Let's face it: A house is a money pit
Our honest financial look at 11 years in one home proves what one blogger labels 'an ugly truth.' Still, it was worth it.
This post comes from Lynn Mucken at MSN Money.
Looking back, it seemed so simple when it came to our home purchases: Buy low, sell high.
We first bought in 1970, paying $15,500 for a three-bedroom, two-bath on a 50-by-100-foot lot on a tree-lined street in southeast Portland, Ore.
- Calculator:Is it better to rent or buy?
Eleven years later, we sold for $65,000 and bought a 2,700-square-foot brick English Tudor, also three bedrooms and two baths, in north Seattle. Cost: $72,000. Post continues after video.
Fast-forward 13 years to 1994. Both girls were gone, so we sold for $179,000 and downsized to a 1,370-square-foot, two-bedroom, two-bath "cottage" a couple of miles north. It came with a Puget Sound and Olympic Mountains view and a lot big enough (75 by 180) to accommodate my desire to become a raised-bed farmer. We paid $225,000.
In 2005, tired of failed tomato crops and weeds that grew inches a day even in the darkness of winter, and especially irritated by new construction that took away 25% of our view, we sold for $535,000 to a construction company that leveled the house and put up a 5,800-square-foot mansion.
- Calculator:How much house can you afford?
Pretty good, huh? A sweet profit of $310,000 in 11 years. Weren't we the smart ones.
Maybe, maybe not. Two recent articles -- Liz Weston's "Are you crazy to buy a home now?" on MSN Money and Carl Richards' "Why you can't be sure about home purchases" on the The New York Times' Bucks blog -- suggest that home purchases are sketchy investments, best undertaken when financial circumstances are just right and then only when the compulsion to own your own nest is overwhelming.
Richards referred to what he termed "an ugly truth," that home prices don't reflect the real price of ownership.
That got me to thinking about a little math I did back in 2005, when, in the course of moving, I looked at our financial history of 11 years in our last house (we now live in a condo in San Diego). Here, in round numbers, is the "ugly truth" of our $310,000 profit:
- Our initial 30-year loan of $185,000 was at 6.5%; about six years in, anticipating my retirement, we refinanced to a 5/1 adjustable at 4.65%. When we sold, we still owed $172,000, but had paid $122,000 in interest (after the tax deduction). That, plus the $13,000 paid on the principal, brings our profit down to $175,000.
- Taxes and insurance about doubled in the 11 years, but averaged about $300 a month over the 132 months we owned the home. That's another $40,000. Profit now: $125,000.
- Here's the real surprise, courtesy of my wife's careful record keeping: We spent nearly $11,000 a year maintaining our home. Since we had planned to stay there the rest of our lives, and the money was spent in big dabs and little drips, we didn't really pay attention to how it was adding up. The noticeable costs were landscaping the drab expanse of dead lawn into a flowering garden (Nancy's job to maintain) and small farm (mine), replacing the paneling on the outside of the home and garage, reroofing, putting in double-pane windows, remodeling the master bath, refurbishing the 70-year-old hardwood floors, and carpeting. That's another $120,000. Profit now down to $5,000.
- It cost 9% in real estate agent commission and assorted government fees to sell the house. That's $48,000. What happened to our profit? The balance sheet now reads a minus $43,000.
- Of course, if we hadn't owned the home, we would have had to live somewhere. I estimated a nice two-bedroom apartment over the 11 years would have averaged $650 a month, a total of $86,000. The profit is back: $43,000.
- Now the piddling things: Utilities in an apartment are much lower than in a house (trust me, those units above and below are cutting your heating bills dramatically). And while you still must have a vacuum cleaner, you don't need a lawn mower or garden equipment; don't have to rent an aerator; replace the water heater, dishwasher, washer or dryer; or pay someone to trim the 8-foot-high English laurel hedge that made our backyard a secret garden. The list is endless, but I put a conservative guesstimate at $26,000. That leaves our $310,000 profit at $17,000. And remember, we sold near the peak of one of the biggest housing bubbles of all time.
New York Times blogger Richards said such numbers mean homeownership is not for everyone, but also warned against deciding "based solely on a spreadsheet." He finished by asking: "When do you think it makes sense, if ever, to buy a home?" A couple of the responses:
- "My first home purchase was in Oct. 2009, and since then my carefree, art-centered existence has largely been replaced with Mr. Fixit work, and dumping all of my financial resources, previously utilized for travel and personal enrichment, into maintaining the structure," wrote "Pnut in Austin." "It has happened so abruptly and wholly, that I find myself questioning if it is even possible to have a satisfactory life in America."
- "Tim W in New York" wrote: "… We need to stop thinking of houses as investments. To me, investments pay you a return and, like this article pointed out, houses actually cost you money. Think of it as a place to live, nothing more."
My wife and I side with "Tim W" on this one. Even though we made mistakes on each one, we loved all of our houses, and each served its purpose. No, we didn't get wealthy -- we might have if we had stayed in the $15,500 house in Portland -- but we have wonderful memories. For us, the price was right.
More from MSN Money:
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
MSN REAL ESTATE
Little white lies can change your car insurance rates. See which are most common -- and if you'll get caught.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'