Why You Shouldn't Throw Money Away on Property Taxes

Taxes and insurance are just the small waffle fries on the side of your spicy chicken house. You're going to pay 81 thousand, 581 dollars in property taxes over the 13 years that you live in your home. Real estate agents often recommend setting aside between one and three % of your total home value per year just for maintenance. This is why the government allows real estate investors to write off depreciation on their properties. Even the tax man knows that your house is getting progressively worse and requires you to spend more money to keep it livable and up to date.

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When I did a rent (and invest) vs. buy analysis back in January 2021 with a 2.6% interest rate, the results were pretty neck-and-neck. As rates climbed this year, I figured it would be fun (I’m using the word “fun” loosely) to revisit the exact same scenario with the higher rate.

Depressingly, when we recorded this episode just last week, the rate was 5.95%. In the course of a single week, it’s now surpassed 7% as of publish (9/27/2022). How have the rates changed the math now and how does one realistically budget for a median home in the US today with 6+% 30-year fixed rates? Let’s find out.

I'm also joined by Andy Taylor, VP & GM of Credit Karma Home (https://www.creditkarma.com/) to discuss breakeven costs, refinancing, and borrowing against home equity.

Episode transcriptions can be found at https://www.podpage.com/money-with-katie-show/.

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Mentioned in the Episode

Summer 2022 interest rates: https://www.forbes.com/advisor/mortgages/mortgage-rates-08-31-22/
Early 2021 rent vs. buy analysis: https://moneywithkatie.com/blog/when-the-math-supports-buying-your-primary-residence-instead-of-renting
"Average net worth of homeowners," from CNBC: https://www.cnbc.com/select/average-net-worth-homeowners-renters
Quit Like a Millionaire by Kristy Shen: https://www.penguinrandomhouse.com/books/592323/quit-like-a-millionaire-by-kristy-shen-and-bryce-leung-foreword-by-jl-collins/
Data on home ownership averages: https://www.ngpf.org/blog/economics/qod-how-many-years-has-the-typical-american-homeowner-been-in-their-current-home/
Average median home value, from The Motley Fool: https://www.fool.com/the-ascent/research/average-house-price-state
Private mortgage insurance: https://www.investopedia.com/mortgage/insurance/
Average homeowners insurance: https://www.investopedia.com/insurance/homeowners-insurance-guide/
Average property tax rate: https://smartasset.com/taxes/texas-property-tax-calculator#UMznyF9L22
Average mortgage rate for 30-year term: https://www.bankrate.com/mortgages/todays-rates/mortgage-rates-for-monday-july-25-2022/
Amortization calculator: https://www.bankrate.com/mortgages/amortization-calculator/
Paying interest first in mortgage payments: https://www.investopedia.com/ask/answer/07/mortgagepayments.asp
Average broker's commission: https://www.ownerly.com/real-estate/average-commission-for-real-estate-agent/
Average closing costs: https://themortgagereports.com/35800/guide-to-mortgage-closing-costs-what-average-mortgage-costs-are-and-how-to-keep-yours-low
Average 3% rental increases: https://www.apartmenttherapy.com/average-rent-increase-percentage-268659
IRS Standard Deduction: https://brighttax.com/blog/irs-standard-deduction-expats
Rule of 150: https://www.businessinsider.com/renting-versus-buying-a-house-advice-math-rule-2019-9
28/36 Rule: https://www.investopedia.com/terms/t/twenty-eight-thirty-six-rule.asp