Monday, February 2, 2009

A Debate

Aside from owning a house for family/space purposes, what is the leverage when considering renting or buying. I have always been raised in a mindset of owning a house is a necessity, something that must be done. Why would you throw money at monthly apartment costs for the rest of your life? You can build equity in a home. Really? I believe, the cost-benefit is non-existent.

For example:
House - $200,000, over a 25 year mortgage you're likely to pay 1.5 times the cost of the house in interest. Taxes, on average $2,300/year. Utilities including hydro and gas, $150/month

Apartment, with the cost of renting increased yearly, let's set the monthly rental at $1,200 for an average.

57500 taxes
45000 utilities
Total: $477,500 - with renos, etc, cost would be moreso 500-600,000


Now, at the expense of renovations every 10 years or so of your house, yard care, etc...the Total for housing costs would end up being much greater in the end. Maybe after 25 years, your house sells for 25% more of its worth, maybe more, giving you 250, maybe 300,000 at the end. My numbers may be off slightly, but the cost of a house/payback in the end is equal – if not, more significant in costs over the same time period and return is not guaranteed.

So, I particularly don't believe houses or cars for that matter should be viewed as an investment, more-so a cost of living. Costs of each, obviously dependent on the lifestyle you choose.

Where I want to go with this is not simply, the cost of living vs investment… It's more an example of what humanity strives for: a life. A better life. It doesn't just happen here in North America. It happens everywhere, from a rural village in Cambodia to coffee farmers in Columbia to refugees in Africa. Would they be satisfied with owning a hut outside the refugee camp or would they strive to better their living conditions to a structured brick home with a tin roof or more? I think so. Same happens here in North America, we go from roommates in an apartment, to our own suite, then a better neighbourhood to maybe a house in the future with our spouse. Is it wrong of us to strive for more?

Ecclesiastes 8:15
So I commend the enjoyment of life, because there is nothing better for people under the sun than to eat and drink and be glad. Then joy will accompany them in their toil all the days of the life God has given them under the sun.
Luke 12:48
...From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.

I think its worth recognizing that a home, regardless of type is being entrusted with much. Joy, the enjoyment of life, being glad: is reasonable and should not be felt as undeserved.


Tiffany said...

Our house sold for 30% more after just ONE year!

In my opinion (and it's just an opinion, what's the point of blogging if you can't get comments!), you have to consider the fact that after 20 or 25 years you'll OWN the house outright, whereas if you live in an apartment forever you'll be paying $1,200 (more later) a month forever. If you multiplied $1,200 a month by the next 60 years, that would be $864,000. After your mortgage is paid off in 20 years, your house (if worth $200,000 now) will be worth far more then, and you'll have equity and a rent-free existence!

And, if you chose apartment living, and then in 20 years decide to finally buy a house, all the money you've put into rent for the last 20 years is just "poof" gone. Sigh. The apartment thing used to irk me.

Not that I don't think that you have an awesome apartment and you may as well crash there for a while and enjoy not shoveling and mowing for a while.

Tiffany said...

And unless you're really high maintenance, you probably won't spend $122,500 on renos!

Q&L said...

Yeah, good point, on the other hand, even with no mortgage to pay, there is still a cost in maintenance of the home, which can easily run 600 a month, plus you are always responsible to replace a furnace, hot water tank, etc. I'm not against a house, don't get me wrong.

Candice said...
This comment has been removed by the author.
Candice said...

(The deleted comment was mine - too many typos!!!) Here is is again...

I think there is a benefit to raising a family in a home. A safe place to be and grow. A structure that is *yours.* Even if a house costs more in the end, the *home* is worth something, if not the house. I know that T&Me will be renting for years to come yet, and I realize that if there are any children to be had they may have to join us in that due to the costs of what we want to do with our lives, but a house is what I dream to have one day. I couldn't imagine my childhood trapped in an apartment compared to what my parents provided me with.

Also - rent goes up every year. You have to worry about damage you cause because the place isn't yours, you must be aware all the time regarding how much noise you are making because renting often comes with shared walls and *really* close neighbors! Further? A playground in your back yard probably does wonders for children. A home-made slip'n slide to run around on in your bathing suit may not be appropriate in a public park!!!

Plus, I have a story similar to Tiffany's - my friend bought a house in a small town ($35,000) put a year's worth of renos into it during evenings ($10,000 worth), then turned around and sold it ($70,000!!!) a year later and used the money to put himself through school. If *that* isn't equity and pay back, I don't know what is.

But this is coming from a girl who grew up on hundred of acres to play on, grow in, explore, hike, fish, skate, ski-doo, quad, camp on without parents but still be on their property and safe, build forts on, and...Oh just go check out Sonya's list - I was so nostalgic over it!!!

Q&L said...

Yes, I agree growing up in the country was more fun than one can imagine than an apartment or a small city sized backyard. Altho, most of Quinn's teenage life was in an apt, the experience for the child is what the parent makes it. Quinn turned out ok. House 'flipping' depends how much work you can do yourself. Also the money to be made in a smaller market is much greater than in this city. An 900 square foot home goes for 160,000. yes, the lifestyle can't be compared to the cost.

Jeffrey Vust said...

Another comment Re: home value vs renting value...
The resale value is only part of the picture of owning a home. Once you have some equity you can do cool things like re-borrow against that equity to invest. The cost of such loans is tax deductible, and it allows you to start building a portfolio for retirement without putting a lot of your own cash aside. It's not for everybody, but it is one tool available to a home owner that is not available to a renter. But the key to a home paying for itself is time. If you are going to stay put for more than 10 years, buy a house. And I agree with Tiff; your reno costs are quite extravagent. Also the $600 per month maintenance...I've lived in some beat up houses and never had that much. I budget $25 per month for my home repairs. (I do the work myself, though.) Just some thoughts.