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A duplex: Running the numbers four years later.
Buying a house is not rainbows and dollar signs and peace and quiet, at least at first, and not for quite a while afterwards. My place will never enter that fabulous state of "the way I want it".
Instead, as I knock things off the to-do list and add new things on, I've gotten the feel for the house as a continuum. There are some days when I just enjoy it as-is, in the ways I currently can, and I go, "damn, I am so glad I finally have a house; why did I wait so long and what the hell was my problem?"
And then there are other times when I look around and everything my eye falls upon is an unfinished project, crying out for time or money that I've been spending on other things, and I go, "why don't I just unload this stupid place and go rent a tiny apartment downtown, and use the whole city as my living room?" ... It's tempting. I did live that way for a while.
What tips the balance between these attitudes is one thing: Is the house a financial gain, or a financial loss?
Well, so far, if I ignore appreciation that would only matter if I sold the place, I'd say the house is definitely not a financial gain.
"How can that be?" you ask. "You've been living rent-free for, like, four years, and renting out the upper half besides!"
Two words, my friends. Repairs and improvements.
Here's the situation: The entire upstairs rent only covers the mortgage and half of the property taxes. That is a stone cold fact. If you've never owned a house before, you'd say, "well there you go, you're winning big time, because you're staying downstairs for free!" It's true, it would cost well over two grand a month to have the space I do in this location. But take that two grand I'm saving, toss some to the tax man, and some more to the utility companies to pay for the consumption upstairs, and I'm actually saving one grand every month, not two. Still a profit, right?
Okay, let's play it that way. A grand a month, for four years, is 48 grand. Guess how much I put down, for the loan to purchase this house? About 40 grand. Then I was paying mortgage insurance for almost a year, and every time I renegotiated my loan it cost about 3 grand. So just on this loan crap, I'm still down by almost $20,000.
That's not a bad place, really. In another couple of years I could break even on that. Except for repairs and improvements.
To summarize: Tree trimming, landscaping, fence repair, garage door repair, roof repair, sewer line repair, sink and garbage disposal repair, washer and dryer repair, new carpet, interior paint, plus a bunch of odds an ends: 18 thousand dollars so far. I'm not down by 20 grand, I'm down by almost 40.
And then there's the fact that the house needs exterior paint some time in the next year:
That's going to run at least 15 grand, likely more. And then there's the utility split.
The utility split is an epic thing that demands its own post. The relevant thing to say now is, whoooah, it's freaking EXPENSIVE. The project is still underway, and when it's done it will cost me close to 30 grand. So now we move from 40 thousand, to over 80 thousand in the hole. Now we're looking at about six more years before I break even, assuming there are no additional costs during that time.
Don't get me wrong ... I'm glad I bought this place. Working on it has been an adventure, and it will eventually turn a profit, as long as some disaster doesn't happen. But in the present it's kind of a cash hog, and the only way I've been able to keep it ship-shape is by shoveling money into it from my job.
It feels strange, looking over these numbers and comparing them to the math that I used to do when I was renting. I used to think all my money problems would be over if I just stopped sending rent checks. There is also a common belief where I live, that any person who can be a landlord is automatically living high on the hog. Well, maybe if you were already rich and didn't need to take out a monstrous loan, perhaps! But then there's the rest of us...
There's always a "rest of us" I guess. People doing better, and people doing worse. ... And there's always the bank, right on top, collecting interest.
Being able to eventually sell this house is a good thing. That means I have something that approximates a nest egg, or even part of a retirement. There is also some flexibility in the present. If I move out of the lower half, I can use the leftover 1 grand a month to help pay my rent somewhere else. I'll still be 80k in the red historically speaking, but that cash flow does at least give me options.
That leads to the question: What should I do? I don't know. I've had my head down, tinkering with this house for a long time. I really should think about it.
Instead, as I knock things off the to-do list and add new things on, I've gotten the feel for the house as a continuum. There are some days when I just enjoy it as-is, in the ways I currently can, and I go, "damn, I am so glad I finally have a house; why did I wait so long and what the hell was my problem?"
And then there are other times when I look around and everything my eye falls upon is an unfinished project, crying out for time or money that I've been spending on other things, and I go, "why don't I just unload this stupid place and go rent a tiny apartment downtown, and use the whole city as my living room?" ... It's tempting. I did live that way for a while.
What tips the balance between these attitudes is one thing: Is the house a financial gain, or a financial loss?
Well, so far, if I ignore appreciation that would only matter if I sold the place, I'd say the house is definitely not a financial gain.
"How can that be?" you ask. "You've been living rent-free for, like, four years, and renting out the upper half besides!"
Two words, my friends. Repairs and improvements.
Here's the situation: The entire upstairs rent only covers the mortgage and half of the property taxes. That is a stone cold fact. If you've never owned a house before, you'd say, "well there you go, you're winning big time, because you're staying downstairs for free!" It's true, it would cost well over two grand a month to have the space I do in this location. But take that two grand I'm saving, toss some to the tax man, and some more to the utility companies to pay for the consumption upstairs, and I'm actually saving one grand every month, not two. Still a profit, right?
Okay, let's play it that way. A grand a month, for four years, is 48 grand. Guess how much I put down, for the loan to purchase this house? About 40 grand. Then I was paying mortgage insurance for almost a year, and every time I renegotiated my loan it cost about 3 grand. So just on this loan crap, I'm still down by almost $20,000.
That's not a bad place, really. In another couple of years I could break even on that. Except for repairs and improvements.
To summarize: Tree trimming, landscaping, fence repair, garage door repair, roof repair, sewer line repair, sink and garbage disposal repair, washer and dryer repair, new carpet, interior paint, plus a bunch of odds an ends: 18 thousand dollars so far. I'm not down by 20 grand, I'm down by almost 40.
And then there's the fact that the house needs exterior paint some time in the next year:
That's going to run at least 15 grand, likely more. And then there's the utility split.
The utility split is an epic thing that demands its own post. The relevant thing to say now is, whoooah, it's freaking EXPENSIVE. The project is still underway, and when it's done it will cost me close to 30 grand. So now we move from 40 thousand, to over 80 thousand in the hole. Now we're looking at about six more years before I break even, assuming there are no additional costs during that time.
Don't get me wrong ... I'm glad I bought this place. Working on it has been an adventure, and it will eventually turn a profit, as long as some disaster doesn't happen. But in the present it's kind of a cash hog, and the only way I've been able to keep it ship-shape is by shoveling money into it from my job.
It feels strange, looking over these numbers and comparing them to the math that I used to do when I was renting. I used to think all my money problems would be over if I just stopped sending rent checks. There is also a common belief where I live, that any person who can be a landlord is automatically living high on the hog. Well, maybe if you were already rich and didn't need to take out a monstrous loan, perhaps! But then there's the rest of us...
There's always a "rest of us" I guess. People doing better, and people doing worse. ... And there's always the bank, right on top, collecting interest.
Being able to eventually sell this house is a good thing. That means I have something that approximates a nest egg, or even part of a retirement. There is also some flexibility in the present. If I move out of the lower half, I can use the leftover 1 grand a month to help pay my rent somewhere else. I'll still be 80k in the red historically speaking, but that cash flow does at least give me options.
That leads to the question: What should I do? I don't know. I've had my head down, tinkering with this house for a long time. I really should think about it.
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In my case, we are gradually remodeling our house (just three walls left to upgrade, and one ceiling, and we are done inside); the kitchen cost us about 40k. We don't rent out anything, so have to pay for all; but now that mortgage is about 13 hundred, it's really almost nothing.
What would be the other option, keep the money and let them either dissolve in inflation or get lost in the stock market? I don't know. Home is fun.
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You're right; if I sold the place I would have to figure out what the hell to do with the money. There are only a couple of things I could do with it that wouldn't get me a huge tax bill. I have no idea how the stock market works, and not much knowledge about business ownership either. My default plan is to never sell it, and wait for the mortgage to go down to the point where it leaves enough money for me to retire on. Well, partially retire, at least...
40k for a kitchen! You must have put in some nice stuff. :)
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That's also a better use for savings than a freaking savings account ... I think I made less than 50 cents off everything I had in savings over all of last year. :/
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I should clarify that Betterment is actually a broker/advisor so there is no such thing as a “Betterment fund.” The allocation I chose invests my balance into 11 different Vanguard funds, each of which is invested in dozens of individual stocks or bonds, so each $100 ends up being split between quite a bit more than 100 individual holdings.
I had only been automatically investing small amounts at a time to see how it went (like $25 a week, which is where I left it given how high valuations are right now) but one day I saw that my measly $200 had appreciated by $5 whereas my savings of $4,000 or so had earned three cents over the same period. I said fuck it and dumped everything into the account, and now it’s up by like $100 — again, taking into account the fact that this market is verging on irrationally optimistic.
My own plan is to divest in a couple months to be on the safe side and hope that won’t be too late, use whatever of the cash I need to use, and to wait until after the market takes the big dump that is probably coming before I reinvest whatever is left, because everything will be a bargain then in comparison to now.