How to Save Big by NOT Buying a House

Owning a home equals a mortgage, interest, taxes, insurance, maintenance, repairs, updates and projects. It means spending Saturdays mowing the lawn and an occasional late night repairing a leak. Does the tax break, equity and appreciation really compensate for giving up the ease and freedom of renting an apartment? There are several things to consider when deciding if it is time to make the leap from renting to owning a home. The decision will affect you physically, financially and emotionally.

Instructions

Difficulty: Easy

Things You’ll Need:

• Consider five checkpoints:
• Space & Privacy
• Monthly Costs
• Investment Value
• Simplicity
• Freedom

1. Checkpoint # 1 Space & Privacy.
   
   How much do you want? More space and privacy are two of the top reasons for buying a home and ditching that noisy, cramped apartment. Just think, you could have your own backyard, a bigger kitchen, a two-car garage, lots of storage space in the attic or basement and more. Plus, the kids can run around and you can paint the walls your favorite color.
   
   Indeed, these perks sound very tempting, but the price you pay both financially and emotionally may be too high. If you are single, or if you are married without children, and you are open-minded, please read on. This information may save you big bucks and big headaches.
2. Checkpoint # 2 Cost.
   
   Does buying a home really save you money? As you can see from the figures below, you do get more bang for your buck by owning a home. However, you will have to shell out more cash to snag such a sweet deal. You must spend more money to save money.
   
   Think of one of those discount warehouse stores where you can buy 150 rolls of toilet paper on sale for half price, say for 25 cents each. Since you may normally buy only 10 rolls at 50 cents each, you leave the store after shelling out $37.50 for toilet paper instead of just $10. On the other hand, if you pay regular price for the 150 rolls then it would cost $75 instead of $37.50. Therefore, you save $37.50 by buying in bulk and you will have to make room in the closet for 140 extra rolls of toilet paper. The catch is that you spend almost four times more money up front to get the bulk quantity at a bargain price right now and you get more rolls than you can use right now. If you buy fewer rolls at regular price then you spend less cash at the checkout stand and you get only the amount of rolls you can use right now.
   
   Buying a home is a similar concept to buying goods at a discount warehouse store. Think of renting as paying regular price and buying a home as paying a sale price. Like stocking up on toilet paper for its sale price, you are stocking up on square footage that has been deeply discounted when you buy a house. Buying in bulk and taking advantage of the sale price forces you to shell out more cash up front, in the way of monthly bills to own a home. Conversely, buying less quantity at regular price allows you to shell out less cash up front when paying month to month to rent an apartment. Again, you must spend more money to save money.
3. Run the numbers.
   
   It is important that you do the research and get actual figures that reflect your city and your housing requirements. Let’s use the following examples to compare the cost of renting vs. owning. The match up is as follows.
   
   Apartment:
   1,050 square foot, 2 bedroom, 2 bath, 3 year old luxury apartment. This example apartment is taken from average housing prices in Texas. You can fill in the most accurate numbers for your own city.
   
   House:
   1,450 square foot 3 bedroom, 2 bath, 2 car garage, 20 year old brick home. This example home is worth $125,000, and taken from average starter home prices in Texas. You can fill in the most accurate numbers for your own city.
4. Affordable Luxury Apartment Figure the itemized costs for an apartment.
   
   You must do research and get actual numbers to be able to make an accurate comparison. Here are example numbers for a real apartment in Texas.
   
   
   * Rent: $985/mo.
   * Interest: none.
   * Taxes: none.
   * Renter’s insurance: $15/mo (depends on coverage).
   * Maintenance/repairs: usually free.
   * Updates/projects: minimal.
   * Energy gas/electric: $150/mo or more (apartments are usually better insulated by adjacent apartments and have fewer windows).
   * Water: $40/mo.
   (Also add in any Homeowner's Association dues or other community fees.)
   
   Total: $1190/mo.
   Comparison: $352/mo less than a house.
   Real Life price per square foot: $1.13
5. Lovely, Brick Starter Home Figure the itemized costs for a house.
   
   You must do research and get actual numbers to be able to make an accurate comparison. Here are example numbers for a real house in Texas.
   
   
   * Mortgage: $770/mo (includes interest for zero down payment and 30 year loan).
   * Interest: 6.25% fixed rate (included in mortgage but equals an extra $152,000 amortized over 30 years).
   * Taxes: $266/mo (depends on the city, square footage and appraisal).
   * Homeowner’s insurance: $100/mo (depends on the coverage).
   * Maintenance/repairs: $104/mo
   
   (Expect 1% minimum of your home’s value in this category. Examples: termite and pest control; fix things like the loose fence panel, frozen coils inside the air conditioner, running toilet, intermittent garage door opener, clogged water heater, and many more things; repaint the house every 5 years; handle unforeseen damages like a flood in the bathroom, hail damage to the roof, a baseball through the window and many more things. The older the home, the more money you should set aside.)
   
   * Upgrades/projects: As needed
   
   (Having a house to call your own sometimes compels you to add your personal touch. Examples: replace the dishwasher when it unexpectedly dies and floods the kitchen with the most technologically advanced model, rip out the hideous bushes by the front window and beautify the landscaping, change the bedroom light to a ceiling fan with light, install those custom Venetian blinds or curtains of your dreams, paint the dining room walls red, install a sprinkler system, extend and/or cover the backyard patio, and the list goes on.)
   
   * Energy gas/electric: $227/mo or more (depends on energy costs in your area, how well-insulated your house was built, and how hot or cold you can stand to be during the extreme seasons).
   * Water: $75/mo or more (depends on how green you want to keep your grass, how often you wash your car in the driveway, etc.).
   (Also add in any Homeowner's Association dues or other community fees.)
   (Also add in any points or other mortgage or lending fees.)
   
   Total: $1542/mo.
   Comparison: $352/mo more than an apartment.
   Real Life price per square foot: $1.06.
6. Understand the 'Real Life' dollars per square foot.
   
   The cost per square foot is typically used by people in the construction and real estate industries to describe the value of a home. The numbers are based solely on the cost of materials and labor to build a home plus some profit, i.e. selling price divided by square feet of living space. When buying a home, the selling price may also be affected by the affluence of the city or area it is located in, but the formula remains the same.
   
   You cannot simply look at the building cost per square foot. You are an occupant not a builder, so you must look at the 'Real Life' cost per square foot. This is how much it costs to live in the house, including rent or mortgage, interest, taxes, insurance, utilities, maintenance, repairs, updates and projects. This all-inclusive cost per square foot is calculated by adding up ALL the costs of living in the unit divided by the square feet of living space, as detailed above.
   
   Note: these figures do not take into account that some houses include extra storage space, garage, land, sprinkler system, pool, a corner lot, trees, etc. However, apartments may have extras as well, such as extra storage space, security features, community pool, community resources and activities, other amenities, discounts and perks, etc. All of these types of extras get bundled into the rent or mortgage price, just as the housing cost can be inflated in certain cities or areas due to their prime locations.
7. Do the comparison.
   
   As you can see from the figures above, the house is a better "value" per square foot than the apartment. You get more space for your money with a house. By buying the house, you save $0.08 per square foot, or $116/mo and you will enjoy 400 more square feet of living space. Sounds like a terrific bargain! Think again.
   
   In order to get the bargain of a house, you must shell out an extra $352 per month. This sounds vaguely similar to the discount warehouse scenario described earlier. Again, you must spend more money to save money, as described in the beginning of this article. You must buy a large bulk quantity to get a lower price per unit. Sure, you get a better value, but you have to shell out a large chunk of change up front to enjoy the savings.
   
   Let's do the math one last time to put things into perspective. The extra cost of the house ($352) minus the savings for the extra square feet ($116) equals $236. Therefore, in order to get the extra square feet at a bargain price, you have to spend an extra $236 per month. Though the house is a better value based on the Real Life dollars per square feet, the total package actually costs you more money per month.
   
   In summary, the total monthly cost for the house ($1542) is over 20% more than the cost of the apartment ($1190). You must spend an extra $352 per month to attain the bargain of a house. Does spending more money to save money sound like a bargain to you? The house does not save you any money at all--it spends more of your money each month! Don't be fooled by the old myth that renting is more expensive. It may be true over the long run, but not in the short term from month to month.
   
   Owning a home saves money, while at the same time costs more money. Do you think the savings benefits outweigh the extra costs of home ownership? It is a wash.
8. Checkpoint # 3 Investment Value.
   
   Let’s talk appreciation, equity and tax breaks. Many financial gurus’s out there may disagree with me on this. Counting on appreciation is a gamble, equity return is a gimmick, and tax breaks are a joke. Before you click off here, let me tell you why.
9. Appreciation.
   
   Unless you are planning to move frequently at the drop of a hat, it is best to let the real estate investors ride the waves of the housing market by buying and selling when the time is right. They can spot areas that are likely to appreciate faster than normal and get in before anyone else catches on, sell at peak demand, and pocket a hefty profit. To them, houses and buildings are pawns. To you and me, a house is a home. We use our home as a place to live, so we have little leverage to cash in on appreciation.
   
   Sometimes people get lucky and are pleasantly surprised to find out their home’s value has appreciated substantially over the years. There are plenty more neighborhoods that rise very slightly or do not appreciate at all. Some even depreciate, unfortunately. And it is very hard to predict. Appreciation is a gamble, so don’t count on it.
10. Equity.
    
    As you already know, when you take out a mortgage, you end up paying at least double for your home due to interest costs (see the above figures). Not only that, you may spend tens of thousands of dollars in property taxes and insurance over the course of 30 years that go down the drain. Plus, there will be tens of thousands invested in maintenance, repairs, updates and projects. In the end, you may easily shell out three times your home’s original purchase price.
    
    Equity is the value of your home that you can get back when you sell it. If you have owned your home for less than 10 years, then most of your payments have gone towards the interest instead of the principle, resulting in building very little equity. Giving the benefit of the doubt, let’s say your home is paid off completely after 30 years. You purchased it for $125,000 and paid about 3 times that amount due to interest, taxes, insurance, maintenance, repairs and updates. Now it is worth $225,000 because of some market appreciation and several major remodeling jobs.
    
    As estimated above, you have already spent $375,000 on this hypothetical home over the course (three times its purchase price). When you sold it you made $100,000 profit ($225,000 minus $125,000). Recap, you spent $375K and you sold for $225K, making $100K profit. Let's do the math. $375K minus $100K is $275K.
    
    Yes, you are $275,000 in the hole! Is this outrageous? Forget equity because it is just a gimmick to persuade you to purchase a home and make the banks very rich.
    
    On the other hand, renting the above example apartment for 30 years costs $428,000. You get nothing back in equity, so you are out the full amount. Instead of $275K in the hole from the house, you are $428K in the hole from renting. Renting puts you $153,000 more in the hole than the house did. You will lose 56% more money over the course of 30 years by renting.
    
    Whether losing on a house or an apartment, still, either way you are in the hole by a huge amount of money in the end. Take a look at the other sections to determine overall if equity is a good enough reason to own vs. rent.
11. Tax breaks.
    
    Okay, the government is very generous in giving us a teeny tiny tax break for owning our own home. But, don’t fall for this overrated incentive. Sure, you may actually see a few-hundred to a few thousand-dollar deduction if you go long form on your income tax filing, but that does not necessarily equate to a lets-take-a-vacation! sized tax return. Plus, many people do not even go long form or claim this deduction. Some people think they get the interest paid on their house back, but this is not true! You still have to pay all the interest. The tax break means that you do not have to pay taxes for the money you paid in interest. For example, if you paid $4,000 in interest for the year, then you will save a few hundred dollars in taxes. This tax incentive is so small it is a joke.
12. Debt.
    
    Can debt really be an investment? Would you take out a loan to play the lottery or buy into the stock market? No. Taking out a mortgage is no different. Whatever money you might have earned in equity was already paid to the banks in interest on your loan. It is easy to see who gets the short end of the stick in this game.
    
    With so many Americans already in major debt, why would you want to add more debt by taking out a huge mortgage? Bankruptcies and foreclosures are on the rise. The job market is battered by lay-offs and downsizing.
    
    Maybe a house no longer ensures financial security, as it did for previous generations. Now, it could mean financial destruction. As if credit card debt, car loans and student loans are not enough to keep you buried in debt. Do you really want to add hundreds of thousands of dollars more to it?
13. Checkpoint #4 Simplify Your Life.
    
    Materialism.
    
    From 1950 to 1990, the average family has decreased from 4 to 2.5 people per household. Yet, the average home has grown from 900 square feet to 2,000 square feet. That is like a whole house per person! Why? Because we have more stuff. Furniture, toys, electronics, food, kitchen appliances, bathroom products, clothes, collections, vehicles, lawn equipment, clutter and more. Many people spend more than half of their monthly income on housing. How much stuff do you really need to house? All of our 'stuff' is almost personified because it is treated so well. People have separate rooms now devoted to special activities: TV, computers, games/toys, exercise, cars, and more.
    
    What happened to the traditional living room that was meant for real people to socialize together (live, in person!) as family and friends? Now it's TV, internet, email, photos, video, phone calls and text messaging. In the past, bedrooms were simply for sleeping and usually shared, yet now it serves as a private retreat or getaway and a place to pursue individual activities in isolation. Sharing dinner and family conversation at a table in the dining room is on the verge of becoming a legend. Now, some bathrooms and closets are the size of small bedrooms and toilets outnumber the people living there. Massive amounts of space is occupied by unused items sitting idle in storage either in the house, closets, cabinets, garage, basement/attic, or expensive storage unit.
    
    Is owning all of these material possessions worth the cost of putting a roof over its head and providing it heating and cooling? Calculate how many dollars per square foot you are spending to house you 'stuff' in addition to you.
    
    Now imagine if you had less furniture because you don’t have to fill up space in a big house. Or, you had less clutter in the closets and garage because you have less storage. Or, you spent less time cleaning, scrubbing and vacuuming because you have less rooms and less toilets. Or, you could actually talk to someone in another room from the kitchen without shouting or walking across three rooms and down a hallway. The possibilities are endless.
14. Convenience.
    
    Is it more trouble to park in a lot, walk in the rain and carry groceries up a flight of stairs, than to pull your car into your garage with a door into the kitchen? You bet. Is it more trouble to walk to the park and play than to step into your back yard? Yep. But, that driveway and backyard will cost you a pretty penny.
    
    If a having a few conveniences at any cost is the goal, then by all means choose a house over an apartment. However, convenience is not everyone’s top priority. Personally, my top priority is to simplify. Just look at the list of expenses outlined above and you can see which one looks simpler. The list of homeownership expenses is twice as long as the list of renter expenses.
    
    Since my husband and I sold our house and moved back into an apartment, we have freed up hours of time each week, and it has reduced our stress levels significantly. That is no exaggeration.
    
    Imagine all the extra work involved in watering, mowing and trimming the lawn; doing endless repairs; enjoying the art of doing projects yourself; shopping for supplies, tools, furniture and decorations to spruce up the house; supervising maintenance work or contractors; worrying about unforeseen expenses; dreaming about enhancements on your wish list. Plus, there is more work financially because of the added number of transactions for homeownership expenses, worrying about making ends meet, and working more hours to make more money to pay for the house.
    
    You can buy some conveniences with the high price tag of a home. Or, you can simplify your life which will make your life easier--absolutely FREE.
15. Checkpoint # 5 Freedom.
    
    In today’s modern age, fewer people live in the same house for 30 years or more. Fewer people hold the same job for 30 years either. People move around and change jobs more frequently than ever. Even for those families who intend to settle down forever, it does not always work out that way. In trying times such as job loss or other extenuating circumstances, moving to a lower-cost apartment in a hurry is always a option without negative the repercussions of jeopardizing a mortgage, foreclosing or selling at a loss.
    
    From the traditional viewpoint, home ownership means freedom. You can do anything you want inside your home. You can decorate and remodel it any way you please. You share no walls with noisy or nosy neighbors. A home can give you a sense of pride and can command the respect of others. It is a way to physically plant roots, so to speak.
    
    Could the definition of freedom be changing? An apartment frees you from the shackles of homeownership. You can practically move any time you want, whether to a new city or just to a different floor plan. You can pay less money per month than a house and get a newly built apartment with luxurious amenities (see the example above), such as plush carpet, ceramic tile, Jacuzzi tub, and more. You have maintenance people to keep the lawn beautiful and who are on call to fix any problems for free. You may even have access to a pool, weight room and computer lounge. You may have security patrol and a gated community. You may make more friends while being closer to more neighbors.
    
    Yes, the definitions are changing and so are people’s attitudes. No longer are the renters looked down upon as immature, irresponsible or poor. Now, renters can pity some homeowners who are struggling with a big house, big payments and big stress. Some homeowners have a secret dark side where the weight of home ownership is slowly crushing them financially and emotionally. When I look at a house, I feel sorry for the people who slave away at work to pay the mortgage and then come home to slave away some more to do the upkeep, while I enjoy a life of simplicity in many areas, physically, emotionally and financially by renting.
16. Draw you own conclusion.
    
    In this article, we have seen that there is some financial gain to owning a home, but that the expense of it is higher than you think. If you can be happy with slightly less space and privacy, you may find an apartment can be even more liberating than being tied down to a mortgage. That is peace of mind.

Tips & Warnings

• If you have a similar experience or a contradicting opinion, please feel free to share and comment on this article.
• See the resources section below for other people's articles on this subject.
• The information provided here is based on first-hand experience, research and numerous personal interviews with renters and homeowners. If you feel that this information is inaccurate or incomplete, please feel free to comment.