Being your own landlord, the rent/buy debate, and other fun side effects of having a place to live!Submitted by Dorval & Chorne on June 20th, 2019
By Keagan Kinsella | June 20, 2019
Summer (also known as construction season in Minnesota) has arrived! And just like the highway detours and buildings popping up, no snow and cold means we can finally get around to our own home renovations! You know, things like windows, appliances, or updates that somehow seemed a bit less of a priority when it was -50F windchill. Well, except a furnace replacement, that one would be pretty urgent (talking from experience here…space heaters can only do so much!)
Usually these house renovations aren’t the most exciting items to spend money on (I feel like there might be a limit to the amount of enjoyment one can get from a new septic tank). However, often they are must-do repairs that if ignored, could cost way more in the future. We have met with many homeowners recently who are trying to understand the best way to budget for these many times unforeseen household needs that can pop up and create short-notice, big ticket bills. Our advice to them has been to essentially- become your own landlord!
If you’re renting, or ever have rented, you know that the landlord relationship can be a love-hate kind of thing. Your toilet is leaking? Call the landlord! The AC goes out? Landlord, please! Termite infestation? Landlord. They could be compared to a built-in “dad”, paid to be available to take care of the property. The reason the landlord can afford to take care of these fixes is because (if they are good) they have been charging you extra in rent each month, so they have money saved up and budgeted to use for repairs and housing maintenance. This same concept applies to condos and townhomes which have homeowner’s association fees (commonly referred to HOA dues) which mean that even if you own the place, you are paying the association separately to take care of other responsibilities like exterior upkeep, structural issues, landscaping, etc. The association is planning and budgeting to make sure that they have enough to make repairs and updates when needed.
Summer also means it is prime, house-hunting season, and many current renters are looking at the cost of buying real estate. One of the things I have heard a lot about lately is that rent can be ridiculously high, and it is so much cheaper to have a mortgage and buy your own house! Well, in some cases yes, at first glance that might be true. A lot of people tend to forget the less-fun side of buying a house which can include broker fees, closing costs, property taxes, home insurance, yada yada yada.
Say your mortgage payment (property taxes and insurance included) is indeed less than what you were paying in rent. That’s fantastic! So now you have an extra $500/month to spend on things like travel, and eating out…right? Well, not so fast. Remember when I was talking about how one of the causes of high rent being from landlords needing to pay for maintenance costs of the property? Well, when you own your own place, there is no landlord. You now get to pay yourself! How cool is that…you’re going to be rich!
An easy way to practice this in real life is to set up your own savings account for the sole purpose of future, home repairs and renovations. You can consider it essentially your own HOA dues. The amount for each person will vary depending on the current condition of the house and any repairs you foresee occurring in the near future. The important thing is that you are beginning to accumulate something…which is better than nothing! Over time, you should have a good reserve built up, so when the time comes, you can pay for the hiccup, move on, and continue saving. The last thing we want is people going into credit card debt to pay for a new fence. Because if you’re going to rack up a credit card bill, let’s at the very least have it be something more exciting than for a fence (joking!!).
I could talk more about this in a separate blog, but in my opinion there are more considerations when thinking about buying vs. renting aside from price differential. For example, do you want to be responsible for maintenance or do you like being able to call someone to come fix things for you? Do you know if you really like your home location, or would you like to try out different neighborhoods? What are your goals and other factors that might cause you to prefer one place over the other? These are all important items to think about!
In our perspective, financial planning is all about taking simple actions that over time will enhance your quality of life. I am a firm believer that having money saved to take care of a faulty furnace in the future will not only keep you warm, but also give you peace-of-mind. That when the time comes, you don’t have to worry about finances in the future. And of course, you can be one of the few who can say that they love their landlord!