Moving to the Burgh for Grad School - would it be wise to buy rather than rent? (Pittsburgh: renters, HOA)

[M3GAMAN]

Hello everyone,

I'll be attending grad school at CMU starting this fall. I researched the cost of rent vs condo prices, and combined with the $8000 first time homebuyer's fed tax credit, buying seems like an attractive option.

Based on feedback from current students, I'll be targeting the Shadyside area, but am also open to other neighborhoods that will allow me to get to CMU in 30 mins via bus/walk.

Other details: I can put down up to $20-25K for downpayment (if necessary), I've never been a homeowner, I'm 28 with good credit, I will be taking out some school loans, I plan to have a car, grad school will be for 2 years.

I don't plan on staying after I graduate school because the jobs I'll be targeting just aren't available in the city, but I'm not adverse to renting out a condo after I leave.

What do you guys think?

[drshang]

Don't buy. Two years doesn't make sense since if you look at the amortization schedule for a 30 year mortgage that lasts two years you basically pay down almost no principal. Selling a house has 5-6% transaction costs and you won't make that up in appreciation - you have closing costs, etc. too and your house may fester on the market for months after you leave.

The tax credit won't do you any good if you don't make enough money in order to actually have 8,000 in taxes, and if you're only working half the year there's a possibility you don't even have that much in taxes to credit.

I think if you thought there would be a reasonable probability you'd stay it wouldn't be a bad idea but for two years I think renting will be cheaper for you. If you were in a PHD program I think it would make sense but not just a masters.

[Copanut]

Rent

[M3GAMAN]

Thanks for the input, drshang.

Based on my calculations, I will be eligible for the entire $8000 tax credit. On a $120K condo, that is 6.7% I get back the following year. This wouldn't be enough to offset taxes/fees/transaction costs during the process of buying and selling?

If I put only $10K down, my mortgage would be around $580/month, + HOA and taxes = maybe $800? VS $700 minimum for rent in the same area.

Seems pretty close to me. I admit to not knowing much (yet) about buying property, someone please point out where I have oversimplified or incorrectly estimated.

[M3GAMAN]

Additionally, if I decided to rent out such a property after I leave, isn't it possible that the condo could pay for itself?

Thanks again for the input and advice

[drshang]

M3G,

In a word, no.

If you buy a 120k condo (which would rent for probably 750ish) your mortgage payment will be 625 if you put 10k down and have a 110k mortgage. Your HOA will be 100-150, your taxes will be 100-150, and you'll end up paying around 800-900 for something that rents for 750ish. Over two years you will pay probably 2500 more to buy versus rent. When you sell, there will be 10k or so in transaction costs between selling/closing costs/carrying costs/etc. This is greater than the 8,000 in tax credit.

Furthermore, you must consider the opportunity cost of your 10,000 investment. Given that you can invest in a high yield bond which is pretty low risk and get 8%, or invest in the stock market at periods of low valuation, you can likely make more money on some other investment, IMO.

Another thing to consider is that if you buy a 100k condo now, you won't be able to get any future first time homebuyer perks which may be as good as the 8k tax credit or close, or have access to FHA financing for fist time home buyers, which could be tough if you get a 80-100k job out of grad school and want to buy a 300-350k condo, but already "used up" your FHA financing to be able to get into a home at 3-5% down, and don't have enough equity in this investment to pay for the downpayment on your second house.

[onwardandupward]

As much as I love to promote home-buying in Pittsburgh to grad students, I agree it doesn't make much sense for a 2-year program. A 4-6 year PhD program, yes, but not a 2-year program. Plus, renting out a property while you're living in another city requires paying someone to manage it, which takes away from any profit you may be making. And while you don't know if the $8,000 tax credit will still be available when you do buy, there are often other perks such as special financing for first-time home buyers that many cities offer.

[Kate88]

When I lived in Highland Park, there were always a lot of law students on the bus back from Oakland. One time I talked to one, and he said that he, and many other law students buy homes while in school, and Highland Park was a good neighborhood with reasonably priced houses. But then again, most of them intended on staying in Pittsburgh after graduation and getting jobs with local firms.

I think buying a home is always a better plan than renting if you can afford to do it. Shadyside is very expensive. If you are still interested in buying, but not staying after you graduate, I'd recommend buying in Oakland or South Side Slopes, closer to the 10th Street Bridge. Both of those are accessible to CMU, and most off-campus Pitt undergrads live in Oakland, most Duquesne off-campus undergrads in the South Side. I don't know as much about the South Side, but I can almost promise, you will not have any problem finding renters for a house in South Oakland.

[tmorrisn]

2 years isn't worth it - depending on where you're coming from, property/school taxes are considerably higher here, so you really won't be paying down your principal.
We plan on being here for 5-6 yrs, so we bought a house. Our closing costs were $10k-$12k (i.e. one year's rent) on a $150k home with 20% down. Our mortgage is over 1k (on a 120k loan), with over $300 for property/school taxes. Our goal is to break even when we leave (homes don't appreciate by much, plus money we've put into the home, plus the 6% realtor fee you'll pay to sell it).

[Katarina Witt]

M3GAMAN, when I was your age, back in the Neanderthal times, many of my "age mates" were talking about buying houses (actually, caves, at the time). Anyway, some felt, as some of the posters on this thread do, that it's ALWAYS better to buy than rent, talked about 'throwing money away on rent", etc.

As some of the posts have shown, you "throw money away" when you buy, too, on stuff like closing costs, taxes, etc, which you pay for but have no tangible good to show for it. When you go to sell, you will pay the realtor (unless you do it yourself, which can be a pain), and closing costs as well. You may even have to pay "points" on the buyer's mortgage, or some other ludicrous charges. As the PP showed, closing costs alone can amount to a year's rent.

Houses appreciate slowly in Pittsburgh. I would suggest doing a search on this forum for information regarding that topic. In this economy, no one knows what will happen in two years! (That's always true, but I think you get my drift.) Pittsburgh seems to be weathering the recession better right now than some other places, but that may not hold. You do not want to have to sell a house in Pittsburgh to move to Timbuktu when you graduate.

My advice is to rent, and wait until you graduate to buy.