Home, Hearth, High Finance

Everyone in the suitcase squad–those who already left, and those packing their bags right now– talks about three things: 1) How they got completely and methodically screwed in Saipan, 2) How well the U.S. economy is doing now, and 3) How nice it will be to own a house again.

Home design plans are being sketched on the back of cocktail napkins, and the Suitcase Squad is abuzz with talk of salaries, mortgages, landscaping, and the happy prospect of re-entering the picket-fenced American dream. One of the oldest economic facts on the planet is that the landless are never full fledged citizens, and it’s better to own home and hearth than to be condemned to rootless peonage.

The good news is this: For what you’re been pouring down the rental drain in Saipan, you might be able to afford a nice little castle back home (depending, of course, on where you move).

For example, say you’ve been paying $900 a month here in Saipan to rent a house. If you were to pay that amount in mortgage payments, a 30-year loan at 7.5% interest would snare a $128,716 home.

As a homeowner, of course, you would face the additional expenses of property taxes and insurance. On the advantage side, though, you’d also get a tax break for the interest portion of the mortgage and, of course, you’d be building equity in a home for you and your children. If you don’t pass the home on to your kids but instead sell it, the profit (I hope you make a profit) is taxed far more favorably than straight income is (ah, the sweet sound of capital gains…)

Let’s look at this property tax and insurance angle. I ran some numbers with these assumptions: Property tax runs 1.5 percent of the purchase price. Insurance runs 0.4 percent of the purchase price. Maintenance runs 1.0 percent of the purchase price. I’m not including “points” (the financing fee) in this calculation. I’m also assuming that you make a down payment of 10 percent of the purchase price, and the mortgage is 7.5%, 30-years. One disclaimer: I’m not claiming these assumptions are correct, I’m just throwing them in to run some rough calculations.

Here, then, are the monthly amounts you’d pay for the mortgage, property taxes, insurance, and maintenance:

For a $80,000 home: $697 per month.

For a $100,000 home: $871 per month.

For a $150,000 home: $1,306 per month.

For a $200,000 home: $1,742 per month.

For a $300,000 home: $2,613 per month.

This isn’t the full picture, though, because it doesn’t account for the income tax benefits and other advantages of home ownership. A number of years ago I constructed a computer model of home ownership (knows as a “Lease vs. Purchase” analysis) that looks at the tax angle as well as general inflation, home appreciation in value (or decline in value, for that matter), rent payments (which are the alternative to ownership), purchase and selling costs, and so forth. In most scenarios I’ve run, home ownership is a wise bet if you keep the house for at least four to six years; such calculations are, however, extremely sensitive to some of the variables I’ve mentioned so it’s hard to generalize.

So, Suitcase Squad members, be cheerful. The good times are rolling in America, and you’ll soon be home in your own home. The harsh lessons you learned out here apply to most “developing” economies, and the wisdom you gained will last you a lifetime.