Skip to main content

A Tale of Two City Homes

Even though I’ve sort of borrowed the title from a 19th-century classic of literature as my own title, I’d like to tell you about another book I recently read.  I’ll sum up the basic premise of the book with a quote from the author in an interview he gave to The Huffington Post:  “If your emotions are constantly being pushed this way or that way, and you feel like you’re never in control, it’s probably because you’re valuing a lot of the wrong things.”  As part and parcel to that thought, in the book he talks about the choices we make and our willingness to accept the “pain” that those choices carry with them – ironically, that pain is the key to our happiness.  Let’s look at a choice of options: renting a really nice apartment versus buying a very modest house. 

The apartment in question is two bedrooms and two baths, 1,200 square feet, and the monthly rent with a 12-month lease is $1,450.  The appliances are brand new, you have a really nice pool, a sand volleyball court, and a surprisingly large workout facility.  Also, you’re right downtown, so you’re surrounded by great restaurants and convenient shopping.  Bonus! 

The home in question is two bedrooms and two baths, 1,300 square feet, and the asking price on the house is $199,000.  On an FHA 30-year fixed mortgage at 4.25% (5.462% APR) with 3.5% down, the monthly payment (including taxes and insurance) is $1,354.  Obviously, it’s an older house, and it doesn’t have the pool, volleyball court, or workout facility.  The home is in the same general area, though, as the apartment, so you’re still close to the great restaurants and convenient shopping. 

The Pain
Let’s start with the house: it’s not brand new, you’ll have to maintain the yard yourself, and you’ll need to come up with the 3.5% down payment, which is $6,965.  If you want to have a workout facility, you’ll need to budget an additional $40/month to join a local gym.  Now for the apartment: after the first year, the landlord or management company is going to raise your rent.  Let’s be conservative and say it’s just over a 5% increase, or $75; the following year could be more because they want to spruce up the complex’s look.  You’ll only have one covered parking space, and it’s not right next to your apartment.  Lastly, while you’re on the ground floor so you don’t have to worry about stairs, you have neighbors above you who work odd hours and find slamming doors to be fun . . . at 3:00 a.m. 

The Payoff (Happiness)
This time, let’s start with the apartment: you don’t have to worry about any yard maintenance.  If the water heater springs a leak or decides to explode, you don’t have to pay to fix or replace it.  You might have rock-hard abs and a finely toned body from the workout facility.  Now for the house: each year at tax time, you get to deduct the interest you’ve paid on your mortgage – suddenly, you’re getting money BACK from Uncle Sam instead of owing him.  Home prices have increased conservatively at 5% year over year, which means your house has gone from being worth $199,000 to $208,950 – just by owning your home, you’ve earned almost $10,000 in equity in one year.  Last but certainly not least, your mortgage payment isn’t going up year by year.

So, let’s do some quick math: at the end of two years, if you choose to live in the apartment, you MIGHT have rock-hard abs at the cost of $1,450/month for the first year and $1,525/month the second year.  If you choose to purchase the house, you will have over $20,000 in equity and have saved $1,152 the first year and $2,052 the second year (mortgage versus rent).  In other words, you’ll be $23,204 ahead of the apartment choice with a healthy tax break.  Sounds to me like the pain is worth the gain – and you can do sit ups anywhere. 

Comments

Post a Comment

Popular posts from this blog

The Naked Truth About Home Buying

It’s highly likely I’ve already written about this, but I’ll try to make it entertaining at least.   There’s a guy who works in ou r office who suffers from kidney stones – and from what he’s described, “suffers” might even be a little too tame a word for it.   As an aside, though, when you ask him how painful the experience is, he gets an odd smile and says, “It’s the most intense pain I’ve ever experienced, but it’s hard to describe.   I’ve heard a lot of people compare it to the pain a woman experiences while giving birth.   To that, I must say, those people are big, fat liars!   I’ve been in the presence of a woman giving birth, twice, and her pain has to be 100 times worse.   They’re passing the equivalent of a Buick.   I’m passing a pumpkin seed.”   He’s always been a colorful fellow. He’s had this wonderful condition for over a decade now, and the stones make their appearance about every 18 months or so.   Up until recently, ...
Post a Comment
Read more

Numbers Don't Lie, But Wherein Lies the Truth? (Posted November 21, 2016)

Said with enough conviction, you can make almost anything sound true.   Preface the fabrication with “according to a recent bi-partisan government study,” and you’re three quarters of the way to selling the lie to a lot of people.   Seriously, try this. The next time you’re at a dinner party or having coffee with friends, pepper this little tidbit into the conversation: “I read something really interesting the other day.   According to a recent bi-partisan government study – I think it took them three years to get it all done – middle-aged men who drive either a Toyota Camry or a Honda Odyssey have more testosterone than younger men who drive either a Ford F150 or a Dodge Charger.”   You’ll get some raised eyebrows and looks of mild disbelief, but don’t let that deter you.   Just lift up your hands, palms outward, and say, “I just think it’s interesting, and it makes sense when you think about it” – and then change the subject to something completely u...
Post a Comment
Read more

Time for a New York-Style Housing Fix

Previously, I’ve written about a man who works in our office who lived in New York City back in the late ‘80s and early ‘90s – let me assure you that while that does seem like a very long time ago, it’s not nearly as far bac k as when the wheel was invented and humankind learned to harness the power of fire. If you’ve been to New York City recently and blissfully walked around Harlem to get chicken and waffles at Sylvia’s on Malcolm X Boulevard between 126 th and 127 th Streets or stopped in at Keybar on 13 th Street between First Avenue and Avenue A to wedge yourself into a cozy corner next to their notable fireplace, you wouldn’t get a sense that these areas were once . . . not as welcoming and glitzy as you now see them. Our office mate has told some fairly interesting stories of living in those and other areas of New York City that give a much different sense.   In the late ‘80s/early ‘90s, no matter how many great things you heard about Sylvia’s food, 127 th Str...
Post a Comment
Read more