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I find that on this board sometimes sour grapes passes for financial advice. If the OP can't afford the house he/she really wants, suddenly anyone buying a modest first home is making a poor decision.
There's no shame in renting. Or not buying a McMansion. Or living in the same place for decades. All of these can make financial sense to different people. It's okay if you can't afford the house you want right now and have to rent or "settle" for something more practical. It doesn't make buying that smaller and more practical house a poor investment.
We bought a duplex and lived in half of it.
The people that rented the other half paid for a pretty good chunk of it... all of my taxes and part of my mortgage.
With the new tax plan, a renter now has a lot in terms of standard deduction. Also when factoring in commission, realty tax, fees, etc...how much profit (if any) can be made from selling? Those 2 are big factors in any decision.
As everyone has said, it is largely dependent on each situation... In my case I’m buying my second house with nothing down thanks to my VA benefits...
If I was having to look at a down payment (which could be used for those better investments), PMI, or whatever else, my situation would be different...
Had my first house for 3 years, after all fees for selling I had a check for over 20k cut when I sold it, I also live in a market that my mortgage, taxes, and insurance on a 4br 2bath house was about $150 less than I’m paying for my current (moving out next month to my new house) apartment which is a 2br 1ba.
The house I’m moving into is smaller and cheaper than my last house, I would consider it a “starter home”. It’s larger than my apartment (3br 2ba), has a nice garage and various other perks that I’m looking forward to, and it’s going to cost me $20/mo more than I’m paying today for rent. Actually if i account for the fact that I’ll be saving money on my car insurane with my home owners, I will be paying less...
So, for me, in MY case, less money per month, no increases except for slight tax increases each year which are less than rents will go up most likely, no money down that I’m pulling from other places, a market that housing costs keep going up ... I win.
In your case it may be completely different.
Yes, there are maintenance costs to account for as well, lukily major stuff was all done recently so i don’t have too many concerns, but those will be my cost of living in a house vs. my apartment... A house has perks worth those costs.
(To expand on my market by adding values, the house I’m buying is 165k, the one I sold I sold for 210k)
OP I don’t agree with you AT ALL. Starter homes are in the market for a reason, it’s not just for younger first time buyers, starter homes are there for people that can’t afford living in a fancy McMansion. And for a younger person who is not fortunate enough to afford a $250k+ home why should they wait until they are well in there 30s or 40s to be a homeowner? I would rather own a house while I’m still young in my 20s, especially if there’s a desirable home on the market for a decent price tag
We bought a duplex and lived in half of it.
The people that rented the other half paid for a pretty good chunk of it... all of my taxes and part of my mortgage.
i rent , my money is in other investments that pay for all of my rent , my taxes , savings and 60% of what we live on since we retired . . pretty much whatever we all invest our money returns profits (hopefully ) that pay for what we need or use .
i rent -that is my housing costs ,, then i invest and that is my offsetting profits . your housing costs are represented by the rent you can't collect by consuming that apartment yourself ..
then both our investment portions are another story ... we both earn profits , you on the rental portion , me on other property and equity investments , that offsets our housing costs or even pays for them and more in both cases .
Last edited by mathjak107; 01-24-2019 at 04:23 AM..
Well, I would warn about the foolishness of trying to make general sweeping statements about something as specific and regional as the Real Estate market.
It assumes they can rent for much less then buying. That's not always true. It is true that a large percentage of their early mortgage payment is 'down the drain' in interest. Yes... but it's also true that 100% of their rent is down the drain.
If buying a starter home is such a bad idea, why are so many of our clients able to use the proceeds of their first home as a down payment on their next home?
Exactly right. I'm now in a home I love that I could never ever have afforded without the equity I built up from the two prior homes I owned, allowing me to put enough money down to buy this one and keep the payments within my budget.
Renting this home would cost many hundred dollars more per month than my mortgage (including taxes and insurance) and that was the case with the prior homes I owned as well. Sure, I could have stayed living in a student ghetto with roommates and crime and loud parties every night to save a few bucks. But for the same quality of life? Renting would have put me backwards, not forward.
Starter Home usually translates into small closets, small bedrooms, 1-1/2 baths, and kitchen and bath that need remodels. In short a money drain. As a single person, it was overwhelming. It was one thing after another to repair/remodel/install. Roof, Air-Conditioning install, Windows, remodeling, it went on and on until I sold it.
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