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Started By
Message
Does homeownership make sense if you're single?
Posted on 7/17/15 at 8:11 am
Posted on 7/17/15 at 8:11 am
Having this debate with someone at work. Renting vs. owning.
Very back of envelope example...
Let's say you buy a $250k house, 20% down, 20 yr mortgage at 4%.
In your average Texas suburb you'll pay about $240K by the end of the loan in interest, taxes, HOA and insurance. add an extra $40K or so for updates, maintenance, security system, higher utliltiy bills etc.
So $280K on everything but the house itself. Which happens to work out to a decent suburban apt. in today's rental market. (Over 20 years)
But of course you have a paid off house after 20 years along with tax breaks along the way. Let's say the house lands at $350k.
However, if you instead rent and invest the principal amount each month, any amateur investor can probably beat that.
So my argument is owning isnt a cut and dried better financial move. There seems to be an almost universal feeling that renting is "throwing your money away."
Very back of envelope example...
Let's say you buy a $250k house, 20% down, 20 yr mortgage at 4%.
In your average Texas suburb you'll pay about $240K by the end of the loan in interest, taxes, HOA and insurance. add an extra $40K or so for updates, maintenance, security system, higher utliltiy bills etc.
So $280K on everything but the house itself. Which happens to work out to a decent suburban apt. in today's rental market. (Over 20 years)
But of course you have a paid off house after 20 years along with tax breaks along the way. Let's say the house lands at $350k.
However, if you instead rent and invest the principal amount each month, any amateur investor can probably beat that.
So my argument is owning isnt a cut and dried better financial move. There seems to be an almost universal feeling that renting is "throwing your money away."
14
Posted on 7/17/15 at 8:19 am to TejasHorn
I think ownership is viable as a single person if you spend as little as possible. I'm single. I live below my means with respect to housing. An inexpensive condo on a golf course.
You'd need to convince me spending any more than necessary on a residence makes sense from an expense and time perspective.
You'd need to convince me spending any more than necessary on a residence makes sense from an expense and time perspective.
Posted on 7/17/15 at 8:20 am to TejasHorn
quote:
renting is "throwing your money away."
Posted on 7/17/15 at 8:27 am to TejasHorn
On tax deductions alone, you would be looking at savings of about $2000-3000/year due to the advantage of itemizing vs standard deduction
If you were to invest $2000/year (assume lower since benefits decrease) in tax savings each year and averaged 7% returns, you would accumulate ~$189,000
Home typically appreciate at 3-4%/year on average, so if you assume more conservative 1.5-2%, $250k home = ~ $390,000 - $453000
Plus there is the lifestyle value of living in a home. Garage, yard, more space, ability to wash car, storage and many other things that most condos/apartments are missing
If you were to invest $2000/year (assume lower since benefits decrease) in tax savings each year and averaged 7% returns, you would accumulate ~$189,000
Home typically appreciate at 3-4%/year on average, so if you assume more conservative 1.5-2%, $250k home = ~ $390,000 - $453000
Plus there is the lifestyle value of living in a home. Garage, yard, more space, ability to wash car, storage and many other things that most condos/apartments are missing
Posted on 7/17/15 at 8:29 am to dkreller
quote:
renting is "throwing your money away."
This is in practice pretty much false. Everyone who has a mortgage effectively "rents"
Look at the mortgage interest on a home, you are paying someone else to live in that home.
Big difference is that government gives tax breaks + you are signing a 30 year decreasing rent lease
Posted on 7/17/15 at 8:30 am to TejasHorn
$40k for maintenance, updates, etc is way too low.
How long do you expect your roof, ac, heater, and major appliances to last? Replacing all of these items once on a $250k house will probably eat up more than you might expect.
Will you ever paint?
Any landscaping?
Do you think you might change the carpet or floors over 20 years?
How long do you expect your roof, ac, heater, and major appliances to last? Replacing all of these items once on a $250k house will probably eat up more than you might expect.
Will you ever paint?
Any landscaping?
Do you think you might change the carpet or floors over 20 years?
Posted on 7/17/15 at 8:32 am to GenesChin
Also, for most people who have a mortgage, being single is a better tax benefit than being married due to mandatory itemizing for both.
For example, if I don't sign a legal marriage certificate, I could itemize and adjust federal income ~$20k + "wife" would standard deduction for $6500 = ~$26500
If we were married, we would only get that ~$20k
For example, if I don't sign a legal marriage certificate, I could itemize and adjust federal income ~$20k + "wife" would standard deduction for $6500 = ~$26500
If we were married, we would only get that ~$20k
Posted on 7/17/15 at 8:40 am to Athanatos
quote:That's not necessarily true and it completely depends on the house. If it's a brand new house, that's probably too high.
$40k for maintenance, updates, etc is way too low.
Posted on 7/17/15 at 8:43 am to TejasHorn
quote:
So my argument is owning isnt a cut and dried better financial move. There seems to be an almost universal feeling that renting is "throwing your money away."
It's not cut and dried.
But if your rental expenses will be the same as ownership cost every year, on one option puts money in the bank for you with upside appreciation
Posted on 7/17/15 at 8:45 am to GenesChin
quote:
Look at the mortgage interest on a home, you are paying someone else to live in that home.
Kinda silly way to think of it. If you ask someone to loan you money, they should get interest on it. Nobody is required to borrow
Posted on 7/17/15 at 8:45 am to TejasHorn
I own a 2bed/1bath condo that I pay slightly over $800 a month for in mortgage + COA fees. That covers everything except electricity, internet, insurance, and property taxes ($800/yr). To rent in my building (and any other building around it) in downtown Birmingham would cost $1,000 on the very low end and $1,200 is probably a more realistic amount.
I could easily save money and rent for <$800 by living in a crappier apartment in a worse area. I'd rather own and live in a building where most other people own and care about the area vs. an apartment in a crappy part of town.
I'm single and my parents are my "mortgagors" which makes the deal even sweeter.
I could easily save money and rent for <$800 by living in a crappier apartment in a worse area. I'd rather own and live in a building where most other people own and care about the area vs. an apartment in a crappy part of town.
I'm single and my parents are my "mortgagors" which makes the deal even sweeter.
Posted on 7/17/15 at 8:53 am to Iowa Golfer
I think people need to factor in the amount of time it would take one person to save enough cash for a down payment. $50,000 is a lot of money to save with after-tax funds, and over the same course of time, could have been placed in tax-deferred investment accounts.
Posted on 7/17/15 at 8:55 am to LSUtoOmaha
quote:
I think people need to factor in the amount of time it would take one person to save enough cash for a down payment. $50,000 is a lot of money to save with after-tax funds, and over the same course of time, could have been placed in tax-deferred investment accounts.
Roth IRA....
Posted on 7/17/15 at 8:58 am to LSUAfro
Good point, and that is kind of what my plan is (stock money in a Roth IRA and use the principal down the road when I want to buy). Even so, getting 50,000 from the Roth plan would take, what, 9 years of principal?
Posted on 7/17/15 at 9:00 am to LSUtoOmaha
quote:Yeah it would be a long road for a single guy
Good point, and that is kind of what my plan is (stock money in a Roth IRA and use the principal down the road when I want to buy). Even so, getting 50,000 from the Roth plan would take, what, 9 years of principal?
. I also wouldn't buy a 250k(for those of us that don't live in premium housing markets) first home as a single guy either.
ETA: Or wait till I had 20% down for that matter. You put 10% down and see a 3-4% appreciation on your property, you can knock your PMI off after year 2.
This post was edited on 7/17/15 at 9:06 am
Posted on 7/17/15 at 9:05 am to LSUAfro
I think a lot of it depends on the rental market in your area. It's crazy what rent goes for in Baton Rouge area so I think you are better off owning here.
Posted on 7/17/15 at 9:08 am to LSUAfro
Yeah, here 250k is the minimum unfortunately. PMI for two years isn't bad, and that would probably be the best decision in the long run. I still wouldn't buy single.
Posted on 7/17/15 at 9:11 am to LSUtoOmaha
quote:I wouldn't either unless I was >95% certain I wasn't leaving the area for a minimum of 5 years and I'm still not sure I'd buy at that point.
I still wouldn't buy single.
This post was edited on 7/17/15 at 9:12 am
Posted on 7/17/15 at 10:35 am to LSUAfro
What is the life expectancy on a roof in Louisiana? 12-15 years?
It is very unlikely that you go 20 years without getting a new roof.
Carpet? If you keep the same carpet for 20 years it will be disgusting.
New or old, quality of construction is the bigger factor anyway.
It is very unlikely that you go 20 years without getting a new roof.
Carpet? If you keep the same carpet for 20 years it will be disgusting.
New or old, quality of construction is the bigger factor anyway.
Posted on 7/17/15 at 10:45 am to Athanatos
quote:15-30 but it seems like everybody I know gets a "free" roof through insurance every 15-20 years due to hail or hurricane. If not, looking at maybe 10-15 grand.
What is the life expectancy on a roof in Louisiana? 12-15 years?
quote:
Carpet? If you keep the same carpet for 20 years it will be disgusting.
Cost to carpet 3 bedrooms probably run you a couple grand. Cost to throw down some more engineered wood in common spaces is another couple grand. A new AC...another few grand.
My point was...I would think 40 grand would be on the high end for a fairly new decently built home definitely not on the very low end.
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