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Friday, August 19, 2016

Houses and Money

It occurred to me the other day that it doesn't take any more money to live in a big house than it does to rent a small apartment, providing that the house is paid for. Take someone who has lived in the same house for 30 years and diligently paid their mortgage every month, or someone who inherited a house, or won the lottery and bought it outright. Doesn't matter how they got it, once the mortgage is paid off, the expenses don't go away, but they are considerably reduced. Going by my own experience, annual property taxes on a house are going to about 1% of the market value. Utilities and insurance are about the same. A mortgage or rent for a house or apartment is about 1% of the market value per month.
    Twenty years ago when I built my house, construction costs were about $100 per square foot of interior floor space. These days I think it is more like $200. A small apartment with 500 square feet is going to cost $100,000 to build and is going to rent for $1,000 a month. A 2500 square foot house will cost about a half million dollars to buy and about a $1,000 a month to maintain (taxes and utilities).
    $200 for a square foot of floor space sounds like a lot money for a little bit of plywood, drywall, shingles, tarpaper,  carpet, pad, insulation, paint, wires, pipes, nails and glue, but that's the problem with houses: there is just an endless list of stuff that goes into them. And then you start looking at upgrades like thicker insulation and double glazed windows and upgraded appliances and fancier trim levels and you can easily spend all the money in the world on your shelter/cave.
    If you own a house, moving is expensive. With realtor's fees and title insurance fees and miscellaneous fees it can easily be 10% of the price of the house, and that doesn't include moving expenses. Some people don't like paying realtors, but I find them well worth while for the amount of headache they save. They might also get you more money. If you price your house 10% under its market value you are losing more than a realtor would cost. Pricing your house is a black art, something realtors understand.

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