So I’ve gotten a response to the original offer and found a common ground offer acceptance at $104k (with roughly $3k CC assistance) for the one bedroom home previous mentioned in my first article.
I’ve begun wondering what the worst case scenario is for this home. Well, the worst case scenario would probably be that I hate the home or the area and need to sell in the short-term (less than 5 years). So as always, it’s time to run some numbers.
Below is the same chart shown in the previous article, but updated for the slight increase in purchase price. Note it assumes the same assumption as last time, but I will make a side-note that my insurance is likely overstated by $10-15/month (While still calling for $200k replacement value). Chart Assumes 2% Appreciation,1% PP in Maintenance yearly, 2% Inflation on everything (taxes, insurance, maintenance) except the Mortgage Payment itself. Also note that I assume I get no tax deduction at all. I did however leave in my Tax benefit for living in an area with no income tax ($130/month).
The year of particular interest to me is Year #4, which shows a net cost of $467/month to own (remember it would be roughly $850-$950/month to rent). The number still beat renting considerably (not including the added benefit of less stuff and utilities, something I’ll mention later.). As always though, I want to be even more conservative. What if the housing market didn’t appreciate at all?
The numbers would look something like this instead:
Okay, so it’s creeping up a little bit at a cost of $638/month. I’m still coming out considerably ahead, but what if I fix up some the house? You would hope that if you put money into the house it would add to the value, but let’s imagine I put $20,000 extra into the house and it vaporizes. This means I’m getting 0% appreciation/yr and I burn $20,000 extra to live there.
This is the chart that reassures me the most. Being that Year #4 is $1,055/month and Year is $940/month, it’s still roughly the same renting ($850-$950/month with possible).
Let’s process what this is final chart is saying for Year #4.
I move into this house and over the course of 4 years, the house does not appreciate single dollar. I also spend $4,286.47 on normal maintenance. Additionally I spend $20,000 with a 0% return (all lost) on updating/upgrading the 1 bedroom house (might be hard to even do considering furnace, a/c, and roof are newer). I also have already factored in spending $7,280 to exist the home in the fourth year.
In Total: $31,566.47 of “expenses” over just 4 years in maintenance, completely lost upgrade/updates, and selling costs to exit.
My total cost to own: $1,055/month ($850-$950 + inflation is renting alternative.) When you factor in the lower utilities, it’s about dead same as renting. This is a very extreme and conservative “worst case scenario.”
This also completely ignores that our lifestyle will likely save us an estimated $400-500/month by not accumulating more stuff (due to space restrictions). An amount that would grow to $22,690 – $28,363 (saved and compounded at 8%). This represents a reduction of total cost to own per month of $472-$590/month. Effectively it halves the cost to own.
I will add that if I rented in a no income tax area though, that $850-$950/month would be reduced as well by $130/month… to be fair). The point here is, while being very conservative, it’s hard to see a realistic situation where I don’t come out even or ahead of renting.
Next Article, What’s the best case scenario?