06 Oct Bills, Expenses & Hidden Costs of Homeownership
When you first begin looking for a home, friends and family are typically very enthusiastic about encouraging home ownership: “Don’t Rent, you’ll be wasting money!”, “Your home is an investment”, and all of the other warm and fuzzy generalizations.
Unfortunately, these fuzzies ignore the downsides of home ownership, which can be significant. When figuring up your monthly payment it is easy to gloss over the insurance, the ever-rising tax and utility bills, and the incalculable costs for maintenance and repairs. These expenses can easily bleed a paycheck dry, especially the sneaky repair bills. The hidden costs of home ownership are many, and potentially overwhelming.
Last summer I decided to do something smart for a change. Our A/C system was quite old and had required recharges the previous two years, struggling to keep up on the 95+ degree days. Considering that my wife was due with our first child at the end of August, I thought it wise to head this disaster off at the pass. After some enlightening visits with several HVAC companies, whose quotes ranged from $6,000 to over $10,000, I decided to buy the equipment myself and find my own installer. I was able to upgrade to a brand new, high-efficiency system for about $3k (more on that here).
Since this was a planned expense, it wasn’t so bad. Unlike the mid-January breakdown of our boiler only months later, which brought another round of estimates topping out at $10,000. My experience with the A/C emboldened me to pursue a similar DIY approach with the boiler, shaving it down to about $3k. Better, but still a massive hit just after Christmas. In the span of 7 months we had incurred repairs that could have totaled $20,000! If we weren’t quite so scrappy, this could have seriously depleted our savings or created a whole new debt to chip away at. The foolproof home ownership boon wasn’t looking so good in this light!
The picture gets even more bleak when you realize the real cost of owning a $167,000 home, the average price in America, is over half a million dollars! Without going into detail, the quick breakdown is this:
Home price= $167,000
Interest on 30 year mortgage= $170,000
Utilities = $145,000
…for a grand total over $550,000, not even considering repair and maintenance costs!
The inflation adjusted value when you go to resell this home after 30 years is only $192,000, making your sure-fire investment seem a little lackluster. To see how this breaks down, go here.
Don’t get me wrong. I am not suggesting you shouldn’t own a home. I am simply shedding light on the potential pitfalls that are often overlooked when the excitement of home shopping kicks in.
Our alternative to this gloomy scenario is a bit brighter. Acre’s vision is to provide quality homes that require minimal maintenance, zero utility costs, and are affordable enough to greatly reduce (if not completely eliminate) the need for a mortgage. A lofty goal, but one worth pursuing for the economic freedom and stability it promises.