Houses (still) Eat Money

And how you can build "equity" without a home

I’ve written here and there about the real cost of homeownership that few people really understand. From time time I hear the frustration of people who are renting and cannot get loan to buy a house. Are some somethings to consider and definitely things you can do to help build your wealth to maybe own a home one day or just build up a portfolio.

A Rent Payment Does Not Equal and Never Will Be the Same as a House Payment.

I see frustrated posts about people making a $2,000 month rent payment who don’t understand why they can’t borrow an amount of money that equals a $2,000 mortgage payment.

When you own a home, on top of the payment you have insurance, taxes, things you want to do to the home (decorate, and fix up) and things you have to do because of entropy. This last item is something few homeowners budget for effectively. The structure and components of home breakdown on a somewhat predictable timeline give or take some years and of course depending on the climate you live in and sometimes maintenance. The easiest homes to budget for would be a brand new one. You could add up all your appliances and start building a fund to replace them all in a 10-15 year timeframe with some maintenance and repair costs along the way. The appliances and a/c system in a typical US home could easily add up to $15,000 or more in a hurry. That cost alone would add $1,000 per year to a person’s budget to start building a sinking fund to replace those items as they start to break down.

The roof is another big one that time and again clients would call me or come to see me stressed out about this “unexpected” expense. A roof could easily exceed $10k for a small home with an asphalt shingle roof and 6 figures if your roof is made of tiles or slate shingles. Add to that list things like paint, flooring, tuck pointing, electrical and plumbing issues and you could have hundreds dollars or even in the thousands added to your budget especially if you’ve bought an older home that could have decades of deferred maintenance that you are now responsible for if one of those big ticket items breaks while you own the home.

Now, if you own a home and haven’t done some kind of analysis to budget for the “have to things” I’d recommend finding a building inspector or engineer to do an assessment of your home. You can use them and some of your own research to build a reserve study budget for your home to make sure you don’t have any unexpected expenses that can ruin your year or your planning in general. It’s fun to save for “want to”, kinds of things (like a play room, swing set, sky light, etc.) , but necessary to save for the entropy that’s happening all around you.

You’re not going to live there that long you say?

Well, if you plan on owning another home it will need money too, so having that as part of your portfolio will always be necessary. A good financial planner can help you with what to do with the money so it’s there for you when you need it once you’ve figured out your budget.

Building Home Equity Without A Home

I’m a renter you say! I don’t have to worry about this! True, but you can take some of my points and purposely start saving all the money you would have to spend on a home (the taxes, insurance, and maintenance I described) and invest that for your future home or just your long term savings. Many times when people don’t have those explicit expenses the money disappears into their lifestyle. Then if they ever do buy a home they are shocked by the expenses and become house poor even if the rent and house payment are the same.

Disclosures:

I’m not A financial advisor any more and I’m not YOUR financial advisor. I’m just sharing my thoughts from being a home owner for many years and witnessing the cost of money on my own life and the lives of others. Like I said, Houses Eat Money. The same money that we traded our lives to obtain. The more informed you are the better planning you can do and better decisions you can make.

Hope this was helpful.

Here’s the podcast I released on the same topic: