Don’t call me Mr. Fix-It
I am not an overly handy person when it comes to things around the house, working on cars, etc. It not that I am not smart enough to learn how to do those things. I just didn’t grow up in a house where we fixed things ourselves. In most cases the real professionals were called in to fix things.
That same philosophy carried over into my adult life. Particularly as a homeowner. When something broke I called in a professional to fix it. Yet, in the last six months I started taking on a few tasks. Mostly to prove to myself I could learn how to be a Mr. Fix-It.
I started out with a small patch job on the drywall in our garage. I figured I had made the hole in the wall so I would fix it. I had pulled forward so far with my car that I pushed our lawnmower which pushed a shovel through the wall. I watched a few Youtube videos and decided to give it a go. It didn’t come out perfectly. But as the saying goes in our house, it was “good enough for government work”.
Just this past week I decided to try my hand at another project. One of our fluorescent lights in the garage had stopped working. A few articles and Youtube videos later, plus some time helping my brother replace some lights at my niece’s house, I decided I could replace the lighting fixture myself. I’m pleased to say that went well.
Following on the heels of that successful project I decided to replace some plumbing in our master bathroom after spotting a small leak in the arm of the faucet. According to the videos I watched it was only a matter of unscrewing the arm and replacing it.
The only challenge I had was getting the new arm tight enough without damaging it. Three days later, this morning actually, I learned that I hadn’t tightening it nearly enough. On my way to the shower this morning I noticed the water. Which means it is time to call the professionals. Because, clearly, I am not Mr. Fix-It.
So, why am I telling you all of this? Because I am starting to get fed up with home ownership.
I am fed up with owning a home
We have been in this house for seven years now. So, we are at the point where things are breaking regularly. Oh yeah, I forget to mention that I recently replaced our installed microwave. Which was another “successful” project that saved me from having to pay someone else to do the work. We are also at the point that some things, such as paint and carpet, need to be replaced.
I’ve read plenty of articles that talk about how some people are beginning to avoid homeownership. Some are doing so because they want to be flexibility enough that they can move around the country or world. Others want to avoid all the renovations and repairs that I’ve been talking about. Then there is the camp that believes that homeownership, from a financial perspective, is a bad investment.
Grant Cardone is one well-known proponent of renting your residence but owning rental properties. He believes that homeownership is a bad investment. I don’t agree with everything that “Uncle G” says, but after this mornings water issue I am beginning to see how he might be right.
All of these renovations and repairs at our house are started to add up. The microwave being replaced (for the second time by the way), the garage light, the shower issue, grout that needs replacing on our tile floors, new paint, and new carpet. Not to mention all the other expenses associated with owning a home that renters often don’t have. For example, the cost associated with yard work. Think about it. Buying a lawn mower, a weed eater, mulch, etc. It’s a never ending cycle of expenses.
The numbers behind homeownership
With all of these thoughts cycling in my brain, I decided to put pen to paper and see if the math does really work in favor of homeownership or renting. The below table is my brief attempt at quantifying the numbers behind each. For this example I used numbers somewhat close to my own household expenses.
Inside some of the cells are comments associated with my rationale. But here are a few of my assumptions:
- You will likely pay more in rent for the same type of home you can own. This assumes two things 1) that a landlord has debt on the property and has to earn a margin; 2) the rent includes a few expenses built into it such as an HOA, yard maintenance, etc.
- Some of the estimates for renters are based on my own experience as a landlord.
- The utilities are the same. Sometimes utilities are built in the rent. But I am assuming the renter pays for them.
- As a homeowner you have a 10% repair reserve. As a landlord I anticipate that much in repairs each year. So, as a homeowner I am assuming the same number. When I think about our seven years in this house it has been pretty accurate.
- The yard expense includes buying equipment and things for curb appeal.
- The renovations are spread out of 15 years, since I found a few statistics that say homeowners stay in a home on average around that amount of time. I also found a few articles that quoted the average renovation expense at around $10k.
- Renters insurance is far less expensive than homeowners insurance.
- I assumed that taxes were not being escrowed into the monthly mortgage payment.
- One of the big arguments for homeownership is that they are an investment and they appreciate. So, we need to consider the value and potential return on investment of homeownership. The statistics I found pegged home appreciation, on average, at around 3%. We bought our home for around $300,000. If we stayed in the home the average length of time that a homeowner does, remember 15 years (not sure I am buying it…), our home would be worth $467,000 when we go to sell it.
- The investment return for a renter assumes that they could take the difference in monthly expenses and put that money to work in a different investment class, such as the S&P 500 Index which has average a 10% return.
So in this example, assuming I have done my math right after only one cup of coffee, you would net $41,400 more over 15 years as a renter than you would as a homeowner.
There are all kinds of scenarios where I could be wrong. You could claim that a 3% appreciation in home values isn’t enough. You could claim that the rent expense isn’t high enough. Yadda, yadda, yadda. I could argue that I haven’t factored in the commissions paid to a realtor when you sell. Or, the cash you have to put down to buy your home.
The point is that owning a home is not the best investment. If you want to own a home, with all that comes with it (learn to enjoy renovations and repairs) then do so because it makes you happier than renting does. Don’t justify it by calling it an investment.
I am open to input. What am I missing? Please comment below.