Last year my wife and I decided to make the biggest change in our 12 years of marriage.
We decided to pursue our dream of living by the coast.
We sold our house in Dallas, TX, packed our belongings, and moved to sunny SoCal! Well, it wasn’t exactly that simple. It took almost a year of praying, planning, and a lot of work. But we did it, and almost a year later we’re still pleased with our decision and enjoying our new lives in the sand and sun.
As you can imagine, there were a lot of considerations for our move, with housing and finances being amongst the most important. We knew that our dream and moving to an extremely high cost of living location would require a lot of changes in how we live. Obviously, we knew that based on my current income we wouldn’t be able to afford our Texas house in California. The real estate prices where we live in South Orange County are at least 3 times as expensive as North Dallas.
But we felt downsizing to less than half our square footage and becoming renters indefinitely was worth the change for us. We’ve always owned our homes and of course rented apartments when we were just getting started with our post college lives. Years ago, I bought my first house when single because the value of home ownership had been instilled into me from reading all the personal finance gurus as well as through discussions with family and friends. I thought buying a home was the right thing to do when you graduated school and finally start receiving a decent salary.
After all, a home has always been considered an investment. Why rent when you can put your money towards owning an asset with appreciation potential, right? In general, I agree that this makes a lot of sense for people, especially in moderate cost of living areas. Higher cost of living areas, such as the Northeast and California have always had renters because it provides for more affordable housing. I would also venture to say that’s more socially acceptable. So, we’ve become renters and quite honestly, we’re loving it.
Why? Experiencing our move to California has broadened my perspective on the renting versus buying discussion. Again, I don’t think home ownership for many reasons is a bad decision. But, home ownership has a lot of hidden costs and responsibilities that most people don’t know they’re signing up for when they buy. On the other hand, renting eliminates a lot of these responsibilities and costs and in my opinion, greatly simplifies life.
Let’s explore some of these hidden costs…
Some Hidden Costs of Home Ownership
Cosmetics – Assuming you keep a house for the full term of the mortgage, the property will never look the same after that 20-30 years. It will need new cosmetic replacements such as flooring, painting and other remodeling to simply keep it up and on par with the latest styles. Otherwise, it won’t be marketable when you’re ready to sell. And even if you want to keep it forever, you or your spouse are likely going to want some of these changes too!
Maintenance – We owned a new house in Dallas but in less than 5 years I had to pay for two air conditioning unit repairs. I was also responsible for keeping my lawn trimmed and fertilized. I also spent money each spring and fall replacing mulch, trimming shrubs and planting flowers. Did I mention that I also paid for a kitchen faucet replacement and when we moved the inspector found the windows needed to be resealed? We shelled out more money than I care to mention for those repairs when we sold our property!
More Expenses – Think about all the money it takes to get buy a home! Fees you’ve paid to close (more hidden costs) and prepaids such as insurance. You’ve paid all of these fees and expenses to get in, invested 20% and then you get to drain more savings to buy furniture for the dining room of this house that just might have more square footage than you need. Let’s not forget the 6% standard real estate commissions when you sell which further eats away at your investment and the equity you’ve tried to create!
Temptation to Spend – We owned a large home in Texas (everything is big there, right?). Our larger home of course opened up discussions about furniture. Furniture for the sitting room, dining room, media room, play room, guest room, bathrooms, back porch and so on. Not that we had all of these rooms filled, but we certainly talked about doing so and the temptation did drain our savings account a few times. And don’t forget that furniture needs to be replaced from time to time so you enter into a never ending cycle. My point is that the more square footage, the more stuff you accumulate to fill it!
Debt – While a home is an asset you certainly don’t own it until it’s paid off. Until that time, you carry a lot of debt and if the market drops, your asset might just not pay for itself if you need to sell it (remember the mortgage crisis?). Of course, you don’t have to worry about this if you have a long-term ownership plan, but keep in mind, investing in or buying a home as an asset isn’t necessarily as risk free as what people had once made it out to be.
Taxes and Interest Fees – While you’re paying your mortgage down and increasing your equity pennies at a time (in the early years), you’re also obligated to pay taxes and interest. Interest is certainly not as much of a concern as it used to be, but it is an expense and so are the large amount of property tax money you’ll spend year to year. Yes, you certainly get a tax deduction come tax time, but deductions are only provided if you’re paying taxes and that deduction isn’t a dollar for dollar reduction in your costs!
It’s not liquid – Do you need cash out of your home? Sure, the approach people use is to apply for a home equity loan or line of credit to get their cash and you’ll of course, pay more fees! And you may be aware that it isn’t so easy these days with all of the strict requirements and regulations. What if your home dropped in value and has eaten into your equity? It’s even tougher to get your money! Unfortunately, there isn’t much liquidity in home ownership.
So, what do you get after 30 years of home ownership? Yes, you get a home you can call your own and that’s certainly a great benefit. You’re debt free with no more house to pay for. And that’s a great advantage, but you’ve certainly spent a lot of money along the way that might not have accounted for or thought about when signing those papers.
As I said before, there are hidden expenses and responsibilities with home ownership. It’s not a bad decision long-term, but know what you’re getting into and definitely don’t depend on your home as a safe investment because it carries risks just like anything else.
Why I’m Loving Renting
All of the above quite honestly makes me ill to think about these days. If I had enough money for a 20% down payment in SoCal today, I’m not sure I would sign up again for home ownership. Housing for us now is just an expense line in our monthly budget. We’ve downsized considerably, don’t require near as much furniture and my landlord just came over last week and replaced the kitchen faucet.
Here’s some things I’m liking about being a renter:
Flexibility – Renting offers a lot of flexibility in that we can sign a one or two year lease. If we’re tired of the area or don’t like something about it, no problem, we’ll just move when we complete our lease and find a new place to rent. I don’t’ have to think about preparing a house for sale and certainly don’t encounter all of the expenses of closing the deal! Should we need to move because of a life change a house could sit on the market for a long time and we could even be forced to sell low! You can’t beat the flexibility renting offers!
No debt on our balance sheet – We don’t have debt from housing anymore, again, just the expense. Yep, but you won’t have an asset in 30 years, someone might say! Not so. The equity we got from our house in Dallas is an asset as we have it invested as part of a long-term plan. That asset, if it stays on par with what the market has done on average would pay for that home in Dallas should we ever decide to move back. Yes, we’ll have capital gains taxes, but again, there are taxes and those hidden costs with home ownership.
Low maintenance – I’ve already discussed this quite a bit, but I’ll just go one step further and let you know that I’m so pleased in that the time I used to spend maintaining my house is now invested in my family and spending time enjoying fun things to do in SoCal. I sold my lawnmower and many tools (more hidden expenses) that were required to be a home owner. I no longer plant shrubs or have to paint my fence. Nope, our landlord does that.
Liquidity – While our money is invested in the market, we can get to it in a few days if needed. Yes, we might be forced into selling some investments low to get some cash, but at least we can get to the money quickly. I don’t have to apply for a loan or worry about not having enough equity in my house to draw upon.
What Spending Temptation? – If my wife wants to upgrade the kitchen cabinets, we can either ask our landlord to do it, or simply move to a property we like better when our lease is up. We also don’t have the temptation to spend to fill a media room and other spaces in a big house because we simply don’t have the rooms to fill today. In our Dallas house, we had considered at least four rooms that needed a couch (ridiculous!). In our new SoCal space, I’m pleased to report there is only enough room for one couch! The more stuff you have, the more your life is crowded and the more time it takes to maintain it all. Renting for us has greatly simplified life.
Location, Location, Location – Unless you’re super wealthy, you can’t live wherever you want to live. It costs too much to buy in THAT neighborhood, right? Well, renting is typically cheaper than home ownership as a monthly expense. That said, it may just offer you the opportunity to explore a dream and live by the coast, in the mountains or some other desired location that wasn’t possible before.
Thinking Different – I love how our lifestyle has completely changed because of pursuing a dream to live by the coast. A big home is no longer a priority because we simply don’t stay inside very much. The weather and beauty draws us outside daily. Yes, there are some drawbacks to renting one needs to understand, but for us, is simpler approach. It’s flexible, provides the location we desire and reduces housing expenses.
Final Thoughts on Renting vs Buying a Home
In summary, I want to say that I’m not making a case against home ownership. It’s just a different perspective and there is certainly no one size all or right or wrong answer. Home ownership can be a very good plan if you can afford the down payment and stick to a long-term plan to stay in the house and ride any market swings.
There are many advantages of home ownership, such as outright owning your property. But again, please don’t be shortsighted in thinking that home ownership is the best answer. It’s often said owning a home long-term is cheaper than renting. Maybe, but there are lots and lots of home expenses to consider along the way that aren’t always part of the discussion and nearly impossible to calculate like the value of your time no longer fixing and maintaining!
There are simply too many advantages to ignore for today’s renter for this not to be a serious part of the discussion. I didn’t realize it at the time, but owning a home for me was a huge weight of responsibility carried on my shoulders. I’m walking lighter these days and enjoying cool evenings on the front porch with my wife under a roof we still call home and when friends come over to visit.
Photo by Dana Sigl