when buying a property. It’s an excessive allowance, but it avoids problems when the unexpected happens.
SB,
This is a very timely post. I posted an article “The True Cost of Homeownership” detailing costs I’m incurring on our decently priced/sized/middle-of-the-road house in the Atlanta area
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