Rent or Buy? (low income, 2014, apartment)

[NiteLite]

I'll be moving to Nashville in a few months and am trying to decide whether to rent an apartment or try to buy my first house. I don't have a ton of money for a down payment ($20k tops) and have a relatively low income ($30k a year, so maybe 800-900 a month for housing).

Would buying a home in Nashville make sense? I'm going to be there for at least 4 years, maybe more. If so, where should I look? Ideally, I would like to live relatively close-ish to downtown and prefer urban to suburbs. How does the cost of renting compare to that of buying?

Thanks!

[Big TR]

Rent first. If you really like the town, buy later.

When you factor in the transaction costs of buying and selling a home along with annual maintenance expenses of a home, you're not going to be breaking even for many years if you buy.

[NiteLite]

Originally Posted by Big TR

Rent first. If you really like the town, buy later.

When you factor in the transaction costs of buying and selling a home along with annual maintenance expenses of a home, you're not going to be breaking even for many years if you buy.

How many years would you say? Does this take into account the low interest rates and other buyer incentives? Any Nashvillian's buy and then sell after a relatively short (5 years) period of time? Suggestions?

[alleycat]

Are you actually thinking of a single-family detached house to buy, or a condo or townhouse?

[NiteLite]

Originally Posted by alleycat

Are you actually thinking of a single-family detached house to buy, or a condo or townhouse?

Either or. Whatever I can afford, really, though it seems that buying a condo is really only cost-effective when it's a 1 bedroom, most 2 bedroom condos seem to approach the cost of a single family home. But maybe I'm not looking in the right places?

[Pimpy]

If you abide by Dave Ramsey principles and buy a house for, AT MOST, three times your annual income, you are looking at a $90K house or under. That is going to be tough to find in a decent neighborhood. You might be able to squeak into a condo at that price, but watch out for HOA fees. They could very well push you above your monthly threshold.

[Big TR]

Originally Posted by NiteLite

How many years would you say? Does this take into account the low interest rates and other buyer incentives? Any Nashvillian's buy and then sell after a relatively short (5 years) period of time? Suggestions?

I think you need to look at macro economic issues, not what somebody in Nashville might have done in the last couple years. Housing values are dropping everywhere and Nashville is no exception.

I look for the market to continue to decline into the middle of 2010. You decide for yourself about that. Let's say you buy in mid-09. The value of your $100k house will be approximately:

2010 - (-5%) - $95k
2011 - (0%) - $95k
2012 - (3%) - $98k
2013 - (3%) - $101k
2014 - (3%) - $104k

Your closing costs purchasing the house will probably run $2-3k. Then when you sell you'll pay 5% in commissions, plus some closing costs. On a $100k house that will be about $6k. You are out of pocket $8k just to buy and sell the house in those 5 years. Over those 5 years you will pay down about $6.5k in principle on the mortgage. At this point you are down $1,500 over the 5 years for the privilege of owning a home.

This hasn't even taken into account RE taxes, association dues, taxes, maintenance on the house, etc.

Rent. It's the obvious choice especially given the unknowns in the housing market.

[NiteLite]

Originally Posted by Big TR

I think you need to look at macro economic issues, not what somebody in Nashville might have done in the last couple years. Housing values are dropping everywhere and Nashville is no exception.

I look for the market to continue to decline into the middle of 2010. You decide for yourself about that. Let's say you buy in mid-09. The value of your $100k house will be approximately:

2010 - (-5%) - $95k
2011 - (0%) - $95k
2012 - (3%) - $98k
2013 - (3%) - $101k
2014 - (3%) - $104k

Your closing costs purchasing the house will probably run $2-3k. Then when you sell you'll pay 5% in commissions, plus some closing costs. On a $100k house that will be about $6k. You are out of pocket $8k just to buy and sell the house in those 5 years. Over those 5 years you will pay down about $6.5k in principle on the mortgage. At this point you are down $1,500 over the 5 years for the privilege of owning a home.

This hasn't even taken into account RE taxes, association dues, taxes, maintenance on the house, etc.

Rent. It's the obvious choice especially given the unknowns in the housing market.

I would qualify for the 8k first time homebuyer's tax refund, would that make it worth it? What if I were to buy in an area that's quickly appreciating? Thanks for your honesty!

[bluesky42day]

Rent first, even if it's a short-term month to month lease.

I would hate to buy a house & end up in a neighborhood that I didn't like just because I got into a hurry....or a neighborhood that I thought I liked until I visited East Nashville & realized it was so much cooler across the bridge *shameless plug*.

[Big TR]

Originally Posted by NiteLite

I would qualify for the 8k first time homebuyer's tax refund, would that make it worth it? What if I were to buy in an area that's quickly appreciating? Thanks for your honesty!

There is no place that is quickly appreciating. The $8k helps, but the risk is high. I just think with all the uncertainty this is a terribly time to purchase a home you won't be living in for the next 10-20 years.

Good luck whatever you decide.