Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
If there is a modest sized house in one of the more desirable cities in my region, in a desirable area of town, close to work, selling for $289K (only 1118 sq ft), and I calculated my total monthly cost would be $1833 (which includes principal, interest, property tax, direct levies, HOA, insurance, PMI), but Rento-meter shows that for my area the average rent is $1550, would it still make sense to buy the house if my intent is to stay in it for 1-3 years or so, and eventually rent it out (it's also possible that I may stay put in the house, but it's not a certainty), or would I be better off renting? I am single, so I get a standard deduction already, but if I itemize I would get a higher deduction amount if I pay property taxes.
Apartments in the area go for around $1400 to start, plus "pet rent" and I have 2 pets so that would be an additional $25-30 per pet. So I'd be looking at roughly $1460 for rent, on the low end. 2bd/2ba apartments with no garages can go up to $1500-1700+ in the area. If I venture out of the immediate area, about a 10 min drive away, then I would probably be looking at $1350-1470 or so for rent, which could potentially be a savings of 200-350 or so/mo.
If I were to rent out the house in a year, I'd likely be taking a monthly loss of about $200+/mo, but I'd still be building equity and paying down principal (which for the first 3 years is about $400/mo being paid down).
Is there anything else I need to consider? Is there a clear choice here?
The reason I am unclear about whether I will live in the property long-term is because some family may relocate out of state and eventually maybe I will as well. And I may end up at a different job in a few years that is in a neighboring town.. would it still make sense to hold the property and rent it out to build equity?
Or would it be better to save the money from the down payment and if I end up moving out of state somewhere cheaper where twice the house can be purchased for $100K less, use the money to buy an investment property there instead? Or hold the money and wait for another downturn like we saw 2-3 years ago when things hit rock bottom and $160K condos could be bought in my area for $80K, to keep as investment properties for passive income?
I don't think it makes sense to buy if you know that you won't be staying in the neighborhood.
If you plan to stay and if you get a fixed rate mortgage, the big difference is that when you buy, you pay your mortgage for 20 years and at the end you own a house. If you rent, you pay your rent for 20 years and at the end, your landlord owns a house.
With a fixed rate mortgage, your house payment stays the same for 20 years (except taxes and insurance probably go up). If you rent for 20 years, you certainly will be paying a heck of a lot more every month for rent than you were when you first started.
Location: Stuck on the East Coast, hoping to head West
4,640 posts, read 11,938,904 times
Reputation: 9885
You are not accounting for downpayment. You are not accounting for maintenance. Maintenance issues are a big deal.
You're also not accounting for any vacancies that will definitely happen during your attempt to rent. You're also not accounting for rental expenses, like property management fees and upkeep. In order to attract and keep tenants you have to do things like paint and re-carpet for every tenant change.
Home prices don't always go up. At best, houses keep pace with inflation. As investments, they aren't good; but, as the saying goes, you can live in them.
Owning a house severely limits your flexibility in regards to moving for a better job, etc.
What about utilities and repairs? If you rent it out in 1-3 years, you may not get approved to buy a second house later on. If your renter fails to pay, and squats, you're in trouble. It's not worth the down payment, PMI, extra in mortgage (vs rental price you'd get for it) and the hassle. The only time people should purchase, with the intent of renting out, is if they are financially secure enough to cover all costs while waiting to evict a tenant and repair their damage to the place. That's just my 2 cents.
If there is a modest sized house in one of the more desirable cities in my region, in a desirable area of town, close to work, selling for $289K (only 1118 sq ft), and I calculated my total monthly cost would be $1833 (which includes principal, interest, property tax, direct levies, HOA, insurance, PMI), but Rento-meter shows that for my area the average rent is $1550, would it still make sense to buy the house if my intent is to stay in it for 1-3 years or so, and eventually rent it out (it's also possible that I may stay put in the house, but it's not a certainty), or would I be better off renting? I am single, so I get a standard deduction already, but if I itemize I would get a higher deduction amount if I pay property taxes.
Apartments in the area go for around $1400 to start, plus "pet rent" and I have 2 pets so that would be an additional $25-30 per pet. So I'd be looking at roughly $1460 for rent, on the low end. 2bd/2ba apartments with no garages can go up to $1500-1700+ in the area. If I venture out of the immediate area, about a 10 min drive away, then I would probably be looking at $1350-1470 or so for rent, which could potentially be a savings of 200-350 or so/mo.
If I were to rent out the house in a year, I'd likely be taking a monthly loss of about $200+/mo, but I'd still be building equity and paying down principal (which for the first 3 years is about $400/mo being paid down).
Is there anything else I need to consider? Is there a clear choice here?
The reason I am unclear about whether I will live in the property long-term is because some family may relocate out of state and eventually maybe I will as well. And I may end up at a different job in a few years that is in a neighboring town.. would it still make sense to hold the property and rent it out to build equity?
Or would it be better to save the money from the down payment and if I end up moving out of state somewhere cheaper where twice the house can be purchased for $100K less, use the money to buy an investment property there instead? Or hold the money and wait for another downturn like we saw 2-3 years ago when things hit rock bottom and $160K condos could be bought in my area for $80K, to keep as investment properties for passive income?
Thanks in advance.
What are rental rates like in the new (out of state) area you are thinking of moving to?
Out of curiosity I checked that site, Rentometer. And it doesn't seem very accurate. I used my address as an example knowing exactly how much rentals are going for here as I myself rented this home AND have neighbors/friends that are still renting.
The average rent is $1300 being on the really low side and really hard to find. That site said I would get $998 for my house. LOL I paid closer to $1500 a month for it when I rented it. And that was cheap for the size/garage etc. So I would take that site with a grain of salt and check actual rentals ads in that area and see for yourself.
Out of curiosity I checked that site, Rentometer. And it doesn't seem very accurate. I used my address as an example knowing exactly how much rentals are going for here as I myself rented this home AND have neighbors/friends that are still renting.
The average rent is $1300 being on the really low side and really hard to find. That site said I would get $998 for my house. LOL I paid closer to $1500 a month for it when I rented it. And that was cheap for the size/garage etc. So I would take that site with a grain of salt and check actual rentals ads in that area and see for yourself.
I just went to the site and used the condo I was renting. I also got a really low average rent for the area. That would be very misleading if I wasn't familiar with the area. I would also take this site with a grain of salt.
In answer to your original question, I would not buy if I did not intend to stay in the area. I would not want the hassle of renting and dealing with repairs and tenants while living in another state.
Easy answer: 1 to 3 years is not nearly enough time to own a home and hope to "make money" on the purchase, and it isn't worth the hassle to become an absentee landlord, especially if you already see it as a negative cash flow scenario. Plus, as others have added, you are forgetting maintenance on the property, plus you aren't allowing for vacant months, tenant problems that cost you money, etc.
Also: when you sell, you will have commissions and other closing costs to pay.
Plus: I wouldn't give you a plug nickel for where interest rates in general are heading in 1 to 3 years, other than I will bet the ranch on the direction of those rates: UP. So keep this in mind when you need to sell your house in 1 to 3 years...who is going to buy it when their purchasing power goes down because of higher rates?
Not sure where you're getting figure of paying $400 a month in principal for the first three years. That seems very high to me.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
