Buying House vs Renting Apartment (Austin, Hutto: real estate market, 2014, renters)

[Flux-Capacitor]

Hey Folks,

I'm trying to make a decision about my future housing plans, and would like any suggestions, opinions, reflections on it.

So here's a bit of background:
- I'm 28 and a half.
- I've only been working for a little under a year (I was in school for a while, did two undergrads).
- I have good credit (low 800s)
- I have been renting an apartment this year, paying low $1000s
- I am single
- My immediate, personal savings are relatively low, but I can get help with down payments from family
- My work is in North Austin (Tech Ridge area)

Given these things, what would be the wiser choice - buying a house, or continuing to rent an apartment?

On one hand, buying a house makes sense. Prices for houses are rapidly rising in Austin, and getting something sooner rather than later may pre-empt a more expensive purchase later on. Having the freedom that a house offers and buying into an asset that is rising in value is very attractive.

On the other hand, since I am single, inexperienced and somewhat young, buying a house may (or will) bring unforeseen headaches, expenses, and responsibilities that I can avoid with through renting.

So would it be wiser to rent another year, gather more information about the real estate market, and make a more informed decision, with another year of work experience, savings, and knowledge under my belt? Or am I just delaying and leading myself to a costlier decision down the line?

Any questions, opinion, and input are welcome. Thank you.

[Flux-Capacitor]

... anyone?

[austin-steve]

Your first step is to call a lender and find out what you can afford. Everything starts there. It would be great if you have no debt (car payments, credit cards, furniture loans, student loans, etc)

Next, once you know what you qualify for in terms of purchase price, you start investigating whether anything out there is even a place/location you'd want.

In other words, if the only thing you can afford is a zero down USDA Loan for a $170K house in a rural outskirt like Hutto, would you want to live there?

Then, at that point, you start doing the rent vs buy analysis, for which there are many calculators online. But the calculators don't make clear that you may be "trapped" in that home if you made less than 20% downpayment. That can affect your ability to accept new job offers elsewhere if the house becomes a ball and chain.

Personally, and this may sound mean, I don't think anyone should buy a house who hasn't been able to save a 20% down payment plus 6 months living expenses. The US is the only country in the world obsessed with getting people into home ownership who can't afford it. This is what caused the financial crash in 2008. The notion that everyone should own a home. They shouldn't.

Good luck,

Steve

[centraleastaustinite]

Would you consider buying a condo instead of a house? I bought a condo when I was your age, sold 4 years later & used those proceeds for my house downpayment. Rented for a year in between - Better Half & I were engaged, knew we were likely moving back home to TX so I sold/moved into BH's rental & then after making the big move we rented for a few months while house hunting here.

I also agree with austin-steve that having 6 mos of emergency funds is a big plus when buying any home, condo or single family. In a condo or townhome if something in one of the common areas needs to be repaired the homeowner's association levies a "special assessment" divided by all the owners to get it fixed. In a house if something breaks it's all on you to get it fixed if something breaks.

Personally I'm glad I owned a condo before a home - it was like having training wheels before getting into a single family house. Learned how mortgages/refi's work, learned how to replace a light fixture (ha), learned how to deal with contractors while upgrading a bathroom, learned to get a plumber on speed dial when the dishwasher leaks...all kinds of things.

[AustinDude360]

I would agree with the posters, see what you can afford and consider purchasing a condo or townhome. You likely can live in a more desirable area going with a condo or townhome and the lawn maintenance is a pain for a single person such as yourself.

If you do not have money to cover your closing costs, I would say you aren't ready for home ownership even with family contributions to the down payment.

Also if you are going to have family help you...have them deposit the gifts two months prior to applying for a loan otherwise the funds aren't "seasoned" and you will run into issues with the qualification. I think you can have the family members draft gift letters as well.

[monkey2003]

I would disagree with most that say renting is just wasting money. Renting gives you the flexibility (especially at a young age) to do whatever you want with no commitment. A house is a HUGE investment. On top of that it requires more maintenance than you think.

Let's say you buy a house for $150K. Property tax will cost you around $4,000 a year. Interest payment only (not including principal) for your mortgage will be about another $4,000 a year. You also have to consider more monthly expense due to bigger house, more furniture to fill the house, tools to fix/maintain a house (think lawn mower, wrenches, tools, etc). When you consider all of these, $1000 for rent with no obligation doesn't sound so bad.

[iamwayne]

Buy, you never see a mogul rent. You buy properties to rent, I mean you buy housing to rent so the renters can pay your mortgage...

Usually you start with a single house you live in. After enough buildup in mortgage payments and savings, buy another property with your primary house and rent the second. charge rent = mortgage cost + home warranty cost + little profit, not to much, don't be greed.

If everything is nice for the renter, they will never want to move or look for cheaper place, raise rent according with property tax and home warranty... repeat the cycle to buy another house.

[DCtoTejas]

Originally Posted by iamwayne

Buy, you never see a mogul rent. You buy properties to rent, I mean you buy housing to rent so the renters can pay your mortgage...

Usually you start with a single house you live in. After enough buildup in mortgage payments and savings, buy another property with your primary house and rent the second. charge rent = mortgage cost + home warranty cost + little profit, not to much, don't be greed.

If everything is nice for the renter, they will never want to move or look for cheaper place, raise rent according with property tax and home warranty... repeat the cycle to buy another house.

First of all, it's not true that wealthy people never rent, wealthy people do what is right for the current market conditions which changes over time Why The Rich Are Renting - Forbes.

I am vehemently opposed to the mantra of it's always better to buy. From a purely monetary / investing point of view we are talking about an opaquely priced, illiquid, high transaction cost, over the counter leveraged transaction on a depreciating (in maintenance terms) asset. That is just the nature of real estate and there are many other asset classes that have much better transactional and performance characteristics if you are willing to run the numbers honestly, which due to the emotional nature of housing and the various government machinations into pricing it is difficult for most to do.

The buy a house and rent it out scenario mentioned above is incredibly rosy. What about vacant months? Crappy tenants? Eviction costs? Unexpected major repairs? If you want a career in property management then buy houses and rent them, as a side job it is just that - another job and one that may or may not pay very well for your time.

When it comes to other considerations it is a mixed bag, living in an apartment can suck badly, noisy neighbors, unresponsive maintenance, various landlord shifty tactics when it comes to entering your property - basically making up reasons to come in and check for lease violations, and return of security deposits. But, you can always move! If something breaks you don't have to fix it, and in certain cases if your landlord doesn't fix it they are in violation of the law and you can move on their dime. The best part of owning is you alleviate yourself of the landlord and "house rules" - if I want a friend to be able to stay with me for a few weeks it is nobody's damn business but my own, and the uncertainty of not knowing if you will renew your lease due to amount of rent increase. But in exchange you now have to fix or contract out repairs for everything, contractors are a PITA to deal with and will try to rip you off in every possible way. You will always be at the hardware store buying a tool, fixing something, cleaning something up in the yard - your time will always be spent on the house unless you exchange substantial money for someone else to do it. Your neighbors are still luck of the draw and now they can affect your investment and it is a lot harder to move. Your monthly payment is not fixed as property taxes continually rise and if you think you actually own your house, even if the mortgage is paid off, try not paying them and see if you really do.

So to the OP, if you have a place in mind that you would love to live in for many years, and you think the prices are reasonable based where we are with regard to future supply / demand and local and national economic cycles, and you can save up enough money for a %20 down payment, and are willing to accept the risks of unexpected repairs, and not being able to move / sell when you may want or need to then buy. But I would advise against buying because you think it is easy money and are in danger of "missing out".

[Flux-Capacitor]

Hi folks,

Thank you for your very insightful replies. Some more background:

1. I prequalified for a $200K loan (assuming I pay 20% down, 160K). I got this through my bank.

2. @Austin-Steve At a house of 200K value or higher, I absolutely don't have the funds to fully cover a down payment plus 6 months living expenses.

3. A condo is something I have seriously considered.

4. I was looking at something that I could live in for between 5-10 years before I can move into something nicer.

5. I am a musician, which was the initial impetus for finding a less restricted living situation.

Sorry for bullet pointing that lol. What do you guys think?

[CptnRn]

If you do not have adequate savings on your own to buy a house and maintain it if something breaks down or wears out, such as needing a new roof or major plumbing sewer line break, then you should not buy a home until you can afford those expenses and emergencies. Otherwise unexpected emergencies could bankrupt you. Don't put yourself into a financial situation that is that tight. Keep saving until you can manage those expenses.

The New Math of Renting vs. Buying - WSJ

http://www.nytimes.com/interactive/2...alculator.html

Owning vs. Renting

Renting vs. Buying a Home: Which Is Smarter? - US News