The Costs of Being a Homeowner (And Why I’m Choosing to Rent)

Written by Charles Ngo
Written by Charles Ngo

What are the major milestones according to your family and society?
It probably goes along the line of:
You graduate from university.
You get a career.
You get married.
And then…
You buy a house.
It’s as if your success in life is measured by these milestones.
We moved to Atlanta a few weeks ago and we made the decision to rent a home.
You won’t believe the amount of shaming I’ve gotten from everyone.
“You’re throwing away money by renting!”
“You can’t raise your kids one day in a rental!”
“The housing market in Atlanta is booming. If you don’t buy a house now, you’re going to miss out on free money.”
It feels like home ownership is a religion and I am slapping their gods by choosing to be a renter.
It didn’t make sense to own a home in the past decade because I lived in five different cities.
But now that I’m “settling down” in Atlanta, I decided to do some research into owning a home.
I researched and ran the numbers, and you know what? It doesn’t make sense for me to own a home right now.  
This post is an 80 / 20 of the research I’ve done on being an owner vs. being a renter.
I don’t have an agenda to push you towards becoming a renter or a homeowner.
I want you to understand the true costs (financial, time, emotions, etc.) behind homeownership so that you can make the best decision for your situation.

Looking the Financial Costs of Owning a Home

“My house has gone up in value!”

“I bought my house for $200,000 and now it’s worth $250,000 after 5 years. I’ve made $50,000 doing nothing!”
I hate these statements.
That’s the equivalent of an affiliate marketer saying, “Bro, we spent $3,000 and made back $5,000 last month. That’s $2,000 pure profit.
The problem is you’re not showing what the true costs are.
How much of that $2,000 is profit if you consider software costs, taxes, employees, contractors, etc.?
Much less.
It’s a recipe for disaster if you’re making decisions based off of inaccurate numbers.
Whenever someone says that their house “has gone up in value,” notice that they’re only looking at the top value and that they conveniently neglect to mention the costs.

Let’s look at the estimated costs of buying a single-family home worth $500,000 in Atlanta, GA.
We’re only going to look at one situation in this post to keep it simple. You’re in a different market than I am. Your country may have different rules. It’s up to you to do the math for your situation.

1. Homeowners Association Fees (HOAs)

In some communities and condos, there’s something called a homeowners association fee. It’s required in some neighborhoods.
You pay a fee and it can go into towards things such as the community tennis court, pools, maintaining the yards, paying the security workers, and so forth.
The fee varies a lot depending on the neighborhood.
For some of the homes I looked at, the average is $300 a month, aka $3,600 a year.

2. Property Taxes

This is a cost that a lot of people overlook.
Depending on which state you live in, you need to pay taxes.
In the county I was searching in, the average property tax rate for homeowners is 1.08%.
1.08% of $500,000 =  $5,400 a year.

3. Closing Costs When You’re Buying a Home

This is a KILLER.
There are a ton of fees when you’re buying a home.
The real estate agents get a cut, there’s appraisals that need to be made, title fees, etc. It never ends!
I used this calculator from Bank of America to estimate closing costs.
The assumptions are a $500,000 purchase price, 20% down payment, with a loan term 30 years.
According to Bank of America’s calculator, the buyer’s closing cost is $14,478.
The closing costs are a big reason why most experts say you need to live in a home for at least seven years. Any less than that you’re better off renting.

4. Home Maintenance, aka When (not if) Something Breaks

Stuff breaks.
The dishwasher’s not working anymore. A pipe leaks. The roof needs to be replaced. Termites cause damage. You discovered there’s mold.
Imagine if all that were to happen in a year.
The Rule of thumb is 1%.
It roughly costs 1% a year to maintain your home.
$5,000 a year.
You need a hefty emergency fund if you’re going to be a homeowner.

5. The Opportunity Cost of 20% Down

Most people should be putting 20% down for their home.

If you’re buying a $500k house, then you should be putting down $100,000 cash and getting a mortgage for the rest.
What could you be doing instead with that $100,000 cash?
According to Nerdwallet, the stock market returns average of 10%.
That seems a little aggressive for my tastes, but let’s go with the traditional 7%.
I’m going to make this super simple.
$100,000 cash. 7% return a year. 30 years.
That’s $761,225.50.
Of course, the stock market goes up and down. And you can benefit a little more if the $100,000 comes from pre-tax money using retirement vehicles.

Wrapping Up the Financial Costs

So when you’re buying a home:

Closing Costs:
Ongoing Costs:
Property Taxes: $5,400 a year
HOA Fees: $3,600 a year
Maintenance: $5,000 a year
And that’s just the basics.

If you can’t afford the 20% down payment, then the mortgage company will require you get Private Mortgage Insurance.
It’s a way to protect themselves in case you foreclose on the home. This is roughly an additional $1,000 a year.
The mortgage interest rate looks to be approximately 4%, but it may be higher depending on your credit.
A $400,000 Mortgage is $16,000 a year in interest.
And I’m pretty sure I’m not including a lot of other costs.
Whenever someone talks about how much their house has gone up over 20 years, remember to account for inflation.

Opportunity Costs of Time and Freedom

We know that money is only one factor in a decision. We also need to think about the time invested.
Being a homeowner takes time.
Random things broke in my NYC condo. The dishwasher stopped working. The stove wasn’t turning on. The air conditioner stopped working.
I sent an email to my Landlord and someone would come take a look at it the next day. The dishwasher was broken for good, and someone came and installed a brand new one the same week.
I’m not handy at all, and I’m not interested in improving that skill set.
I’d rather spend my Saturday doing Brazilian Jiu Jitsu and BBQing than trying to fix a dishwasher that doesn’t work.
Next, I like things simple.
There’s one payment a month. You don’t have to deal with HOA fees, property taxes, etc.  
My time is valuable, and I don’t like being stressed. Being a renter gives me more resources to focus on my business and bigger goals.
And let’s talk about freedom. You can imagine that it’s a lot harder to “move” if you just bought a house vs. renting one.
My friend is a talented developer. He was offered a higher-paying job in San Francisco. He ended up turning it down because he couldn’t sell his home. Being a renter would give him that flexibility. 
You Can’t Choose Your Neighbors
Ever lived in a neighborhood where the Homeowner associations act like Nazis?
Ever lived next door to a piece-of-shit neighbor?
What if the next door neighbor starts dealing drugs out their house?
You get my point.
Your Situation Changes Over Time
This is a big one.
My girlfriend and I are renting a townhouse in the city. This place is perfect for where we want to be right now.
When we have children, then it’ll make sense for us to get a place closer to my parents. By being a lot closer, they can help with watching the kids.
I have no interest living in the suburbs right now because I’d be bored out of my mind.
Notice how I haven’t even talked about schools.
What if the townhouse I’m in right now or the area around my parents are in horrible school districts?
Then it might make sense for us to move again to find the best public schools.
What if we have four kids? Shit, then we’ll need a six+ bedroom house.
Here’s an uncomfortable truth: people get divorced. Situations changes.
One of the things I hate the most in life is traffic. You need to factor this if you’re living in places like Atlanta or Los Angeles.
Imagine your office moving or switching jobs, and you have to deal with a three-hour commute every day.
You make a ton of money. You buy a big house. The recession hits hard and you lose your job. Or maybe Facebook makes a big change and you can’t adapt anymore.
Renting gives the flexibility of “upgrading” or “downgrading” each year.

Let’s Look at Real Estate Itself as an INVESTMENT

I think real estate can be an awesome investment.
But here’s the thing…real estate can come in many different forms.
There are people who buy and flip houses. People who buy a duplex and live in one half while renting out the other. There are people in commercial real estate.
Those can be awesome if done right.
But I’m not sold that your home is a great investment.
There’s a huge difference in where you want to live vs. where’s the best place to invest.
You might want to live in a five bedroom, 5 bathroom house in a rural part of town.
But guess what? That might not be the best investment.
I rented a beautiful two bedroom Condo when I was living in Miami. No way I would considering buying one.
There are only so many people who want to live in a Condo, and they’re building new condos every single year.
That’s why I like the quote: “Rent where you own, own what you rent.”
For a lot of people, their home is a huge percentage of their net worth.
If that’s the case, then that’s risky because you’re not diversified.   
So much of your net worth will be tied into ONE home in one country, in one state, in one county, in one neighborhood.
When it comes to investing, I always ask myself, what’s my edge?
I don’t know anything about the real estate market.
I don’t have an edge in finding great homes for investing compared to a professional.
I love the stock market.
The stock market has traditionally outperformed real estate as investments.
Take a different time period: the 38 years between 1975 and 2013. A $100 investment in the average home (as tracked by the Home Price Index from the Federal Housing Finance Agency ) in 1975 would have grown to about $500 by 2013.
A similar $100 investment in the S&P 500 over that time frame would have grown to approximately $1,600.
Are there real estate opportunities out there that can outperform the stock market?
I have a great network and I’m a quick learner. I’m sure I could learn more about real estate if I wanted to.
But that’s taking time away from me running what I’m already great at – online businesses.
Learning about real estate, getting my hands involved with flipping properties, is taking time and energy away from what I’m already great at.
My strategy is simple. Max out every retirement vehicle you have access to (ROTH IRA, 401k, HSA).
By investing in a low cost, index fund such as Vanguard Admiral Shares, I don’t have to be an expert.
Once a month, I log in to a website to see how my retirement portfolio and my stocks are doing.
Once a year, I send the tax records over to my account.
I probably spend one hour a year on my investments.
Screening tenants. Talking to different contractors. Negotiating with the property management company. Fuck that.
The amount of stress/ headaches of lawyers and being in court to evict a tenant that can’t afford the rent anymore. Fuck that.
Also, remember that there are alternatives. If you want to invest in real estate, you don’t have to own a home to do that.
You could invest in a low-cost index fund dedicated to real estate like Vanguard Real Estate.
I may not own any property, but I am benefiting from real estate going up due to the exposure in my stock portfolio.

The Pros of Owning a Home

So, obviously, I’ve shown a lot of bias in favor of renting.
There are a ton of benefits on being a homeowner that I want to recognize.

Forced Savings

When the paychecks come, the most important thing to allocate for is the rent and mortgage.
By having a mortgage, it’s forcing people to make sure they pay.
When people do a renter vs home analysis, that usually assumes that the Renter is making the right moves. If the renter takes the savings and blows it on a lavish lifestyle, then they’re not going to come out ahead of the homeowner.
Don’t just look at the math – think about human behavior. 
It takes discipline (or a solid system), to make sure you’re investing the different properly.  

Tax Benefits

There are some tax benefits to owning a home. Some people can deduct their mortgage insurance, property taxes, and more.
Definitely talk to a professional about this.
Run some scenarios in a spreadsheet to see how much you can save.

Are you an entrepreneur? You can take more risks

I did not give a fuck about risks when I was 22 years old.
The worst case scenario was that if I went broke one day, I could move in with my parents.
I’m more risk averse now that I’m older. I’m used to a certain lifestyle now. I help support my parents. Me and my girlfriend are a unit. What if I have kids soon?
As more people depend in you as the breadwinner and your baseline financials increase, it’s harder to take risks.
But what if you outright own your home? You can afford to take more risks.
Keep in mind that even if you don’t have a mortgage payment anymore, there are still other fees such as HOA, Property Taxes, Maintenance, etc.


My neighbor in NYC got kicked out her condo!
What happened?
The owner and landlord decided she was getting tired of living in the midwest and wanted to come back to NYC.
As part of the contract, my neighbor did get two months of her rent as compensation. But imagine how stressed she was knowing that she had to find a new place within two hours.
Fortunately, I was leaving my unit that exact week, and she ended up moving to my unit.
I’ve heard stories before of people getting kicked out because their landlord decided to sell the unit.
It would be a pain in the ass if I got a notice that I had to leave in two months.

You Can Customize

You can’t really customize anything if you’re renting. Don’t like beige walls? Too bad.
Want to build a garden in the backyard? You can’t.
Do you love everything about the home except the bathroom? Deal with it.
As a homeowner, you can almost do everything you want to the home. It’s yours.

A Home for the Children

I don’t have any children yet.
I’m sure that once I have kids, my priorities in life will change.
Right now me and my girlfriend have no issues moving to different cities or homes every year if we wanted to.
But I wouldn’t want to do that if I had kids. Making them change schools every few years. Making them move away from their friends.
Landlords don’t like young children. There’s the mentality that they’re going around destroying everything.
Imagine if you have several young children and you have some big dogs. Your options for renting are going to be limited.

No Rules

It was tough for me to find a place with a cat. I can’t imagine how difficult it would be to rent a place with two Pitbulls.
My girlfriend’s dream is to build a garden one day. We can’t do that living in a rental.
I’ve always dreamed of building a tree house or a playground or my kids.

Why is Home Ownership Such a Big Deal?

Home ownership is a big deal to a lot of people.
I think for a lot of older people, buying property is the only path they see to building wealth. Most older immigrants never had access to a pension or 401k.
Some people equate the stock market with gambling.
A house? They can see and touch it.
It’s also important to understand why some people shape their beliefs and motivates them.
Of course, your real estate friend says you have to buy a house. My mom really wants me to buy a house so I stop moving every two years. 
Everyone’s uncomfortable with talking about money.
That’s why people judge you on what’s easily seen. People can see if you have a nice car or not.
Being a homeowner can easily be seen as a sign of wealth.
I use to care about what other people thought about me a lot. I wanted to show everyone that I made it.
As I get older, the less and less I care about what others think about me.
No one ever asks, how much money do you have saved for retirement? What’s in your 401k?

What’s the Right Move?

“You’re throwing away your money by renting.”
I always thought this was a weird argument.
You pay $2,000 a month for rent.
For that, you get access to shelter.
I’m going to watch Avengers: Endgame in IMAX. It’s $50 for two tickets. After the movie’s over, I’ve exchanged $50 for that three hours of entertainment.
I’m not thinking that I threw away money because I could’ve gotten the blu-ray instead in 3 months for $30.
They’re similar experiences…but they’re not the same thing.
That’s the hard part for people to understand.
Most likely I’ll be renting for the next few years.
Once we have kids, then we’ll look into buying a house. It doesn’t make sense for me to buy something now, knowing I’m going to be switching homes multiple times.
When you have kids, then everything becomes what’s best for them.
If my kids want to draw and paint on the wall, I don’t want to yell at them because I’m afraid of the Landlord.
Nah by then, I’ll have special “paint” on the wall that lets them draw and paint on it all they want.
I want to build a treehouse for my son.
Right now I don’t care about customization, but I think it’ll be awesome when I’m older to start working with my hands more.
My advice?
Buying a home is probably going to be the biggest purchase of your life.
Do your research. Run the math. Understand the opportunity costs.
Next, don’t let anyone pressure or shame you into doing anything you don’t want to do.
People made fun of me at Georgia Tech when I decided to switch from Engineering to Marketing.
People warned me about the dangers of quitting a stable job to pursue my affiliate marketing dreams.
I’m getting a lot of shit now for being a renter, but they don’t understand my situation or my decision.
If you’re interested in learning more about this topic, here are some recommended resources:
Renters for Life
Is It Actually Better to Rent or Buy?
Rent v. Owning Your Home, Opportunity Cost and Running Some Numbers

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                The posts published by Charles are prepared and analyzed, including the author’s own experience…

The posts published by Charles are prepared and analyzed, including the author’s own experience…

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