Is Home “Ownership” Different From What Meets the Eye?

Home ownership can be a fantastic thing. However, owning a home can be more expensive than meets the eye.  It’s a situation that new homeowners figure out after a few years, and prospective homeowners often don’t fully realize when planning a purchase. However, it pays to be prepared, and to think about what’s involved.

This is a topic that I first brought up in May of 2010, back when Squirrelers was in it’s first few months and just starting to pick up some readers. The post was titled The True Long-Term Costs of Home Ownership, and explored the subject in some detail. You can click the preceding link to read it in full.

Within the post, I spelled out 5 ways home ownership generates increased costs vs renting:

  • Taxes
  • Association Fees (typically with attached housing)
  • Maintenance
  • Updating
  • Outdoors

A year later, as we’ve seen continued softening of real estate prices in many areas, I revisited the post, and still find each area to be important to think about when making a home purchase.

That said, one area jumped out at me a little bit more: Taxes.

Why taxes?

With declining home values, people may be paying less for their homes in terms of principal and interest. Not that debt is a good thing, but for better or worse many people will borrow money to buy a home.  Lower prices just might mean a lower payment, if you’re focusing on house rather than payment. Sounds great, right?

Well, maybe. Part of housing costs may be declining, but are real estate taxes going down? Probably not. So, as a percentage of home payments, real estate taxes just might be increasing.

The big takeaway with real estate taxes – and I find it to be more true than ever – is that they’re a great example of why you never really own your home free and clear.

Sure, if you have no mortgage, it might mean that you paid off a loan or perhaps paid all in cash if lucky enough. That’s all fine and great. However, what happens if you decide not to pay your real estate taxes? The concept of ‘ownership’ changes pretty quickly, and you’ll realize just how much you really ‘own’ your house when taking that course of action.

It seems like it might be a buyer’s market for the short-term, and home ownership is something that’s a great thing in many ways anyway.  So, this post is not about casting doubt over owning a home.

Having said that, just keep in mind that real estate taxes are like a mortgage payment that never goes away. Rather, it tends to increase over time. So, when buying a home, consider holistically the concept of ‘ownership’ and the actual costs involved, regardless of category or classification.

Have you paid close attention to real estate taxes when home shopping? Are taxes reasonable where you live, or borderline intolerable?

Comments

  1. No Debt MBA says

    We looked for investment properties for a while and we definitely paid close attention to their property taxes. The $3,000 yearly that we would have had to pay for some properties makes a HUGE difference in evaluating their possible cash flow.

    • Squirrelers says

      No Debt MBA – Those taxes can make a massive difference, and should absolutely be taken into account.

  2. Crystal @ BFS says

    I don’t like dishing out 3.3% every year over 3 different tax bills (school, county, public utitility district), but it is tolerable. We are still paying less on home ownership than we would be on renting. Now that we refinanced, our mortgage is $540 a month for 15 years and the taxes and home owner’s insurance is another $250 a month…that’s $790 and we’d be payong $800-$1100 for renting…granted, we do pay extra towards our principal, but that’s by choice.

  3. Linda says

    I know I’ve been getting a deal when it comes to taxes on my home, so I expect them to increase more than an average amount when I am re-assessed. If I look up my home on a system that is based on tax assessments (such as Zillow) I can see that my home features are not accurately recorded. Zillow says I live in a single-story, 1100 sq ft house with 1 bathroom. Ha, ha! I have about 1800 sq ft of living space over two stories, and 3 full bathrooms. One of these days, “the tax man” will come by, look at my property, and my taxes will likely double. I do find it interesting how real estate listings aren’t in sync with tax records here. If taxes were based on real estate listings, these incompatibilities in features would have been discovered long ago.

  4. First Gen American says

    We absolutely look at taxes. In a very brief moment of insanity, we were looking at second homes where my in laws live (on the ocean). We literally were looking at a place about to fall off a cliff into the ocean. It was a real fixer and it would also take years and lots of money to rehab it into a livable space. A number of things stopped us, but we didn’t even put an offer in because the taxes on the place were over $7000/year. I just couldn’t picture myself paying $650/month on top of the mortgage for the privilege of owning something we couldn’t live in.

    I absolutely underestimated home maintenance costs, but I also underestimated the time it takes to keep a place looking nice…mowing, weeding, painting, cleaning, weeding some more, battling pests, fixing broken things, etc.

    • Linda says

      I tackled my outdoor chores with gusto when I first moved into my house. I wanted a yard so badly so I could really garden. Now — even though I still love to garden — I wish for a smaller, more manageable yard.

      And yes, things are always needing fixing with a house!

      • Squirrelers says

        Linda – homes are work, no question about it. It’s not just the financial part, but the physical labor and time required as well!

    • Squirrelers says

      First Gen – many people totally underestimate home ownership costs, simply stopping at the mortgage payment and offering little consideration to other costs. It takes real life experience as you say to become aware of the true costs of owning a home.

  5. retirebyforty says

    I don’t like my real estate tax either, but we want those public services. We want good school, good library, and a lot of police officers so we really don’t mind paying for it.

    Even if you rent, you are indirectly paying for the real estate tax. It’s part of your landlord’s bottom line. Rent goes up along with real estate tax.

    I agree with Crystal about the time sink. A house and yard takes so much time away from our nice summer weekends. That’s why we live in a condo now and are paying high HOA…

    • Squirrelers says

      Retirebyforty – attached housing where an association takes care of things can be a big time saver, I know what you’re saying. As for taxes, I do agree that they’re imputed in the prices people pay for rent, anyway. It’s just that when buying, people seem to pay less attention to them than they should. It’s an expense that will always be there and you have little to no control over how high it can increase.

  6. Retirement Savings Guru says

    Thank you for pointing out that you’re never really done paying for a home. Due to this current buyer’s market wonderland, I’d been flirting with the idea of buying a property to rent out in a local college town. While the revenue from the constant source of tenants might be great, with property taxes on the rise and the maintenance resulting from renting to college students, I’d be lucky to break even. I think I’ll hold off on that one and focus on my current investments for now.

  7. MoneyCone says

    Excellent point Squirrelers! RE taxes for a big chunk of your monthly payments and as you point out, they aren’t going away or getting lower.

    Anyone who’s thinking of buying a house should read this post!

    • Squirrelers says

      Money Cone – the way I look at it is this: if you pay off your mortgage, nobody will come to you for additional mortgage payements. Your taxes, on the other hand, are never paid off and if you don’t pay up you’ll find out just how you don’t totally “own” your home!

  8. Everyday Tips says

    Our taxes have gone down by about 20 percent, much like my home value now that I think about it.

    I am shocked by how expensive taxes are in cities like Detroit where the services are so bad. Sure, you can buy an inexpensive home, but the taxes will deplete your bank account!

    • Squirrelers says

      Everyday Tips – About 10 years ago (actually 11 maybe) I spend some time working in Detroit….my only 4 months staying in Michigan! I worked in Downtown Detroit for that very short period of time, and remember some kind of onerous city tax that gobbled up too much of my earnings. So I see how you have a great point!

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