Thoughts on Rent vs. Buy decision (Fairfax: real estate, apartment, rental market) - Northern Virginia - Virginia (VA) - City-Data Forum

Azmordean · 08-01-2011, 12:13 AM

Hey all!

I'm having some trouble with a rent vs. buy decision. A bit about me - 30 years old, single, good steady job though not exactly making "big" money, especially for this area. Right now I live in a 2BR "roommate floorplan" apartment in the Fair Lakes / Fair Oaks area of Fairfax County. I live with one roommate, a buddy of mine.

We've been in the apartment almost 2 years now. When we first rented it, the rent was 1294 - a steal. For year 2, our rent went up substantially, to 1476 - but still a decent enough deal for this area. Now we just got our renewal notice and it's going up to 1670 for next year. I hate moving, but $200 rent increases 2 years in a row had me immediately searching for places to move. Unfortunately, every apartment I've looked up wants $1600+. I guess the rental market is on fire because people can't get credit to buy.

And there's the rub. I have outstanding credit, and am quite confident I would have no trouble getting a mortgage. And there are some nice looking 2BR 2BA roommate layout condos in Penderbrook on the market for $200,000. Based on my calculations, even when you include taxes and condo fees, I'd SAVE at lest $100 per month by buying one of these. And I'd also be locking in, to prevent future huge rent increases. I don't have much "cash" saved, but I do have some money in stocks (in a regular, non-retirement account) I could liquidate for a down payment. I hate to do that, but it's looking like it may make some sense.

But I'm nervous about the idea. I've always been on the rent side of the rent vs. buy argument. I like the perceived freedom. I also hate commuting (20 minutes is my max) so in this area with this traffic, if I were to change jobs, I'd have to move. And that's the other variable. My job is super stable, and things are going well, but I'm pushing for a promotion. It's looking like it will happen, but if it doesn't I may WANT to start looking for another job. If it does come through, I'd be content to commit to staying a few years.

So I just don't know what to do. Part of me says "you'll want to job search if the promotion doesn't happen so suck it up and pay the high rent and look at buying next year." Another part of me says I won't likely see $200K prices for a 2BR in NOVA again and that the LIKELY outcome is I'll stay in the same job and that buying really makes sense. After all, I can always sell it if I need to - or, rent it out, since the rental market is going strong.

So what do the wise folks of city data think?

CaliTerp07 · 08-01-2011, 06:38 AM

Same boat DH and I are in, except we're looking for a SFH.

Have you played with the rent vs. buy tool from the NYT? I found it helpful in calculating hidden costs and such.

Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com

Any fear you're going to outgrow a 2 br condo and not want to play landlord? We're finding that while we have no trouble renting a little house (because it fits us *now*), buying a tiny house is another story, in case kids or in-laws end up in the picture. It narrows down what we are looking at significantly.

If you're willing and able to play landlord, then I think it's a safer gamble. I have the same low tolerance for commutes, but with my new job it's fairly certain I can be there 10+ years if I choose. DH's is fickle and moves all over the place, but I'm fortunate that he doesn't mind the car the way I do. We're looking in a place that has easy access to metro, multiple highways, HOV lanes, etc. so it will hopefully minimize the pain if he ends up on a different project across town in a year or two.

That probably didn't help at all.

Bottom line is, buying gets you stability and freedom to paint and tear down walls. Renting gets you flexibility. Which is more important to you at this point?

vermonter16 · 08-01-2011, 07:25 AM

If it was me, I think I'd buy....but I'm not you. Why don't you get a realtor and look at the places you're interested in? You may really like the place and that would nail it for you or you could hate the place and be like...you know what - I'll just keep renting.

You are right - you can always rent the place out in the future....that's a definite.

Azmordean · 08-01-2011, 07:35 AM

Quote:

Originally Posted by CaliTerp07

Same boat DH and I are in, except we're looking for a SFH.

Have you played with the rent vs. buy tool from the NYT? I found it helpful in calculating hidden costs and such.

Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com

Any fear you're going to outgrow a 2 br condo and not want to play landlord? We're finding that while we have no trouble renting a little house (because it fits us *now*), buying a tiny house is another story, in case kids or in-laws end up in the picture. It narrows down what we are looking at significantly.

If you're willing and able to play landlord, then I think it's a safer gamble. I have the same low tolerance for commutes, but with my new job it's fairly certain I can be there 10+ years if I choose. DH's is fickle and moves all over the place, but I'm fortunate that he doesn't mind the car the way I do. We're looking in a place that has easy access to metro, multiple highways, HOV lanes, etc. so it will hopefully minimize the pain if he ends up on a different project across town in a year or two.

That probably didn't help at all.

Bottom line is, buying gets you stability and freedom to paint and tear down walls. Renting gets you flexibility. Which is more important to you at this point?

Thanks for the thoughts! I'm not too worried about outgrowing my space because ultimately I simply can't afford anything larger - rent OR buy. And in any case, at current life stage, I don't want yard maintenance and so forth so a condo is a better choice. I don't see needing something larger until I marry and/or have kids (if either happens!) which would be at least a few years off.

I also found the NYT calculator. It had the break even point at 18 months - pretty hard to argue buying isn't a good plan with those numbers! And that assumed only 1% appreciation - if the housing market picks up it would be even faster.

I do value my freedom and I don't care about tearing down walls, but when buying is cheaper than renting its hard to argue with the financial realities. Plus as far as freedom, it's not exactly easy to break a lease either! I think my plan is to start doing some leg work, look at some places, but withhold any final decisions for a few weeks. I should have a better feel for my promotion by late August. By then if things are settled down I can move forward, if not, suck it up and sign the lease renewal.

CaliTerp07 · 08-01-2011, 07:57 AM

Yeah, it's hard to argue with 18 months! Mine is more at 8-9 years...that's a big commitment!

Just remember to fill out the part of the calculator that shows what your investments are currently making. Not sure how well the market is treating you, but if you end up pulling stocks to make the down payment, you're losing that income in the process. If you can afford to put down a small amount, that minimizes the investment income drop, but it also means you'll have to find PMI.

Ultimately, I've romanticized home ownership which is why we're looking to buy. If it was purely a financial decision, I've run the numbers 6 different ways and it really doesn't make sense for us to buy. A $50-100k downpayment sitting in investments would do far better than the appreciation of property. Your situation may be different if you end up renting out the second bedroom. That's additional income you don't have now, and not something in our scenario.

vermonter16 · 08-01-2011, 08:04 AM

One more thing to consider...now you'll have a tax write-off - so more money in your pocket I would think!

ReblTeen84 · 08-01-2011, 01:55 PM

Quote:

Originally Posted by vermonter16

One more thing to consider...now you'll have a tax write-off - so more money in your pocket I would think!

That's debatable depending on your interest rate. Since we refinanced, our mortgage has done nothing for our taxes - we're simply not paying enough in interest (which is great in the long run, sucks come tax time though). If you have good enough credit to get a low interest rate, it can be a blessing and a curse at the same time. It also depends on how much you make though too.

hilsmom · 08-01-2011, 02:28 PM

I have no sage advice - we finally decided to go ahead and buy up from our tiny 2BR TH, mostly because interest rates are unlikely to remain as low as they are currently and we really wanted the freedom to renovate/decorate as we pleased, plus the interest deduction we wouldn't get with rent. For the areas we were looking into, the rents were basically the same as a mortgage payment for single family homes, so monthly expenses-wise, it just made sense. Renting would have given us more flexibility to do the cross-country move we had originally planned on to get closer to my in-laws and move my family with us, but we are now settling in for the long haul here in NoVA.

I did want to ask you if you have investigated rental condos or townhomes near your current location? You MIGHT find a deal that way in rent - lots of people have become landlords recently and sometimes there are good deals on these. You might find something in the under $1500 range.

Good luck - it is a hard decision.

vermonter16 · 08-02-2011, 08:53 AM

Quote:

Originally Posted by ReblTeen84

That's debatable depending on your interest rate. Since we refinanced, our mortgage has done nothing for our taxes - we're simply not paying enough in interest (which is great in the long run, sucks come tax time though). If you have good enough credit to get a low interest rate, it can be a blessing and a curse at the same time. It also depends on how much you make though too.

Good point. We have a very low interest rate but still get to take a nice deduction on our taxes which is great since we don't have children. And, since I get to add on other deductions that would otherwise not have been able to be added - that helps too.

midlifeman · 08-04-2011, 09:05 PM

Buying personal real estate should be more of a personal decision than a financial one.

If you don't think you can commit to the long term, then just make sure that you can rent the place out for more than your mortgage or at least break even.

On a financial level personal real estate is a bad investment: Here's why:

1) over the longterm appreciation increases at about the rate of inflation (2-3%) This is a net net. Never invest with the hope of appreciation.

2) if You have a 4.5% 30 year fixed mortgage your cost to borrow the money is around 3% with the tax deduction. Why would you sink your money into something that earns only 3%? You can beat that rate of return in a business, stock market (long term), commercial real estate etc. So invest the extra money you save by renting.

3) Most people underestimate the cost to maintain a home and generally speaking whether you know it or not you will be spending your weekends at home depot trying to spruce up the place because you are emotionally invested. They don't call it the money pit for nothing!