Yesterday I talked more about our evolution. I wanted to talk a bit about the house and why it was a mistake. Buying our home was a financial mistake. But it happened after we became more cognizant of our finances. So why was it a mistake?
Well for one thing it was more expensive than renting. But I thought it was cheaper than renting? It is cheaper than renting a comparable townhouse, correct. But not cheaper than renting a much smaller apartment. My DH and I have way too much space for 2 people. We have a 3 bedroom/2.5 bath townhouse about 1800 sq ft.
We used to live in a 1 bedroom, 570 sq ft condo. This was a huge move up in size and price. So why was it a mistake? Well we could have rented for the past 3.5 years and saving around $1k/month. Yes it would have been a 1 bedroom apartment, but we would have also have saved on heating, etc.
But why buy? Because we wanted to not move. We wanted to find a place that took dogs, and we ended up getting a second pooch. Truth is if we had rented, it’s doubtful we could have gotten a second dog. We also would have been very limited in apartments willing to take our dog. Prior to buying we had been looking and had paid a premium for our short term rental.
So to use we bought as a lifestyle choice. Not a financial one. We didn’t buy to make money. We didn’t buy to save money. We bought because we like painting our walls. We like having dogs and getting a second dog. We liked having freedom to repair our home and know we wouldn’t have to move on the whim of the landlord.
So I guess you can say knowingly knew all of this before buying, and still went through it. However, I acknowledge it likely was a financial mistake. We could have been saving $1k/month and afforded my DH’s tuition without loans. But we made a personal decision to buy versus rent.
Have you ever considered renting and it’s impact on your finances? This is not a renting or buying is better debate based on lifestyle, it’s just an explanation of why renting would have been better from a purely financial standpoint for us.
18 responses so far ↓
1 Fabulously Broke // Feb 11, 2009 at 9:35 am
Yeah, I did a post on that which you read about Why I rent instead of buying..
I’d buy for sentimental reasons as well, keep it for 15+ years and not worry about the money because I like the idea of a backyard and a BBQ.
But for right now, it’s ludicrous for me financially and lifestyle-y since I do travel as a consultant, am planning on moving, and haven’t found my home yet.
2 LivingAlmostLarge // Feb 11, 2009 at 9:52 am
Exactly. Sometimes you make bad financial choices for personal reasons. I’m not sure that people realize that homes are money drains often.
Comparatively, yes our place is cheaper to own than to rent. BUT we pay more to own than to rent a substantially smaller palce!
3 Barb1954 // Feb 11, 2009 at 11:59 am
Of course most people buy rather than rent because it’s a lifestyle choice. Not everything in life, at least not the most important things, is about money.
4 Stacey // Feb 11, 2009 at 12:20 pm
When we bought last year in semi-rural Pennsylvania, renting and buying were about equal before real estate taxes. I guess we consider the taxes a “lifestyle” or “backyard” tax .
If we had rented, we would have rented a single home about the size of our current house.
Now that interest rates are down and we’ve refinanced, it’s actually cheaper to buy than rent – about $900 per month for principal, interest AND taxes on a modest single home. I don’t think anyone saw that coming…
I really think that buying only makes sense financially if you plan to own homes throughout your lifetime – and eventually pay off the mortgage. Our “lifestyle choices” may hurt financially now, but they’ll feel great when you’re retired and don’t have to worry about rent.
5 Fit Wallet // Feb 11, 2009 at 4:21 pm
Our house was a financial mistake too. Part of the problem is that houses in this neighborhood are either small (900-1,100 sqft rowhomes) or huge (2,000+ sqft). We chose huge and rented out the top floor to friends. Now we’re ready to live alone and it’s going to cost us. We bought for the same reasons you did–we have pets (2 dogs and some cats), we like to personalize our space, and we wanted to stay in the same neighborhood for a while without worrying about rent going up every year. Well, the mortgage doesn’t go up every year, but the heating bill sure does! We had a very affordable lifestyle as renters. Now we are much more conscious of our financial choices, so I guess you could say it’s a double-edged sword.
6 Miss M @ M is for Money // Feb 11, 2009 at 5:44 pm
Our house was a big financial mistake, one I committed before I was financially savvy. I wasn’t even looking to buy at the time, we were looking for a bigger rental. Prices on house rentals in the neighborhood we wanted are about the same as what we pay in mortgage each month. But we couldn’t afford to buy in a neighborhood we wanted, so we are in a less desirable area. We would probably pay $800 less a month to rent our same house. Like you I wanted dogs, now that we have three it would be impossible to find a rental. My house has been nothing but stress since day one, now that I’m upside down by as much as $100k it’s looking like the worst financial mistake of my life.
7 LAL // Feb 11, 2009 at 6:01 pm
Actually Stacy, I wouldn’t count on property taxes being affordable in 30 years. Many older retirees did and without a cap they are unable to afford thei homes.
I agree with fitwallet and Miss M, once you have pets it’s hard to find rentals. I know that rentals are more expensive where we live. So our place is cheaper than renting. But we could get a smaller place for less no problem.
But like Barb said, there is more to life than money. And there is more involved than just finances in where you live.
8 fengshui // Feb 11, 2009 at 8:56 pm
We wanted big dogs and our home had a big backyard with a privacy fence out up already, so I was so happy about that. It is more expensive than renting, but I thought about the long term, because I knew that I wanted to keep the house for 10 years or more. And I love privacy, living in an apt drove me NUTS when I could hear people walking around above me, etc and then I couldn’t crank my music or have parties. So, I thought that it would be worth it. Yes, it would have been cheaper to rent in the short term, but over the long term, I look forward to living where I don’t have rent or a house payment someday
9 Stacey // Feb 11, 2009 at 8:58 pm
Point taken – we can never assume that taxes will never rise, or that they will simply keep pace with inflation.
At the same time, is there any guarantee that rent will not rise faster than the rate of inflation, or the rate of tax increases? Surely landlords are including the price of taxes in their rent.
10 LAL // Feb 11, 2009 at 11:03 pm
Fengshui, yep pets are a huge cost.
Stacey, what about maintenance? Typically renters damage the home more than owners. Thus insurance is typically higher when you rent out a home. So landlords have to carry more insurance in case something happens.
Plus typically maintenance is higher.
11 JoeP // Feb 17, 2009 at 3:11 pm
I think that if you buy a larger home with extra bedrooms in anticipation of kids or in-laws, that would be a wise move. You’re going to need the extra space, and you can start building equity sooner.
But I have to agree with your analysis that this was a financial mistake. In this case, it seems you allowed emotion to have too large a voice in your decision.
12 LivingAlmostLarge // Feb 17, 2009 at 6:31 pm
Not really Joe. I think that even with kids you don’t need space. You could be living in 2 bedrooms with 1 child. I think that too is also a choice.
You can rent with kids. It is a purely emotional decision and not a financial one. I chose my mistake, but I don’t think that many people can argue that often times renting can be cheaper.
14 JoeP // Feb 23, 2009 at 2:20 pm
True, you don’t “need” too much space when having kids. Where I grew up, the houses were all around 1400 sq ft with 4 small bedrooms and 1 bath. One neighbor had 8 kids, and 2 others had 6 each. The solution included bunk beds, free range dining, and the mattress went to the curb when they turned 18.
Of course it is a choice, but there are many considerations. For example, when company comes over with their 2 kids for a week, where are they going to sleep? Will there be enough room when you find out you’re having twins or a surprise child? How about room for an office? I’m not suggesting everyone go out and buy a 5 bedroom house, but kids can change the way you manage your space, so having the extra space is nice.
15 LAL // Feb 23, 2009 at 3:23 pm
Many people live with small spaces. Most of Europe and Asia raise kids in apartments 2 to a room. So I think our ideas of space is society based.
Why does company have to stay with you? If you have a smaller place you could rent them a hotel with your extra savings.
I like the space personally. I find it quieter than apartment living. Something that is important in a non-financial aspect of my life. I used to sleep with earplugs because I couldn’t take it.
But I do acknowledge, like my non-frugal ways, that I choose to buy a home with more space because I enjoy it.
It’s still a want though, I only really “Need” for my DH and I 300 sq ft. We’ve lived before in a studio apartment.
Technically we could still be living like that until our first child. And even then we might only NEED, 700 sq ft and 2 bd/1ba at most.
So we don’t really need the space. But we WANT the space.
16 JoeP // Feb 23, 2009 at 9:31 pm
Yes, there is a big difference between wants and needs, as you illustrate. Most people would give up a smaller house for a larger one, within reason.
Another factor that is gaining more popularity is the carbon footprint. I don’t think anyone would argue that 2 people living in a 3000 sq ft home is a poor use of resources for heating and cooling. I’m not suggesting mandating limits, but it is a consideration to ponder.
Regarding guests, we very much enjoy being hosts for friends and family, which is why we have a spare room (it gets closed off when not in use). I would be somewhat insulted if family or friends rejected my offer to stay and eat with us, and I would feel a bit unwelcome if family or friends put us up in a hotel when we came to visit (unless it was a large multi-family gathering).
17 LivingAlmostLarge // Feb 24, 2009 at 8:45 am
I understand, but I’ve got many friends, probably because they live in the city who have really explained the hows and whys of living small. I could do it, but choose not to.
Thus I am definitely leaving a bad carbon footprint. I’m not saying it’s wrong, per se, but I can see their point that a couple or even a couple with kids need very little space.
So we all don’t need the space, like we don’t need two cars. But we like the convenience. I have debated getting rid of my car because it costs me around $200/month but I just can’t. I like the convenience.
I don’t have a car payment, but when you factor in lost opportunity cost of a car value, even my $4k car, at 5% year that’s $200/year. But then you put in maintenance $50/month, insurance $50/month, registration, gas, depreciation, it’s around $200/month for the luxury. Is it a need? No. A want.
But one car is a need. When we lived in CA, two cars were a need because we drove in opposite directions. I used to drive 120 miles one way in the same day sometimes. So two cars were a need then.
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