I have recently moved to the West Coast (the expensive state of California) and am again contemplating home ownership. This will be my third home purchase in 8 years, which is not a savvy move. I have been lucky though as throughout the last 2 homes I broke even on the first and lost a little money on the second. Neither hurt my finances too much.
First home purchase
We bought the first home in Nashville, TN during 2008. The housing bubbled had started to burst but we were not in the bottom. I moved there and thought buying would be a good idea. We bought a small 800 square foot 2 bedroom/1 bath home with recent renovations in an up and coming neighborhood. I lived in it for 4 years and in 2012 sold it for a little more then I paid for it. After closing costs it was a wash financially. The things we missed are the costs while living there.
During my 4 years I installed a alarm system, new windows, and a fence. I also spent time cleaning gutters, buying lawn equipment and mowing and maintaining the yard, and had to have some minor repairs during my time there. Who knows how much all of this cost but I would easily estimate the cost of materials at $3000-4000. There was also maintenance such as pest control, AC/Heater maintenance, etc. Plus the time, all of that time I could be doing something else.
While I enjoyed home ownership somewhat, this was definitely not worth it. I could have easily spent my mortgage in rent and had a nice pool, gym, and no concern for maintenance. So I sold and moved away. The kicker is that since leaving in 2012, this neighborhood is now HOT. My home listed for $150 more than I paid for it. This is almost double the price. So maybe I should have held onto it. As they say hindsight is 50/50.
Second home purchase
We purchased our second home in New Orleans. We took over a year to find. It was a brand new build and I expected to live in New Orleans for 5 to 10 years more (not the 4 like in Nashville). Unfortunately the market in New Orleans was hot in 2013. So I likely over paid. It required less maintenance since it was a new build. However, there was lawn care, installing alarms and cameras, and routine maintenance. The cost of my mortgage, taxes, and insurance well out paced what a rental would cost. However, I thought we would be there long term and the market was hot.
Turn around to 2016 when we decided to leave unexpectedly. The market had cooled due to low oil prices (this really hurt Louisiana’s biggest industry which is oil) and recent cut backs to tax credits for the movie industry (in 2015 Louisiana had more movies produced in it then California). Thus the market cooled and by the time we were ready to sell home sales had cooled.
So we waited for an offer, which came 4 months after it was on the market and by the time closing was done it, had sat empty for 2 months. While we sold it at a $9,000 gain, after closing costs, relator commissions, and the cost of it sitting empty we lost approximately $30,000. When I add up the cost of mortgage, insurance, taxes, and loss on house then we could have spent approximately $5,000 a month renting a place. I am sure we could have gotten a pretty sweet spot for 5K a month.
One thing I am neglecting to mention is the tax benefits of buying a home with a mortgage. Married couples filing jointly can deduct the interest paid on a first and second home mortgage up to a $1,000,000. This can help reduce your tax bill, particularly if you are a high earner such as a physician. For most of us, this is the biggest deduction and thus my estimated loss of $35,000 to $40,000 on my prior to homes are actually less with the tax benefits. The other benefit of home ownership is that, like retirement accounts (think 401K or IRAs), your home is protected. Therefore if sued (civil, malpractice or otherwise), the collector can raid your after-tax investment accounts but can’t take your house (particularly if your spouse or partner is on the title).
So off to the decision to buy again. I am living in the California and trying to decide on buying a home. The otherwise is that the rental market is also tight. Currently I am living in a 1400 square foot 3 bedroom/2 bath apartment and pay over $2,500 a month. There is a nice pool we use sometimes and I have no maintenance concerns, but I am not building equity or benefiting from tax deductions from mortgage interest. So should I buy? What other expenses come with home ownership?