Tuesday, 18 June 2019
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This Old House - Do-it-Yourself

Why Owning a Home isn't the Pretty Picture you Imagined

Written by Posted On Wednesday, 12 June 2019 14:15

Sure we have heard the American dream is to own a home. But really, is it all that it is cracked up to be? Consumer trends and tastes have certainly changed.


Companies in all spaces have realized that "owning" items aren't as important to consumers as they once were. We rent our phones and vehicles and don't give it a second thought. Although we will spend more in the long run, we just don't mind renting our possessions anymore.


However, when it comes to a home, you might find out that owning is overrated. In fact, although many professionals say that owning a home is a real estate investment, a way to build wealth,  that doesn't mean that this will be a money making venture. We have put together a short list of why owning a home isn't what it is cracked up to be.


  1. Property Taxes


Owning a home doesn't come without its expenses. At the top of the list are the property taxes. In some counties across the country it can reach as much as 3%.


Lets' say the county appraises your home for $400,000. That means you will be responsible for $12,000 in property taxes each year. We also know that counties try to raise the value of homes on a yearly basis. But let's just say that you stayed in this home for 10 years, at the same exact property tax value. That would mean you were responsible for $120,000 over 10 years.  


Many of you are saying that property tax is deductible. While that is true, there are now caps stating how much you can write off each year.

States with High Property Taxes, courtesy of Yahoo Finance


B) HOA Fees

Does the community you currently live in have an HOA? Homeowners associations are becoming more commonplace and popular in cities across the country.


Yes you probably will end up paying more to live in one of these communities. Builders are usually responsible for setting these up. Many of them will include water, trash, landscaping, and perimeter fencing. But living within an HOA might require hiring a management company, additional taxes, insurance, and other miscellaneous fees.


The main purpose of an HOA is to increase property values. But let's not hide the fact that you will pay extra to live within one of these communities.


C) Interest on Your Loan


You didn't forget the interest on your mortgage loan did you? If you don't have one, then congratulations. But if you took out a 30 or 15 year loan, you might want to look at see how much interest you will be paying over the term.


Interest is another tax deductible item. But let's not hide the fact that is another cost associated with homeownership.


D) Realtor Fees


Anytime I start talking about having to pay realtor fees, there is always someone who argues that their friend is a realtor and they don't have to pay for their services. Well, again congratulations to you. For the rest of us, there are fees to be paid to both the selling and buyer's agent.


Contrary to popular belief, these are usually negotiated items.  But usually the seller is responsible for paying these fees. Let's use our $400,000 home example. Let's say that after 10 years the home had appreciated to $550,000.


After 6% in fees to both realtors, the homeowner would be left with $517,000. But remember there were 10 years of property taxes at $12,000 per annum.


Subtracting that from the final sales price leaves you with $397,000. Renting an apartment or house doesn't sound like such a bad idea anymore, does it.


We didn't even subtract potential HOA fees, maintenance on the home, and interest on the loan.


Be sure to leave your comments below.

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