Is Apartment Living Much Simpler Than Home Ownership?
I was thinking about this a lot the other day when listening to a friend talk about maintenance on his house. Seems like every single week there is something else that needs to be fixed, be replaced, or be added on to. The pipes break; the roof shingles come off, the wood under the porch needs replacing. Does it ever end? How much time and effort is spent just trying to keep the place from falling down? I think it might be way more than I am willing to put in were I to own my own home. Sure, it would be cool to own my own place. And I am sure, like most people, I will at some point. But I am starting to think that renting an apartment is definitely the path towards simple living and not away from it!
The only advantages I see to owning your own home include:
1. You can turn the stereo up loud
2. You can knock down walls
3. You can sell it in 40 years for a profit (hopefully)
4. Tax deductions (However, almost 50% of homeowners can’t even take them)
I get that those are all great reasons to own a house. Of course, you could rent a house instead of an apartment, and then you could eliminate #1 as a reason.
The reasons for renting an apartment seem much more… sensible:
1. Toilet breaks? Call a guy to fix it – for free
2. No lawn to maintain
3. No property taxes to pay
4. You can move anytime without worrying about selling it
5. You can go on vacation without too much worry about pipes/vandals/etc.
6. No risk in the real estate market
7. Insurance is cheaper
8. Monthly payments are always negotiable
10. More free time
Really, the only clear advantage of owning over renting is whatever profit you can make when you sell your house in the future. Other than that, the benefits of renting far outweigh the benefits of owning. By renting, I basically have all my free time (and money) to do whatever I want rather than worrying about maintenance/yard work/appreciation value/spending money on repairmen (or women). What do you think? Is renting an apartment a recipe for a much simpler life than owning your own home is?
So many of you are full of it. Talking about paying off multiple loans in 5-10 years while making minimal money because of simple “sacrifices.” Everyone on here owns their house outright and made a wonderful investment and is set for life. Haha! Sure… Unless you have inhereted money, you are not posting truth. Please stop
I am very sorry you are so angry, Ronny. Hopefully things look up for you soon.
Ronny is kind of right. Having a 20k a year income and owning, mortgage free, one or 2 houses after paying loans in advance sounds… a little unreal.
I have owned both houses and now live in an apartment (which I also own), so have experience of both.
I fully agree with you – owning a house can be a maintenance headache – I always seemed to be fixing things, which often cost lots of $$. Plus spending weekends gardening etc.
I dont agree about the stereo – as a house resident you still have neighbours who will jack up about loud music. I also found that house people are more likely to have barking dogs – I had one neighbour who would just throw her noisy dog into the yard in the middle of the night when it barked too loudly indoors. Not to mention lawn mowers, leaf blowers and a thousand other ways people find to be noisy in their yards.
In fact, overall I’d say I have found apartment living quieter than in houses. If any individual is too noisy, they get ganged up on by the other residents.
You can also sell apartments at a profit (or houses at a loss). Sometimes apartments increase in value better than houses because they are often in more desirable inner city locations.
The other negative about houses is that anything affordable is located out in the cultural desert of the burbs. From my apartment I can walk to any number of great cafes, restaurants etc. Nearest excitement from houses I have owned was the supermarket and I had to get to those in my car.
No way I’d go back to a house.
Around here a $150k house will rent for $1200-$1400 with no utilities included. So even after taxes, PMI, only a 5% down payment. etc., you are still looking at saving $200-$400 a month. Plus you can remodel, tear up the yard and plant a garden (saving hundreds a year on produce), and call a place “home”. Every rental I’ve been at, rent increases $50-$100 a month. Not cool. I’m sure it would be capped eventually but I’d rather stay at a place where I know the rate isn’t going to ever increase (fixed mortgage) unless taxes go up and by doing some remodeling, the value of the house can go up if I ever decided to sell it. Also, putting in a kitchen, bathroom, and bedroom in a lower level can bring in an additional $500-$700/month by renting it out while not having to interfere with tenants/roommates on a daily basis whereas if someone were to rent out a bedroom in an apartment, you are basically living with that person. Different strokes for different folks I guess.
Lived in rental up until I was 39. Had the $, just didnt want to get suckered in the even rising market. Now I live in a house. I paid cash for it. Thats right, I did well in one of my businesses and lived well within my means. Banked mucho. Caved on the house to have a pace I could do whatever I wanted in.
House living is great because its your own. You can do whatever you want to it. BUT … it does suck for all the maintenance which is in fact non stop. Then there are neighbors. I do not enjoy people coming 20 feet from my window to let their dog shit. I have 80 ft frontage but for some reason they like to come as close as possible. Stuff like that is just weird and happens alot. Property theft, break ins … more common in houses and all your expense. Snow, leaves, lawn, glossed gutters. All your problem. Floods, tornadoes, fires …. long shots but you find out fast how much insurance says “opps not covered”. Its a game for sure. That happens to a rental you just leave.
Many times I have considered going back to condo life. As I approach 50 it seems likely I will ditch the house. I like to make things so having a workshop basement has been great. Cant do that in an apt. But the way utilities are rising in Canada its not cost effective to make things anyway.
I bought later that most people. I’ve never had a mortgage and think anyone who does is a grade A sucker. They never tell you the carrying costs. They buy for $500,000 and then brag their house is now worth $800,000. But forget the interest at term end will eat any and all “profit” plus , then take off the realtor commission and they are in fact sitting at a loss.
There are two things in life that keep people fat, miserable and controllable in life. Marriage and real estate. All other things can be walked away from with minimal effort. These 2 things are lead weights that can cost you everything should things go wrong. Also constant stress sources that frankly break people down. Thats why they are promoted by every soul sucking entity. Your corp wants married people because they are easier to control and nail down. Government too wants you married as it reduces the tax collecting burden 50%. Joint responsibility. Real Estate has really been promoted for the same reasons AND …. taxes go up, utilities go up … you’re screwed. Its a big effort to leave.
Probably the biggest weirdness about home “ownership” is all the crap you start “needing”. As a renter, I could move in a day. I had stuff, but not the space for to much. In a house its monumental how much baggage that seemingly “necessary”. To pack up now would take a week. Just the exterior stuff like lawn mower, snow blowers, shears, hoses, cords …. thousands of $ in pure shit. Lets face it … you go to anyone house and theres 3 living rooms. One they call a family room, one living, one mancave, media room whatever. They are all rooms with furniture and a TV. One guy in an apt can do what people do in their house 95% of the time in 15% the space. I just watched a neighbor spend 10k on theater seating for his little movie room. Thats just the seating. For 10k he could go to the theater every week for the rest of his life, actually get out and mingle along the way. Spare bedroom/guestrooms … its called a hotel. No one saves money with spare space.
In terms of profit on a house, most people don’t know how to calculate whether a house purchase has been profitable or not. Google Michael bluejay rent vs buy for a great calculator. Many times people would have ended up with more profit by renting and investing the savings in the stock market.
how much is mortgage on a 150k house
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How much more than my mortgage should I charge for rent?
We're considering moving at some point in the future, and right now we have a mortgage on our home. So far we've been here about 3 years, and we're considering renting out our home.
Obviously there will be costs associated with renting the home out: taxable income, maintenance on the property, etc., so if we rent it out we don't want to just charge what we're paying on our mortgage - we'd definitely be losing money if we did that.
Given the assorted costs associated with maintaining a home/rental property, what is the minimum amount of rent that would be reasonable to charge above the cost of the mortgage? Is there some rule of thumb to use? For example, say your mortgage/tax/insurance payment is $1,000 so add 50% and you'll need $1,500 in rent to pay taxes on your rental income, put money away for eventual repairs, etc.?
I am sorry to say, you are asking the wrong question. If I own a rental that I bought with cash, I have zero mortgage. The guy I sell it to uses a hard money lender (charging a high rate) and finances 100%. All of this means nothing to the prospective tenant.
In general, one would look at the rent to buy ratio in the area, and decide whether homes are selling for a price that makes it profitable to buy and then rent out.
In your situation, I understand you are looking to decide on a rent based on your costs. That ship has sailed. You own already. You need to look in the area and find out what your house will rent for. And that number will tell you whether you can afford to treat it as a rental or would be better off selling.
Keep in mind - you don't list a country, but if you are in US, part of a rental property is that you 'must' depreciate it each year. This is a tax thing. You reduce your cost basis each year and that amount is a loss against income from the rental or might be used against your ordinary income. But, when you sell, your basis is lower by this amount and you will be taxed on the difference from your basis to the sale price.
Edit: After reading OP's updated question, let me answer this way. There are experts who suggest that a rental property should have a high enough rent so that 50% of rent covers expenses. This doesn't include the mortgage. e.g. $1500 rent, $750 goes to taxes, insurance, maintenance, repairs, etc. the remaining $750 can be applied to the mortgage, and what remains is cash profit.
No one can give you more than a vague idea of what to look for, because you haven't shared the numbers. What are your taxes? Insurance? Annual costs for landscaping/snow plowing? Then take every item that has a limited life, and divide the cost by its lifetime. e.g. $12,000 roof over 20 years is $600. Do this for painting, and every appliance. Then allow a 10% vacancy rate. If you cover all of this and the mortgage, it may be worth keeping. Since you have zero equity, time is on your side, the price may rise, and hopefully, the monthly payments chip away at the loan.
The rent will be determined by:
the rent being charged on similar houses near you.
Your mortgage and other costs (very unfortunately!) have no bearing, at all, on the price you will get.
As others have pointed out, you can't just pick a favorable number and rent for that amount. If you want to rent out your house, you must rent it for a value that a renter would agree to.
For example there is a house on my street that has been looking for renters for 3 years. They want $2,500 a month. This covers their mortgage, and a little bit more for taxes and repairs. It has never been rented once. Other homes in my neighborhood rent for around $1,000 a month. There is no value to a renter in renting a house that is $1,500 more then a similar house 2 doors down.
Now what you can look at is cost mitigation. So I am using data from my area. Houses in my part of Florida must have A/C running in the wet months to keep the moisture from ruining the house. This can easily be $100 a month (usually more). The city requires you to have water service, even when not occupied, though the cost is very small. Same with waste, which is a flat fee: $20 a month. Yard watering is a must during the dry months (if you want to keep grass). Let's say that comes out to $50 a month, year round. Pest control is a must, especially if your house has wooden parts (like floors or a roof). Even modest pest control is $25 a month. Property taxes around $240 a month. Let's say your mortgage is around $1,000 a month. That means to sit empty your house would cost $1,435.
Now if you were to rent the house, a lot of those costs could "go away" by becoming the tenants' responsibility. Your cost of the house sitting full would be $1,240. Let's pad that with 10% for repairs and go with $1,364.
Now let's assume you can rent for $1,000 a month. Keep in mind all these rates are about right for my area but will change based on size and amenities.
Your choices are let the house sit empty for $1,435 a month or fill it and only "lose" $240 a month. Keep in mind that in both cases you will be gaining equity.
So what a lot of people do around here is rent out their houses and pay the $240 as an investment. For every $240 they pay, they get $1,000 in equity (well, interest and fees aside, but you get the point).
It's not a money maker for them right now, but as they get older two things happen. That $240 a month "payment" pays off their mortgage, so they end up owning the house outright. Then that $240 a month payment turns to extra income. And at some point, their rental can be sold for (let's guess) $400,000. SO they paid $86,400 and got back $400,000. All the while they are building equity in their rental and in the home they are living in.
The important take away from this, is that it's not a source of income for the landlord as much as it is an investment. You will likely not be able to rent a house for more then a mortgage + costs + taxes, but it does make a good investment vehicle.
While JoeTaxpayer gave a very insightful answer, and clearly the best answer, let me break it down really simple for you.
Talk with a good to great property management company.
Given that you will be out of state, you will need one anyway. A good one is worth their cost, a great one even better.
They will tell you what the "market will bear" on renting your place and the expected costs. From there you can make an intelligent decision.
Have you had any experience in running rental properties? I am going to assume not, and as such you should have professionals as part of your team.
More than likely you will have to put money in to sustain this property as a rental. It is just how the numbers tend to work out.
first, let me reiterate what everyone else is saying about rental rates having nothing to do with your expenses. you should charge market rates. slightly higher if you want better tenants and slightly lower if you want to avoid prolonged vacancy. you can determine market rates by finding similar properties in your area and seeing what they are asking for rent. you will need to adjust for location, square footage, number of bathrooms, etc.
now that that is out of the way, here is a quick checklist of expenses that you will need to calculate and/or estimate for your specific property in order to decide if you should rent or sell:
- mortgage interest (you probably don't want to count the principle you are paying down each month). this is around 3-5% of the loan amount these days.
- lost capital (the amount of monthly income you would expect to get if you got your down payment back, or any other accumulated equity). 3-10% of your equity is a reasonable number.
- taxes. this is generally around 2% of property value, but varies wildly by state and even county.
- insurance. this is about 0.5-1% of your home value. you should already have homeowner's insurance, but you should probably upgrade to landlord insurance for slightly more money.
- maintenance. things like mowing the lawn and changing the furnace filter you might be able to pass on to a tenant. otherwise you might hire a service. also, you will need to do annual inspections and carpet care.
- repairs. when the furnace goes out or a pipe springs a leak, you are on the hook. estimates for repairs range from 0.5%-2% of the home value per year. a new roof might set you back 10% of the home value, but it is probably only needed every 15 years. the best estimates for these costs itemize every major item with an estimated lifespan and replacement cost.
- management costs. someone needs to be on call for emergency repairs, do annual inspections, follow up on tenant applications, late payments, etc. if you hire a management company, they typically take a percentage of rent. around 10% of rent is fairly normal, but rates vary widely and some management companies charge a flat monthly fee.
- appreciation/depreciation. this is normally actually an income rather than an expense. houses tend to go up in value in line with inflation. inflation in the us tends to be around 3% per year. however, in a bad market (e.g. 2009) house prices can go down dramatically.
if you add up all of the above expenses and it's more than the market rates for rent, you should sell. if the above expenses are below the market rates, then you need to consider if the profit margin is enough to justify the hassle and the risk.