When buying a home, you are buying into a school district, a government, and a neighborhood. Depending on the district, school quality (and associated taxes) can vary significantly and can be a major expense in owning a home. The government in your city or township may or not be interested in actively maintaining the infrastructure of the municipality, which can have an effect on road conditions and municipal taxes. Finally, you want a friendly neighborhood, and if you buy a house when you have children, you want other children for your kids to play with. When you have narrowed down your property choices, it pays to knock on a few doors to introduce yourself and ask about the neighborhood.
When either renting or owning, you consume housing services. This is easy to understand with renting but might be a little harder to grasp when it comes to owning. A house is a durable good, or a good that lasts more than three years. A house provides you with housing services that you then pay for. The correct price for a durable good is not its purchase price but what is called its annual user cost: your annual out-of-pocket expenses. For a home, the user cost includes:
- Mortgage payments
- Real estate and other taxes
- Home Insurance
- Utilities (electricity, gas or oil, water, sewage)
- Trash collection
- Home and yard maintenance
This probably sounds like it would be more expensive than if you were renting, but really, it is not. Your landlord incurred these same expenses to own the property, and your rent has these expenses taken into account; instead of paying various municipalities, people and companies, you paid your landlord.