A while back, we argued that purchasing our house in the suburbs was a good financial move for us and the actual cost of ownership would compare to a $703 per month rent. To know the actual true cost of house ownership, the only accurate way to know for sure is to look back at the past 3 years and count every penny we have put in the place.
This was a great exercise, not only for our own finances but to give you a clear idea of the actual costs of home ownership. Some expenses would still incur if we were renting, therefore, in that situation, we just calculated the difference in cost.
Inevitable buying costs
To purchase a property in Canada, we have to go through a notary. They are basically real estate lawyers. As the buyer, we had to pay $1,200 to close on this house. This cost varies a lot depending on where you are, some will charge as low as $500, while some lenders even pay for it.
In addition, our municipality charged a land transfer tax equivalent to roughly 1% of the property value. We paid a total of $2,550 in land transfer tax at the time of signing. This varies between cities, Toronto for example, charges a tax on top of the provincial one so you end up paying almost 2%.
We also did a house inspection before putting in our final offer. This protects buyers from any hidden faults with the property. They go through the house and look for all the possible issues with the property. Of course, this by no means guarantees that nothing will go wrong with your property but it is a good safety measure to take and it gives you negotiating power if the inspector finds small issues.
We paid $700 for our inspector and after she mentioned that the shingle roof had to be replaced in the next 3 years, we negotiated with the seller to get all appliances included. They were all brand new, stainless steel appliances, so we saved roughly $4,000 there.
CMHC insurance (or PMI)
At the time of purchase, we decided to put only a 5% down payment on the house so we had to pay mortgage insurance. This added a total of $8,079 to our mortgage. The only way around this would have to put a $54,000 down payment, which we did not have on hand at the time.
In the United State, PMI would be very similar. For the same amount, PMI would add 117.79 to your payments for the first 90 months which comes out to $10,601 in total premiums.
Sometimes, it makes sense to spend a little on insurance to put less money down. Depending on current interest rates and your expected rate of return on investments, it can be more profitable to invest your money in the market rather than in your home.
The same goes for paying off your mortgage faster but sometimes, it is not all about the numbers. Feeling financially safe has its value too.
Home owner’s insurance
During the three years, we paid $39 per month in homeowners insurance to protect against fires, theft, damages, liability etc. The total cost over the years adds up to $1,404. Compared to renter’s insurance, which only covers liability and your furniture, we were paying $14 per month so the difference here over the three years is $900.
Municipal and school taxes
Every year, we paid $2,800 in municipal taxes and $450 in school taxes. This adds up to $9,750 in taxes over the three years. We also had a small issue with our subversive pump recently and that added $600 to our water tax bill so that didn’t help.
Maintenance and remodeling
The general rule of thumb for maintenance costs is 1% of your property’s value. U.S. News and World Report say that homeowner’s spend anywhere between 1% and 4% of a home’s value each year on maintenance and repairs.
In our case, we have very little maintenance expenses over the three years we were there. The only thing we changed was our hot water tank before it got too old. Total cost: $450.
We did spend on small remodeling projects but never spent a considerable amount of money. We always did our projects ourselves so we saved a lot on labor.
The first thing we did was to paint the dining room. Total cost: $60.
We then changed the cabinet’s handles to give a modern look to our kitchen. Total cost: $100.
One of our weekend projects was the accent wall in our master bedroom. We bought flooring on sale at the hardware store and glued it to the wall with PL. We invited a friend over and made it a day. Total cost: 100$. (Plus $20 for the beers!)
Inspired by this DIY, we remodeled a bathroom with the same technique as our bedroom since that wall turned out so well.
Instead of tiles, we waited until the wood flooring was on sale and given the smaller surface, we barely spent anything. We even had some leftover glue and paint. For the mirror, we found a nice one in a discount store for $40. We then ordered LED strips on eBay for $10. Total cost: $90.
We also changed the electric baseboard heater of our bathroom simply for aesthetics and noise and changed the bathroom fan for a silent one since it felt like we had a turbojet in there every time we took a shower. Total cost: $240.
This summer, we redid our patio since we never liked the one originally built. The old deck was grey, started to rot, and unappealing.
We sanded the base, changed the look of the railings completely, and secured a closed off section for the pool. Then, opted for modern steel balusters to give a brand new look to the place.
At the hardware store, we had the option of premade railings that went for about $120 per 6’ or we could assemble our own railings for about $30 per 6’. We went the DIY route and saved another 15% off the purchase price since we waited until a sale.
The worst part of the project was to get the stair railing to fit properly. We could not get the balusters to fit, the angles we off, and we ended up starting over 3 times before getting something solid in place.
After replacing some rotten beams, redoing a section what was not well supported, and building our railings, we ended up buying $150 of wood. Our biggest expense here was the steel balusters. Total cost: $450.
Finally, after having our house on the market for months and months, we had the floors sanded and varnished to spruce up the property. After getting a few estimates, we went with a guy who did the whole job in a day for $1000.
|Kitchen Cabinet’s Handles||100|
|Bedroom Accent Wall||100|
|Bathroom Accent Wall||90|
|Heater and Fan||240|
We never paid anyone to mow our lawn or to spray pesticides on our lawn but we do get some pretty nasty winters up here in Canada. We moved in the spring but for the next two winters, we spent $250 for a plowing service. This adds up to $500 for the three years we were there.
When we were living in a smaller condo, we were paying under $50 per month in electricity. Now that we had much larger square footage, we spent roughly $120 per month on electricity. This includes our heating since the whole house was heated by baseboards. Over the three years, we spent $2,520 more as homeowners.
Furniture and appliances
We were fortunate to get all major appliances for included when we bought the house since we negotiated it in our offer. We got a brand new stainless steel fridge, stove, and dishwasher and used washer and dryer.
On top of all of this, we also negotiated to get the lawnmower, a weedwhacker, a hedge trimmer, and a few tools for free which saved us a lot of shopping.
In terms of furniture, the only piece we bought brand new was our couch. We got it for $600, on sale. Everything else came from hand-me-downs or we got it used from Kijiji or Craigslist. Finally, we furnished two guestrooms, which we later used to earn a few extra dollars on Airbnb, and office space.
We did not spend more than $1,000 in total.
By renting, we could have kept our down payment invested in the market. Since the day we bought our house, the S&P500 increased 20.154% (with dividends reinvested). Therefore, our $13,500 down payment would have grown to $16,220 if kept it invested. We are assuming a single holding portfolio here for simplicity but it gives us a total opportunity cost of roughly $2,700.
Each month, we paid $1,300 in mortgage payments. Out of that, about $535 has been going towards interest. Over the three-year period, this comes out to $19,260 in interest payments to the bank. As JL Collins puts it; interest is the cost of renting money.
There’s no free lunch in real estate.
At the start, we tried the DIY route and chose to advertise our house on a flat-fee website. Selling our house seemed easy, we did the visits and open houses. The package we bought gave us the exposer we needed to find the right buyer and all the support one could need to sell a house. The total cost for this was $699 for their basic package. However, after months and months on the market and multiple offers which did not go through, we ended up hiring an agent.
We negotiated with the real estate agent a lower commission and signed a contract until the end of the year hoping to sell in a few weeks.
We were at the peak of the market, received multiple offers but, again, none of them went through. Finally, after a year on the market, we finally sold our house for a total of $35,000 more than we had bought it three years ago. In the end, we ended up paying $11,800 in commission for the transaction.
Appreciation vs inflation
In many cases, a home is not a great investment. However, it is not always terrible. Especially as your main residence, it is hard to see how renting would be better. A longer holding period would have helped us absorb more of the fixed costs such as the purchasing expenses and the realtor’s commission but no matter what it still costs a lot to buy and sell real estate. Even if the value of the home increases, it does not mean you are making any profits.
In this calculation, we did not even calculate inflation but that also eats up some of that $35,000 increase.
The actual true cost of home ownership
In the end, the actual cost of owning this house was pretty high. Once we include every single expense, it is surprising to see how much we have actually put in this place.
|Land transfer tax||2,550|
|CMHC (or PMI)||8,079|
|Home owner’s insurance||900|
|Municipal and school taxes||9,750|
|Maintenance and remodeling||2,490|
|Furniture and appliances||1,000|
Of course, we sold the house for more than we bought it so we can subtract that amount: 62,749 – 35,000 = $27,749. So, over a three-year period, we spent $9249 per year or $771 per month to live there. Pretty close our $703 estimate from the New York Times rent or buy calculator.
For $27,000 over three years, there is no way we could have lived a similar lifestyle as renters. We now downsized to a small condo downtown and even this small property would rent for a lot more than $771 per month.
Unless you are moving every year, it is hard to see how renting would be better than owning. If you have any thoughts, please comment along. 🙂