By Thats right, I just recently sold my house! What a relief. Back when I was 23 years old, I was about a year into my new career as a Police Officer. I was still living with my parents and now that I had such a grown up job, it was time to do the grown up thing and buy my first house. So I bought a modest home in a decent neighborhood for about $130,000. Initially my mortgage was just under $1,100 per month and I was loving life. Fast forward to 5 years later and I am now ready to sell my house and begin renting somewhere.
But why?
So theres a few reasons why I wanted to sell my home.
1. My property taxes had gone up $1,000 in the time I lived in the home.
2. I was learning what being a home owner was all about, in that I was constantly fixing things or having the desire to make the house better.
3. The real estate market is at somewhat of a peak right now and in my opinion it was a great time to sell.
4. I would have the opportunity to free up a ton of equity and invest it.
But isn’t renting just throwing your money away?
I hear this all of the time, and I’m sure you have heard it as well or may even believe it. Now yes it is true that when you rent you get no equity in your home in return. But, there are also a lot of expenses with a home that you may not get back either. Here’s a quick list
1. Property taxes- There is a saying that two things in life are certain, death and taxes, and property taxes definitely fall into that category. In my case they continued to go up and caused my mortgage payment to get higher and higher.
2. Mortgage interest- If you take a look at your mortgage statement you will see that mortgage interest is always getting paid and is generally a higher amount than what is going towards principal. This is just part of the game and luckily right now mortgage rates are pretty low at just under 4%. But again this is money that is thrown away, and is no longer as good of a deduction on your taxes with the new higher standard deduction. Here’s a quick example of how much you will pay in interest on your mortgage over a 30 year period. If you buy a home for $200,000 and pay the minimum payment with 4% interest for 30 years, you will end up paying $343,000 for your home or $143,000 dollars in interest! Let’s assume you pay $5,000 per year in taxes on that home as well, which equates to $150,000. Giving you a total of $493,000. Oops I forgot to include maintenance and updates on that home. I like to think that over time you will spend approx. 3% per year in maintenance or updates. Just so you don’t get too mad at the illustration I’m painting I’ll lower that to 2% which gives us $4,000 per year. Over 30 years we have now added an additional $120,000 giving us a grand total of $613,000 for that $200,000 home you purchased 30 years ago. Don’t forget that all of that equity you have paid into the home is just sitting there being pretty much useless and not earning you any interest as well.
3. PMI- This stands for private mortgage insurance. You will only have to pay this if you put less than 20% down on a home which means you probably got an FHA approved loan. This will be an extra amount you pay per month that protects the lender if you default on the loan. Once you have paid off 20% of the home this will go away.
4. As I brought up earlier: Maintenance on your home. While these things may possibly increase the value of the home, they are quite often just an expense you will have to pay as part of being a homeowner. While owning my home I had to pay multiple expenses such as a new furnace ($1,600), New water heater ($500), New fence ($4,500), concrete work ($1,000), new gutters on the garage ($600), and many other misc. expenses including an extra $4,000 worth of updates before selling. All of these things were very normal types of things to happen to a home, and again are just part of being a homeowner.
5. HOA fees- Homeowners association fees are very common if you own a condo or live in a specific type of association. These fees are used to cover maintenance of the grounds, landscaping, streets, etc.
Why I rent.
So one of the main ideas of F.I.R.E is pursuing freedom and having as little stress in your life as possible. Well, owning a home was starting to take my freedom away and add stress in my life that I didn’t want. I was able to come across a great deal renting a home nearby for under $1,000 that came with awesome landlords. I now don’t have to worry about maintenance, property taxes, lawn care, updates, etc. Noot only have I freed up about $400 per month in expenses that I now invest, I also freed up about $55,000 in equity that was just sitting there doing nothing.
Now the biggest problem I have is deciding how I want to invest that big chunk of money. Do I invest it in stocks with fears of a recession right around the corner? Do I buy an investment property and flip it or rent it out? Do I put it in a safe money market account and earn approx. 2% on it? This is definently a good problem to have and I’d love to hear your input on what you would do with this amount of money if you had it to invest.
Now my plan is to rent for a few years and eventually become a home owner again. My hope is that real estate prices will fall in the next couple of years which will allow me to scoop up a good house in a nice neighborhood for a low price. As I have mainly mentioned negative’s to home buying there are some positives as well. I think the biggest benefit is having a place that is yours and knowing you will not have to pack up and move if your landlord does not want to rent any longer. There are also some tax benefits and write off’s that are available to homeowners that renters cannot get. And I think there is an overall nostalgia to raising your children in a house of your own and creating memories with family and friends there.
So let me know your thoughts on the whole Rent vs. Buy argument, again thanks for reading.
-Matt-
Money on F.I.R.E. 