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Old 04-19-2014, 03:52 PM
 
33 posts, read 122,335 times
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We are considering an idea of owning a townhome. We are in a fluid situation in the area due to jobs and hence it seems like a lower investment and the opportunity to have a rental property in future is not a bad instead of fuming off money is rent. We have already rented for 4 years.

We are renting for 1800/month. Planning to buy a townhome(~260K with 20% down) which should cost us close to 2000/month in mortgage, property tax, condo fees and insurance. So overall we will spend approx 200/month more in owning a townhome.

Not sure if there are other aspects we aren't considering in our calcs?
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Old 04-19-2014, 05:11 PM
 
977 posts, read 675,037 times
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You will be responsible for any repairs or replacements of the home's mechanicals - from plumbing to appliances to HVAC. Even in new construction, these items will need attention sooner or later.

Depending on the structure of the association you could also be responsible for some/all exterior maintenance - windows, doors, roof.

Be prepared for increases in common charges over time too - and assessments are always a possibility.
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Old 04-19-2014, 06:03 PM
 
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When owning, you're building equity in your investment as you stay there longer and longer. With renting, you get no equity.

With owning, you also get to deduct the mortgage interest and property taxes from your income taxes. With rent, you do not. The mortgage deduction will likely be highest in those first years of ownership as well, as the principal amounts are lower and interest higher.

If you buy a new condo or home, the law also requires that it has a one year warranty related to anything in the home:

Connecticut law has established certain express and implied one-year warranties when a builder sells a new single family home or condominium unit. Both express and implied warranties protect the original purchaser and cover the dwelling itself and any structure or fixture that is part of it. Neither the sales contract nor the deed itself may exclude or modify either warranty.

DCP: New Home Warranty

So, if anything goes wrong with a new home in the first year, the builder or seller is legally required to fix it. Some builders give longer warranties than a year - Carrier out of the Farmington Valley gives you a 5 year warranty with all new construction, and a few others give two year warranties.
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Old 04-19-2014, 06:15 PM
 
4,444 posts, read 3,592,611 times
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Did a quick calculation based on a $208,000 mortgage (80% of $260,000) - 30 year fixed mortgage at 4.125%

you'll be paying a bit over $12,000/year for a mortgage, or $1,000/month

In the first year, about $3,500 is principal, and about $8,500 is interest, which you can deduct from your income taxes.

If you buy in East Lyme, which I think you mentioned before, the condo would be assessed at $182,000, or 70% of $260,000. Property taxes would be $4,275 for the first year, or $356/month. This is also tax deductible.

Insurance should be $100/month or less, and may be included in condo fees.

Condo Fees can be all over the place, but let's say it's $250/month, not including insurance.

So, you have $1,000 for the mortgage, $356/month for taxes, and another $350/month for insurance & condo fees. So, that's $1,700/month.

And, you'd have nearly $13,000 between mortgage interest and property taxes that are deductible in the first year that would not be deductible if you continued to rent.
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Old 04-19-2014, 08:38 PM
 
Location: Coastal Connecticut
13,116 posts, read 15,683,697 times
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If you know you're going to be in the area a while (5+ years), you should buy.
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Old 04-20-2014, 08:19 PM
 
33 posts, read 122,335 times
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Thank you all for your responses. Newjeff thanks for breaking this down very well. I often hear that you should buy if you plan to live for 5 years. Never understood the logic or math behind it. Why do people often think 5+ is the magic number?
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Old 04-20-2014, 10:43 PM
 
Location: Coastal Connecticut
13,116 posts, read 15,683,697 times
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There's costs upfront. Closing costs, legal fees, etc. Moving, furniture. It takes a few years for your home to appreciate and for you to build equity. Less than 5 years and you may even lose money.
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Old 04-21-2014, 09:06 AM
 
Location: Farmington
7 posts, read 4,880 times
Reputation: 15
Buy, you are building equity and your future.
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