We’ve talked before about what our plans will be once the kid graduates high school and goes to college. We’ve played around with the idea of buying a small house for her to live in while she goes to community college in KC for the first two years (assuming she chooses that route, which seems likely right now, barring some hefty scholarships).
As we’ve talked through this option, we’ve started to veer away from that idea. When all is said and done, the idea of buying a house for two years seems like an unnecessary risk, and we have no interest in maintaining a rental property while we are in Caribbean.
Even if the kid was staying in KC for all four years (a long shot), we are still leaning toward renting instead of buying. Below are the reasons why we are not bullish on home ownership for our immediate future.
Interest rate
We currently have a 2.25% interest rate for our current house. According to Bankrate.com, the current interest rates for a 30-year fixed mortgage, with a 20% down payment and excellent credit score range from 6.8% to 7.1%.
If we bought a house for the exact same amount that we paid for this house (we’ll assume 20% down for the sake of easy math and an apples to apples comparison), it would cost us an extra $750 per month in interest, and an extra $267,000 in interest payments over the life of the mortgage. Even if we only kept the house for two years, we would pay thousands in additional interest.
Amount of house for the money
We paid less than $275,000 for our 5-bedroom, 4-bathroom house in 2009. Since 2000, the average home price has increased between 50% and 100% depending on which source you consult.
A quick search on Redfin for houses in our zip code shows two houses currently for sale for $275,000. One is 1200 square feet, 3 bedrooms and 2.5 baths. The other is 1800 square feet with 3 bedrooms and 1.5 baths. That is literally less than half the house for the same price, before you factor in the increased interest payments. No thanks.
Insurance rates, property taxes, etc.
Interest payments and value for our housing dollar are the biggest factors in our equation, but the small add-ons are trending down as well.
According to Realtor.com, homeowner’s insurance rates have risen 33% since 2018 with no sign of going down in the next few years. Natural disasters, like the wildfires in California, aren’t helping matters any.
Property taxes are very community-based, so trends are harder to research, but HomeAdvisor.com states that median property tax rates in Missouri will increase from $1500 to $2500 over the next five years.
Then there’s the money pit potential. We can’t predict maintenance and upkeep costs, but we can predict that those costs will be zero if we rent.
Resale
Even if we chose to ignore all of the increased costs and buy another house, we would eventually need to sell it. Housing prices are going up, but we’ve sold enough houses to know that you don’t win on every house sale.
The chances that we would find a house in a good area for a price we like that doesn’t need significant repairs is a gamble. We’ve been in this house long enough that we stand to make a tidy sum when we sell it. The thought of risking that money on another house, hoping we recoup our funds in 2-4 years doesn’t seem like a smart bet to make.
Bottom line
We’re not saying buying a house never makes sense for anyone. If we were planning on staying in one place for the next 5-7 years (or more), we would probably consider buying another house (or keeping this one). But for us, the freedom from taxes, homeowner’s insurance, and maintenance headaches, among other things, just make renting or Airbnb-ing a much better choice. As with everything we say here, your mileage may vary.
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