I am so ardently against buying a house that Zillow once quoted me extolling the virtues of renting. While friends bought homes right after college, I was reticent -- choosing to put it in my 403(b) instead. That was -- and continues to be -- by far the smartest financial move.
Not only will your down payment go much further if invested in the stock market, but buying a home exposes you to downside risk: Your savings are depleted by a down payment, and you've signed a note that all but guarantees you'll be paying a bank for the next three decades.
Alas, after starting a family, my approach changed. My wife and I wanted the emotional stability and social skin-in-the-game that comes with owning a home. That's what made me all the more surprised when I realized we had saved over $10,000 in just our first year of home ownership.
It all boiled down to two very simple revelations.
Live where you work, play, and learn
Perhaps since we waited until our mid-30s to purchase a home, our set of requirements were far different than what you might see on an episode of House Hunters. Instead of square footage or granite counter-tops in the kitchen, our ideal house had three characteristics:
- In a district with a diverse student body
- Proximity to nature
While the third won't play a role in this article, the first two went a long way in helping us to -- unwittingly -- save money.
Just after our daughter was born, we decided to move from Chicago to small-town rural Wisconsin. We had romantic ideals about what it might be like, but found that it just wasn't for us. One of the key drawbacks was a lack of walkability: We were in a car-centric community.
During an average month, we drove a whopping 1,650 miles. Consumer Reports calculated every mile in our 2013 Prius cost us $0.47 -- including gas, maintenance, depreciation, and repair costs. That means we were spending $705 per month on transportation, or $8,460 annually.
But our new location -- which has a very high Walkscore of 79 out of 100 -- has changed the math. We now average 900 miles per month. That equates to savings of $4,230 over 12 months!
Secondly, having parents that both attended -- and later taught in -- ethnically diverse schools, we felt a strong desire to give our daughter a similar experience. This snuck up on us, and was admittedly not on our minds right after she was born.
While the options in our old community were academically solid, we decided it was important to send her somewhere with more of a mix. Along with the long drives, that decision also came with a high-priced tuition: $775 per month! Our new community's public schools are not only ethnically and income-diverse, but they have a much cheaper price tag: $80 in fees per year. (Note: We'll get to the property taxes below.)
That means that we saved $6,895 in tuition almost overnight.
Duplexes can be a steal...if done right
Of course, this new community might be starting to sound too good to be true for some: diverse student body, walkability, close to nature. What's not to like?
The price of single-family homes and their accompanying property taxes -- that's what is not to like. We wanted to have our own place, so that immediately ruled out the stable of apartments and condos in the community, but we simply weren't willing to take on the debt necessary to get a single-family home either.
That's when our realtor asked if we'd considered buying a duplex. At the time, that didn't square with my idea of the American Dream: Having neighbors who share a physical dwelling felt intrusive, and if you didn't get good tenants, more like a nightmare.
But as soon as we went over the finances of the deal, my wife and I converted. Eventually, we bought a duplex. After taking out the rent paid by our tenants, our part of the mortgage payment comes to a scant $550 per month, which includes the high property taxes. Previously, we had been paying $890 per month in rural Wisconsin, meaning we saved $4,080 annually on housing.
Additionally, because ours is an owner-occupied duplex, Fair Housing Act rules do not apply to us. In our case, that meant we could avoid renting to college students -- we are one mile from the biggest university in Milwaukee -- and focus on finding renters who wanted to live in the community for the long haul. So far, we couldn't be happier.
The math is murky, but surprising nonetheless
Of course, there are lots of considerations I'm leaving out. We're still on the hook if the heating goes out. And I have little doubt that all the money we plopped on the down payment would do better -- financially -- in the stock market.
But in the end, the move has surprisingly saved us $11,470 in one year. You might notice that this is less than the three parts described above. That's because we also spend part of every year -- the winter -- on a coffee farm in Costa Rica. Were we stateside for the entire year, our savings would top $15,000. That makes buying a home a much easier pill to swallow for the real-estate-averse among us.