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Home » Home Buying, Home Ownership, Save Money, Summer of Saving

Calculate the “Total Cost of Homeownership” BEFORE Renting or Buying

Last updated by on 6 Comments

When finding a property to rent or buy, I’ve often seen one common trap that many fall in to when considering housing costs: not calculating the total cost to live there on a monthly basis.

When buying a home, most just look at the purchase price and that’s it.

And when renting, most simply see that monthly rent and ignore the rest.

Doing so can get you in to some big trouble, as I’ll demonstrate.

Home Ownership Costs

Many home ownership costs are completely ignored (at worst) or glossed over (at best). Some of the most commonly overlooked home ownership expenses include:

Maintenance/Upgrade Expenses

cost of homeownershipIt’s the in thing right now to buy an older home close to an urban core. I get it. It’s great to be close to the action and many older homes have a ton of character. Older homes, however, can come with some big maintenance problems:

  • lead paint
  • asbestos (not only around HVAC, but also within tile and other decor products)
  • insect damage (termites, ants, rodents, etc.)
  • water and mold problems
  • upgrade from boiler to
  • outdated knob and tube electrical

Utility Expenses

An even bigger problem with older homes is the heating and cooling bills that come attached to these homes. Most of these homes were built at a time when energy was extremely cheap and insulation technology was in its infancy. Many of these homes are also using inefficient boiler technology vs. much cheaper forced air. And many still have old, incredibly inefficient windows. So you have a choice:

  1. You spend tens of thousands to upgrade the HVAC systems, windows, and whole home insulation.
  2. You keep things the way they are and pay hundreds of dollars every single month you live there just to heat/cool your home.

I knew one couple who were paying $600-$800 in the winter months to heat their 1920’s era home. I’m confident that this actually met or exceeded their monthly mortgage payment! I didn’t ask them if they had thought of this when they bought the home, but the fact that they did buy it pretty much answered the question for me.

On the flip side, an incredibly efficient home or even one that uses net zero energy without a large purchase price premium might make a home much cheaper to live in than neighboring homes.

Always ask for the previous 1-2 years of utility expenses to get the full picture before buying.

Property Taxes

Another silent killer for homeowners is property taxes.

I live in city with some of the highest property taxes in the state. If I were to move to another city and find a similar home, my property taxes would be anywhere from 40-60% lower. Without children in public schools (which are highly regarded in my city), the benefits to paying this higher property tax are non-existent compared to alternative cities. Property taxes will be a strong consideration for me with future home purchases.

Also, if you are buying a home that has not changed hands in a while, the property taxes the current homeowner is paying will likely jump quite a bit for the new homeowner. When looking at property taxes, call up the city/township and ask them what the taxes would be at a newly assessed value (typically half the cost of purchase price).

Association Dues

Some neighborhoods have association fees. If you purchase a condo or live in a golf course community, it’s pretty much a guarantee. When looking at these homes, it’s important to look at not only the currently monthly association fee, but also the recent few years. If prices have risen sharply, outpacing inflation, it could be a sign of poor association management and future price increases are surely ahead.

Transportation Costs

While living outside of an urban core can seem like a big money saver on the surface, if it means a long commute the transportation costs could outweigh the perceived savings. Could you easily bike to work? Is there a bus line nearby? Where’s the nearest grocery store? School? Always factor in the cost of transportation (fuel + maintenance) associated with a house, before buying it.

Home Insurance

Looking to move to a home that is within a floodplain or highly vandalized area? It’s going to cost you extra in home insurance payments. Before buying a home, always get home insurance quotes ahead of making the purchase.

Total Cost of Homeownership Calculation

When buying a home, you must go far beyond just the monthly mortgage payment.

Total cost of home ownership = mortgage payment + needed maintenance/upgrades + average utility expenses + property taxes + association dues + transportation costs + home insurance

Total Cost of Renting

Renting is fairly similar, with a few key differences:

  1. Substitute rent for mortgage payments, obviously
  2. Subtract needed maintenance/upgrades
  3. Subtract property taxes
  4. Substitute renter’s insurance for home insurance

With renting, transportation and utilities are the two big factors, outside of the rent itself. A number of landlords will offer various utility expenses included within the cost of rent and you should always take this in to consideration when trying to compare apples to apples.

Total cost of renting = monthly rent + renter’s insurance + transportation costs + utility expenses

Whether it’s buying or renting, if you are not considering the total cost to live before making your move, you are doing yourself a great disservice.

Total Cost of Homeownership Discussion:

  • Have you bought a home or rented without calculating the total cost to live there, with the result being huge expenses you did not anticipate? Share your story and the lessons learned.
  • If you have calculated the total cost to buy or rent, with it impacting the location you ended up at, how much did it save you?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


6 Comments »
  • These are great tips GE. I know a lot of people don’t consider all the costs. I know we are trying to consider all the costs as we buy a house. But it is difficult to calculate all the costs.

  • Courtney says:

    I bought a house 3 years ago and knew I’d need to plan for maintenance and upkeep costs, but I didn’t realize the TIME investment it would require. I wish someone had clued me in years ago!

    • G.E. Miller says:

      That is a great point. Gardening, repair, maintenance, and cleaning, cleaning, and more cleaning takes a lot of time – and if you put that time in $’s, then……

      • Tyler says:

        I 100% agree with the TIME investment being the most expensive trade off in the Rent vs. Buy discussion.
        Not only is home upkeep, upgrade, repair and maintenance expensive, it is a massive time sink!
        Time that could be used for much better things like surfing the web and commenting on personal finance blogs! ;)

  • zimmy@moneyandpotatoes.com says:

    Yes, there are many costs to owning a home that people might forget about when purchasing one. The water heater, the roof, electrical wiring and your HVAC unit are just a few that can cost you a bundle if there are problems. You could also have plumbing issues and unforeseen things like animals living in your attic that you have to deal with. If you were renting, the actual homeowner would have to foot the bill for these expenses.

  • GE, terrific article – so many people, especially on their first house, don’t realize all that comes along with owning. I know your focus was on total cost, but I’ll just throw in the point if your looking at the overall financial impact (not just cost) of owning, from beginning to end – you need to add in the resale value coming back (net of closing costs). Unless you do that, the total cost comparison would have everybody renting every time!

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