Double Your Pleasure? Then Double Your Costs!
The problem with most rent versus buy calculators is that they fail to account for the additional costs that come from moving from a 1,200 square foot apartment with no costs of ownership, into a 2,500 square foot home that comes with all the costs of owning and maintaining a home.
When you move into a home that is double the size of your apartment, and that comes with costs of ownership, here are some costs that you need to be aware of that mortgage brokers and real estate agents probably won't be alerting you to:
- You will now have to pay the utility bill for heating and cooling twice the square-footage.
- You have twice the space to furnish and decorate.
- You will now have a yard and driveway to maintain.
- You will now be paying property taxes on the value of the entire property.
- You will now have to get homeowner insurance to protect you from loss, versus the landlord having to purchase the insurance.
- You will now have to repair, maintain, and replace all fixtures, appliances, heating-cooling equipment, landscaping equipment, floor coverings, roof coverings, siding, pavement, and so on, as they all break, wear-out or become obsolete. And if you fail to properly maintain your property, don't plan on the value appreciating as much as the real estate agent is boasting it will.
If you take your time when entering data into the rent vs. buy mortgage calculator, you will likely be shocked as to just how much these costs of ownership can add up to over time.
Don't Be an Ostrich
In my experience, the reason most people are forced to take out second mortgages on their homes is that they had their head buried in the sand with regard to homeownership costs.
In other words, they relied on so-called "experts" to tell them whether or not they could afford the home they bought.
Unfortunately, these home buyers failed to recognize that those "experts" stood to gain from getting them to ignore the costs of homeownership.
The choice is yours, you can choose to ignore the costs of homeownership when contemplating a home purchase, or you can take painstaking steps to accurately forecast and budget for them.
If you fail to accurately forecast and budget for them, then you will likely need to take out a second mortgage when they show up "unexpectedly."
On the other hand, if you do take the time to accurately forecast and budget for costs of ownership, then you will either end up in a smaller home than you had hoped for, or you may be forced to continue to rent.