As you get close to that $500K cap gains exclusion ($250K for singles) be sure to keep receipts for your improvements. They can be used to increase cost basis when you sell if you exceed the limit.
Distinguish between maintenance and improvement items. I try to average abt $2K per year in projects. There’s always something. If you know when you plan to sell, that can help you budget. If within five years, ask yourself if a buyer will pay more for this improvement. Does it make my home more marketable. I think solar panels definitely fit in this category. But also swimming pool, hot tub, major bath or kitchen remodels.
Do the numbers work for you. Increase the value of your home or its marketability.
If you plan to be there for decades, will you enjoy it. Might wear out by the time you decide to move.
Sure, the average American makes very poor decisions and has trouble with arithmetic.
If you have the ability to make a rent vs. buy calculation to inform your decision making, it’s usually possible to find a better place for your capital than a poorly appreciating home.
Remember the 4% annual 100-year return on residential real estate is the average. About half the homes are returning less than 4%. No matter where you live in the country, you have the opportunity to lock in the average return of the stock market with a low cost index fund.
When I was doing rent vs. buy 40 years ago, my colleagues thought I was nuts. Young people today seem to have a better understanding of the arithmetic.
Because it is an old home and like most old things, has wear and tear that should be depreciated - which is why comparing a home (which has daily use and utility) to stock market returns always seems a bit silly to me.
A person’s home is likely the ONLY real asset that appreciates over time. Every other real asset (excluding commodities) depreciates - as it should.
That’s why you do a rent vs. buy analysis. It may not work in Jackson Hole, but during the 25 years I lived off and in Houston, you were crazy to buy a home (though most people drank the Kool-aid and did so.) It was very possible to live in the wealthy part of town around the Galleria area and rent a comfortable apartment in a complex with palm trees, swimming pools and tennis court, with million dollar homes across the fence line, for $500 to $600/month. (This was 20 to 45 years ago, I just looked at the last place I rented in Houston before I left for WA State in 2006, It’s now $1,200/month for a large 1 bedroom apt)
For whatever reason, after the dot-com bust in 2000, REITs shoveled large amounts of money into West Houston garden apartments as far as the eye could see. I moved from New York to Houston in 1981 at about the top of the oil market and rented a place close to the office for $400/month. When I left in 2006 I was paying a bit less than $600/month for a much larger unit, so my rental cost per square foot remained about the same for 25 years.
Young people today can’t do the arithmetic because housing prices are so much higher in relation to salaries that they’ve given up. They’re renting not because they want to but because they have to.
And if you want to live in an apartment building that’s great. Most people eventually want to own a home, not live in a big building with strangers, even with amenities.
@intercst I think that may be a variable that makes the math different for each person. How much for a 4 bedroom apartment with 2 baths? That’s what I would have needed with my family.
You’re comparing renting vs. buying the equivalent sized property and amenities. I’m comparing renting an apartment with buying a condo.
The arithmetic is the same for a single family home on a half acre lot, you’re just using different numbers. Who knows, the savings from rent vs. buy may be even larger on a more expensive home. When I lived in unit overlooking the beach in San Diego in the late 1980’s the savings were much greater than I realized in Houston because the monthly rent and purchase price was a lot higher.
Few people thought I was living like a hobo when I rented a beach view condo while living in San Diego for a few years in the late 1980’s – and the savings from rent vs. buy was even larger since it was a more expensive property.
The arithmetic is the same no matter what your living situation. It’s just that the default for for most people is that renting gives you a stack of receipts and buying builds equity and wealth. That’s usually not true if you’re investing the savings in the stock market, but few people do the arithmetic.
Interesting… I lived on PB ’82 to ’84, on Thomas Ave about three blocks from the beach and yes I rented. I wasn’t a hobo, but there were a few around. That’s always true to the surf community. There was a lot of interesting remodeling going on back then. PB was going through a qualitative change, to say the least.
I’ll explain it again, Yes, You’re Right Renting vs Owning is a life choice. In the same way, where your decide to live is a life choice. Life choices are not always about arithmetic.
Funny/not funny! I’ve given up on ladders, not copletley yet, but close, gave my 16’ Werner to my neighbor across the court we live in, gave another 8’ one to my fireman next door, still hav a 30’ extension a couple 4 footers, a six and an 8, but no more roof walks to blow out gutters, and really no more than one, maybe two steps. Anything more I call my Brother inlaw or hire stuff done…
I worked on/off ladders in all my 40 years at Western Electric & Lucent tech, when frames are 11’-6” and the cielings are 18’ or more, you do need to get up and around to build the superstructure (channel, angle iron)… There were accidents, not me, but a fellow woodworker/barber friend loaned a simple 6’ ladder to a neighbor, only to have him slip, catch his feet up high, and bash hi head into the concrete driveway, killing him, and the widow suing him! So no loaning, just give it away!
I have a couple smaller, safety ladders, only a few wide steps, a loop handle up top, I used one to do all the crown molding here a few years ago, up, n down a lot, but safely… And done, then the panther finished the job after all were done…
I’m in my early 60s and my wife won’t let me climb up to the roof anymore! Meanwhile my SIL has my A ladder and I have a few bulbs and two smoke alarms that I need to replace that I can’t reach.
Still a very low nominal return. Heck, TIPS from the early 2000s handily beat that.
But as usual, you can’t truly determine “return” unless all the numbers (all the cash flows) are considered.
This doesn’t make the comparison numbers better, it makes them worse! Because $185,000 invested in a generic S&P500 fund from 2003 does WAY BETTER than 20% of $185,000 invested (a typical down payment).
I’d argue that it’s more psychology and less arithmetic. The person that rents and has money leftover will likely blow the money. Could be blown on wine women and song, or could be ripoff investments like a timeshare or some other boondoggle investment, or it could simply be a new big SUV every 5 years as is so common. So buying the home, paying the mortgage regularly for 30 years is a form of forced savings. And after 30 years pass, most people are somewhat more informed after attending the school of life.
Go to Zillow right now and look up how many four bedroom apartments/homes are available near your current home.
Then search how many four bedroom homes are available in the same radius.
There are six in the first group for me. There are 98 in the second group.
Renting may be a great option for small families and individuals because there is enough supply to allow it to be a buyers market (not always of course), it generally is not a great option for larger families with larger needs. The simple fact is that no builder is building many four bedroom apartments and such will always be supply constrained.
I’ve given up on ladders, not copletley yet, but close, gave my 16’ Werner to my neighbor across the court we live in, gave another 8’ one to my fireman next door, still hav a 30’ extension a couple 4 footers, a six and an 8, but no more roof walks to blow out gutters, and really no more than one, maybe two steps. Anything more I call my Brother inlaw or hire stuff done…