The Long Nightmare of the American Dream is Over

6 Sep
2011
Posted in: Adventure Prep, Money
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And just like that … we’re homeless.  It’s wonderful.  Boy, real estate ownership isn’t exactly a cakewalk.  We learned some important, expensive lessons.

december twenty nine twenty ten
Creative Commons License photo credit: cdsessums | You can’t leave.

Your home needs to appreciate by (at least) 10% for you to break even

Yep, 10% — maybe closer to 8% in some cases.  And by “break even” I mean get the money you put in when buying your home out and back in your pocket.  Here’s the math:

You buy a house or condo for $100,000.  You put $20,000 down and get a mortgage for the rest.  If you sell the place a day after purchasing it for the SAME price, and you use the traditional sales channels where you use a realtor and pay city taxes and attorney fees and title charges and everything else, the fees add up to around 10% of the value of the property.  Your loan for $80,000 is paid off, and you walk away with $10,000.  You lose 1/2 your money in this scenario … in a day.

The cost of a traditional real estate transaction is insane.  Somebody will streamline this and put a lot of idiots out of their jobs.

Don’t buy real estate to avoid “throwing money away” on rent

A mortgage is just a money rental, and the monthly rent is the interest you pay.  The bank is your landlord, but they’re not going to fix your leaky toilet.  Instead of in a rental situation where you just call the landlord and things get fixed automagically, you get to be the project manager and deal with it.

We threw even more money away when we had a special assessment to update the common front hallways of our condo.  We threw money away when we updated our back deck.  We threw more money away when we paid our assessments every month.  Money still gets “thrown away” — there’s no way to avoid that.  Over the course of a 30-year mortgage, you’ll end up paying about double the purchase price of your home thanks to interest charges alone.

It’s very difficult to find free housing.  Just like free lunch.

Don’t make decisions based on sunk costs

So we lost money if that wasn’t clear.  Not a ton.  Not too much to handle.  But some and it sucks.  If others are losing their shirts, we lost a sleeve.

Should we have stuck it out and waited for the market to recover?  No.  Regardless of the way we looked, there was no probable scenario that resulted in us being in a financial situation better than selling as quickly as possible.  But we had sunk a bunch of time and money in the place.  That made it tough.

Pride of ownership is bullshit … if you have a mortgage

If you own a house outright — great.  I’d be proud of that too.  You’re rich.  Your monthly living expenses are probably pretty low.  You’ll pay property taxes and maintenance, but that’s probably well under what it would cost to rent a similar dwelling.

But if you have a mortgage, what’s that?  You own a percentage of a home?  Is anybody proud of their credit card debt?  You’re on the hook for tens of thousands of dollars.  You pay fees for money you don’t have.  Meh.  I don’t buy that argument in support of homeownership.  But some people fake it or confuse it with forced pride because purchasing a home makes you stuck, and if you can’t move, you develop pride in the home team — your house.

Homeownership makes you stuck

That’s the number one lesson of all.  Financial burdens pin you down.  Hell, I don’t even like cell phone contracts — I like prepaid phones because I can walk away from the transaction without being on the hook for more.  I hate being tied down by money.  Student debt, home debt, medical debt — all these burdens weigh us down, keep us in line, and limit our freedoms and futures (check out this cool infographic on student loans).

We are now unstuck.  We have fought for this freedom and it’s been difficult and expensive. In 24 days we begin the pursuit of our own happiness.  Thanks, TJ & Co.  We’re lucky as hell.