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.

By doubleace Mar 29, 2011 12:13PM

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.

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.

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

8Comments
Mar 30, 2011 10:25AM
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Absurd. Just as absurd as the NYT article you reference. Obviously you are not a financial planner and don't play one on TV. You used the cost of renting a "nice two-bedroom apartment over the 11 years" as your comparison. BS, rubbish, false, crap, wrong. The only way to make an apples-to-apples comparison would be to compare the cost of renting the homes that YOU LIVED IN. Namely:

1. A three-bedroom, two-bath on a 50-by-100-foot lot

2. A 2,700-square-foot brick English Tudor, also three bedrooms and two baths

3. A 1,370-square-foot, two-bedroom, two-bath "cottage" 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.

 

At no time during this 11 year stretch did you live in a "nice two-bedroom apartment". Make a real comparison and you will see an enormous increase in your actual return. The people perpetuating the myth that renting is a better financial option than buying are simply trying to show how they are smarter than the system. In fact, they are actually too smart by half.
Mar 30, 2011 10:15AM
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That's absurd. First start at the bottom of the article. Paying $650 a month for a two bedroom apartment? Where? In a slum? Housing is a buy and hold investment. You also got to deduct the interest and taxes from your income taxes. And each payment was made in more and more inflated dollars. And after 30 year, it's yours. Forever. I don't care what people do with their money, but buying a home should be part and parcel of every married couple if you expect to live past age 65. I'm retired and love living in my paid for home. Just $3256 a year in property taxes. And I expect to live about another 30 years. Hope your landlord sends you birthday cards.
Mar 30, 2011 10:40AM
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$650 for a 2 bedroom?    Dallas, TX that would only get you a one bedroom 800sq place with no place for a kitchen table.     Ever have to deal with a land lord, they don't maintain anything, you live with ugly out dated units.   A house may not be an investment but it beats the HELL out of renting.
Mar 30, 2011 2:53PM
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These articles are crazy. I'm a landlord folks. All that stuff homeowners have to pay? I have to pay it too. Guess what? I pay it with the rent I make AND I make a profit on top of it.

As others have pointed out, this story is completely stupid. You wanted a home on a lot big enough to become a raised bed farmer. You don't get that with a 2-bedroom apartment. If a 2-bedroom apartment was good enough, you would have bought a 2-bedroom condo. A house like you described would have had an average rent closer to $1,000 over 11 years which is $132,000. That means your $17,000 profit would be closer to $63,000 profit over 11 years.

The utilities are cheaper? Maybe. You spent $120,000 of which some of that was double-pane windows and likely other energy efficient upgrades. Guess what? Landlords don't buy energy efficient windows or appliances. They buy cheap appliances because most renters don't take care of the home well enough to justify that expense. Yeah the other units (assuming you are the middle unit and not the top and/or corner unit) will insulate you a lot but if the windows and doors are junk and the appliances old, you still have a huge electric/gas bill. Also, if you are the middle unit getting all that efficiency comes at a price of privacy and NOISE. Every Saturday morning a neighbor kid above me would take what looked like a sled and go shooting down the stairs that ran against my bedroom wall. It was great!

Now, $63,000 profit doesn't sound too bad to me and really neither does $17,000. It certainly beats $0 profit as you would have had if you rented. But throw out both of those numbers. Lets say your end result was a LOSS of say $26,400 that means owning your own home for 11 years, having the freedom to do as you desire with it, have complete privacy, etc only cost $2,400/year ($26,400/11 years) or $200/month. To each their own but I think all the benefits are worth $200/month. I don't know where I would draw the line for sure but I know a PROFIT of $63,000 or $17,000 is definitely on the side of ownership as is a loss of $26,400.
Mar 30, 2011 11:56AM
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I agree with the three people who have posted so far.  We bought our house in 2009, and the cost to rent a similar home would be $1,100.  Guess what our mortgage, taxes, insurance are?  You guessed it, $1,100.  Do we put money into the house?  Of course we do, I had my husband put cat doors in all of our bedrooms so we can keep the doors closed yet give the cats access.  We had a wrought iron fence put up on the side of our house and created an enclosed "cat garden" which my cats (I have six of them) can access through a kitty door my husband put in the adjoining window screen.  I love gardening, and have put a lot of work into curb appeal.  My husband is turning the garage into his dream work space/man cave.  And as we live here, the list will go on... Renting sucks and landlords suck.  Good luck to those renters when they are ready to retire and rent has kept up with inflation, while us prudent homeowners are enjoying rent-free living in houses we have made homes.
Mar 30, 2011 11:39PM
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For the landlord, there is no one version of 'well-maintained'. After living in an apartment that literally started to fall down and the landlords were so desperate they started to rent to the mouse population, home ownership is the only way I will go.

 

You will never find a black furnace filter in my home. All the light switches work. The toilet handle doesn't need jiggling. The dishwasher works fine (albeit on one setting).

 

I do my exercise time keeping the house up and cleaning the extra space but I wouldn't trade it for anything after my bad landlord experience. I can have any pets I wish. This place is my pallet and I can paint it or remodel to my contentment. The utilities are cheaper than my 1 bedroom apartment because the mechanicals are maintained and newer.

Mar 30, 2011 1:31PM
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I rent a 3 bedroom 2 bath 2 car garage with part basement home for $675.00 month in Southern Colorado. Over 300 days of sun a year, but not many decent jobs. Home is on 2 acres. So they are around, you just have to look hard and be patient. I love the low humidity and moderate climate here.

 

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So, they not only paid for their housing, but made $17,000 in those years, living in houses they enjoyed...and the last with a great view. Not bad...not bad at all.....
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