Realty Check

I noticed that according to Zillow my unit is worth only about 1% more than I paid for it 10 years ago. So I guess I lost money? After all if one can't make about 3% per year then one is losing money. That's the traditional wisdom, isn't it?

Well, I did the numbers, and I actually saved $38,315.99 in the last 10 years by purchasing instead of renting. Oh, and I did get to remodel the way I wanted, and I didn't have to deal with a landlord.

What's more, I put $10,000 into a new kitchen upgrade, and I have installed hardwood floors throughout the living spaces, including entry, dining, living, kitchen and hallway.

My numbers included the cost of the kitchen upgrade, electricity, natural gas, sewer, water, property tax and condominium fees. It also took into account the interest I might have made at 4% per year if I had invested any difference between renting and purchasing. Of course, 4% is fiction. We'd all love to have a savings account which yields 4%.

So all I can say is, from my experience at BLMH, owning is better than renting.

But, there are a range of opinions in the popular media. Some suggest that owning one's home is not good, while others say it's the best thing since sliced bread. Or we can simply rent at the lowest possible cost and  "invest" what's left following "Mad Money Cramer's" suggestions. He is the guy, as I recall, who went on the Today Show and told people to "sell everything." This advice was given after the Panic of 2008 and after the stock market had already plummeted. In other words, those who followed this self proclaimed guru's advice lost their retirement funds. My advice? Live within your means, save for your retirement, invest prudently and ignore the politicians, the talking heads and all of those wonderful commercials advocating why you just gotta have all of that stuff. While you're at it, ignore those credit card ads about "the wonders of just swiping."

Notes:

1. I've been asked if this post is realistic. That's a reasonable question to ask.  It reflects my personal financial experience over a period of about 10 years. Certainly, my experience may not reflect any one else's. It depends upon the specific numbers, and more on that in the next note. The "buy versus rent" question is one that just about everyone who has purchased a home, condo or townhouse has considered. Some say it's the "universal question" of personal finance. 
2. In my case, i used nearby rental prices for comparisons. When we looked into buying, we did look at a range of rentals in the area for the purpose of arriving at a rental cost for comparison purposes. Here at BLMH some of the units are available for rent, and there are listings on Zillow and elsewhere. It's not too difficult to find out what a realistic monthly rental would cost. However, as we all know, there is a range of differences in these units and nearby rentals. I could have used the minimum but that wouldn't be realistic. For example, in 2000 it was possible to rent a single bedroom apartment nearby for $700 a month. Not a fair comparison to a three bedroom, two bath condo with attached garage. 
3. The numbers are accurate in my case. I've kept pretty good records for major purchases, repairs and upgrades, and I do use Quicken. But my numbers aren't impeccable. However, I don't think I've mis-allocated more than 10%, and if I did, that's about $30 a month.
4. I know, using Zillow prices may overstate a possible selling price. However, this post is about the amount spent to rent as compared to the amount spent to purchase. It does not consider the current selling price. Why not? I'm not interested in selling today. If I take a "loss" or "gain" at the time of a sale, it will be determined by the selling price. I don't know what that price will be in 5, 10 or more years. However, if I did rent and invest any difference instead of purchasing, I'd have to speculate about how any money invested would appreciate, wouldn't I? My crystal ball doesn't tell me that, either.
5. What would or could one expect today? I'd say one has to do their homework. There are aids and my favorite site is the New York Times "buy versus rent" calculator. It has an "advanced settings button which allows a lot of customization. Clicking will open a link;New Window> Buy versus Rent NYT Calculator
6. Some of the things that will determine your personal result if you do consider purchasing will include:

• The purchase price. 
• The amount of the down payment.
• The mortgage interest rate.
• The cost of closing, points, etc. 
• The cost of a real estate attorney.
• The cost of an independent inspector. 
• The length of the mortgage.
• The cost of mortgage insurance.
• The condition of the home or condo. That includes furnace, appliances, carpeting, plumbing, sinks and water valves and drains, etc. as this will determine how much is spent on repairs or replacement of these items in the near future. Eventually, everything breaks and an owner must be prepared to replace these items.
• If a home. The exterior condition and the condition of the grounds, fencing, driveway, walks, etc. 
• The price for any improvements made after purchase.
• The cost to rent comparable living space.
• The cost of utilities (natural gas, electric, water and sewer).
• Other utilities which are to be considered for budgeting include telephone or cellphone, internet access and cable or satellite TV. However, when comparing renting to buying, these are usually the same in either case. So they do influence one's budget, but they probably will cost the same if one rents or purchases. But not always! Some condos include internet and cable TV with their monthly fees. It's something worth checking. Caution: At any time in the future, a condo association or HOA may shift from including such amenities as part of the monthly fees to having owners purchase these directly. 
• The cost of fees if a condominium or HOA.
• The cost of any special assessments if a condominium or HOA. 
• The cost of real estate taxes. 
• The cost of homeowners or condominium insurance.
• If a home or townhome, the cost of any "tools" necessary for maintenance. This include hose and sprinkler, lawnmower, snowplow, snow shovel, fertilizer spreader, brooms, rakes, and annual supplies (grass seed, fertilizer) and other misc. Or you can pay someone else to do these normal chores, but that needs to be considered if one is comparing purchase to rental. 
• If a home or townhome, the cost of exterior maintenance. Doors, trim, wood siding must be painted or stained about every 5 years or so. 
• The cost of interior decorating. That includes paint, carpeting, etc. 
• The thoroughness with which you pursue this and your personal financial situation. If you use Quicken, have a good budget, can plan and prepare financially, have low credit card and student loan debt and live within your means, then you probably are on the right track and do understand your personal finances. If you don't do these things then purchasing might be more financial responsibility than you can deal with.