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Myth and a blind theory. Renters actually save more in the long run. If you're good with managing your money, you'll end up with more money in your pocket in 5 years if you rent as opposed to owning.
I do not agree with you. A lot of the calculations made that show renting is better than buying assume that the person bought during the boom and sold during the bust. They are also based on people who have no business buying in the first place and those who do not have sufficent downpayments. That is not necessarily going to be true for the OP. Home ownership has long been the road to solid finances and wealth. The key is patience as it is a long term investment. In addition there are other intangable reasons to buy like being in control of the where you live and not being at the mercy of a landlord. In case you haven't noticed the prices of good rentals are increasing dramatically so the OP will likely have to pay top dollar for a decent rental and be subjected to significant rent increases during the next couple of years. Home prices and interest rates are low right now so home ownership may now be a better investment.
That said I do think the OP is a bit young to buy but as long as he/she realizes the implications of buying it may not be a bad idea. Keep a few things in mind though. Location is the key to good real estate. don't buy more than you can afford. Buy with a fixed rate mortgage only (no balloon mortgages, variable rates or zero down deals) and be prepared to pay closing costs plus other fees. And do a lot of research into what it is really going to cost you. Jay
I do not agree with you. A lot of the calculations made that show renting is better than buying assume that the person bought during the boom and sold during the bust. They are also based on people who have no business buying in the first place and those who do not have sufficent downpayments. That is not necessarily going to be true for the OP. Home ownership has long been the road to solid finances and wealth. The key is patience as it is a long term investment. In addition there are other intangable reasons to buy like being in control of the where you live and not being at the mercy of a landlord. In case you haven't noticed the prices of good rentals are increasing dramatically so the OP will likely have to pay top dollar for a decent rental and be subjected to significant rent increases during the next couple of years. Home prices and interest rates are low right now so home ownership may now be a better investment.
I'll make a bet not many home owners sat down and figured out how much they dish out year over year. I am talking about every single little thing from bug spray for backyard to a cabinet handle that broke to taxes, insurance, mortgage, fridge repair, and tree pruning.
Bottom line is, you will spend more money on something you own then if you rented and can call someone else to fix something or change it.
Apples to Apples. What property does a $1100/mth rent = to ? $200,000 condo? $250,000 home?
If you can pay $12,000-15,000 a year in rent, you're almost even with a mortgage + taxes already. Thats not including any other thing you have to pay for.
2 family or inlaw set up changes everything where you can generate income from owning.
I say all this having owned 7 and currently own 3.
The absolute key is how you manage money. If you dont know how to stash it away, forget it. Dont rent. If you're a spender everytime you see surplus, forget it, dont rent.
Now..... add the equation of investing some of the saved money in an IRA or elsewhere and renting becomes the only thing to do.
Very solid post Stylo, but you did forget the impact of tax savings. Mortgage interest deduction as well as r.e taxes. If we bake into the below hypothetical, op actually comes out ahead. But please don't interpret as a hearty endorsement of the action. I would agree with others that at the aforementioned price, this area is likely tilted to renters and a less desirable neighborhood. Both of which impede resale. It may be able to transition to a rental long term but that removes the specter of a down payment for a single family or condo in the future.
Quote:
Originally Posted by Cambium
I'll make a bet not many home owners sat down
and figured out how much they dish out year over year. I am talking about every single little thing from bug spray for backyard to a cabinet handle that broke to taxes, insurance, mortgage, fridge repair, and tree pruning.
Bottom line is, you will spend more money on something you own then if you rented and can call someone else to fix something or change it.
Apples to Apples. What property does a $1100/mth rent = to ? $200,000 condo? $250,000 home?
If you can pay $12,000-15,000 a year in rent, you're almost even with a mortgage + taxes already. Thats not including any other thing you have to pay for.
2 family or inlaw set up changes everything where you can generate income from owning.
I say all this having owned 7 and currently own 3.
The absolute key is how you manage money. If you dont know how to stash it away, forget it. Dont rent. If you're a spender everytime you see surplus, forget it, dont rent.
Now..... add the equation of investing some of the saved money in an IRA or elsewhere and renting becomes the only thing to do.
Quote:
Originally Posted by Stylo
I thin you should analyze that first.
First of all, if you're buying something at $70k in this area, it's going to be in an unsafe neighborhood with mostly renters. Reselling will be difficult.
Home prices haven't gone up in a long time now and likely will just follow the rate of inflation for a while.
If you put $10k down, $5k closing costs you've got a $60k loan. The $5k is gone forever. In 5 years, you've paid it down to $52,215.77.
Now let's say the place appreciates 2% a year (highly generous given the current market). In 5 years it's $77k. For a place like that, you'd be lucky to get 90% back on your home improvements, so any investment there is a wash.
So you sell it at $77k. Again, with agent your closing costs are at least $5k.
With buying and selling closing costs you just lost $3,000, not including maintenance, interest and other misc expenses. I wouldn't say you did worse than renting, but you did worse than investing the money.
It's just not a money making game, and especially not at that price point. Remember, if something is that cheap, there's a reason for it. You could wind up with a place that just eats money. And don't forget the proportionally high common charges usually with these beat-up condos.
Rent and invest your money. You'll get a much better return.
I see very good points and I'm grateful for all of this. I actually didn't know the 3x annual income rule until it has been mentioned. Therefore...that's a different ball game 70k vs 120k. A 120k place will need large down payment and the homes are vastly different...although the point of me wanting something cheap is so I can pay the mortgage off faster so I can sell it and use that money as a down payment towards a nicer house in the future. I would love to have you guys keep posting and such! A lot of information!
Oh! And by the way...the homes in a not so nice area talk. I honestly don't mind it. Born and raised on east main not so far from barnum in bridgeport on a top floor 2br 650 sqft apartment on top of a pawn shop. I'm not a high roller expecting much! Although of course I'd be looking for something decent and not run down/built in the early 1900's.
Keeping a place for 5 years and "paying it off" quickly doesn't really do you that much good. You won't get anymore out of it than you put in, because after all the closing and selling costs you're not making any money. It's not going to appreciate enough to matter.
Keeping a place for 5 years and "paying it off" quickly doesn't really do you that much good. You won't get anymore out of it than you put in, because after all the closing and selling costs you're not making any money. It's not going to appreciate enough to matter.
This. Plus, selling a condo is TOUGH nowadays and you may have to take a loss.
You also have to keep in mind HOA fees...though I don't know anything about co-ops.
You also have to keep in mind HOA fees...though I don't know anything about co-ops.
Forgot about the HOA fees. lol . Co-ops IMO should be non existant. Basically you dont own them. You only own a share of it and you're restricted from doing many things. Including picking your buyer.
Sooo many stories lately that the board turned down buyers and the sellers got stuck holding the bag for many more months.
My sister inlaw in particular. Listed co-op at awesome price. Found a buyer within 3 weeks! Waited 2 months to meet with board. Guy didnt have a job but was paying ALL CASH $190,000!
Co-op Board said Nope, you cant buy the unit. Sister in-law had moved out and now stuck with the place again. Relisted it. 7 months go by. Found another buyer, 3 more months go by to meet with board and close.
I understand the concept of co-ops but I dont like it from a buyer, seller, or investors standpoint of view.
I'll make a bet not many home owners sat down and figured out how much they dish out year over year. I am talking about every single little thing from bug spray for backyard to a cabinet handle that broke to taxes, insurance, mortgage, fridge repair, and tree pruning.
Bottom line is, you will spend more money on something you own then if you rented and can call someone else to fix something or change it.
Apples to Apples. What property does a $1100/mth rent = to ? $200,000 condo? $250,000 home?
If you can pay $12,000-15,000 a year in rent, you're almost even with a mortgage + taxes already. Thats not including any other thing you have to pay for.
2 family or inlaw set up changes everything where you can generate income from owning.
I say all this having owned 7 and currently own 3.
The absolute key is how you manage money. If you dont know how to stash it away, forget it. Dont rent. If you're a spender everytime you see surplus, forget it, dont rent.
Now..... add the equation of investing some of the saved money in an IRA or elsewhere and renting becomes the only thing to do.
An $1,100 rental would not equate to a $250,000 condo in any market. This condo would most likely be priced at around $110,000. Assuming a 10% down payment with a 30 year mortgage at 3.9%, the monthly mortgage payment would be $511. Add in $200 per month for taxes, $80 for insurance, and $175 for condo fees, the buyer would still be under $1,000 per month. And you should note that many "little things" like bug spray and even broken cabinet handles are the responsibility of a renter anyways. Add in your income tax savings, it is cheaper than renting. Plus at the end of 30 years you have an asset rather than a pile of rent receipts. Jay
An $1,100 rental would not equate to a $250,000 condo in any market. This condo would most likely be priced at around $110,000. Assuming a 10% down payment with a 30 year mortgage at 3.9%, the monthly mortgage payment would be $511. Add in $200 per month for taxes, $80 for insurance, and $175 for condo fees, the buyer would still be under $1,000 per month. And you should note that many "little things" like bug spray and even broken cabinet handles are the responsibility of a renter anyways. Add in your income tax savings, it is cheaper than renting. Plus at the end of 30 years you have an asset rather than a pile of rent receipts. Jay
These days most lenders are charging a premium for mortgages on condos, so probably closer to 5% than 4%. Also don't forget PMI if putting down less than 20% (could do two loans, but again, much tougher on a condo). And as noted by Stylo, with the amounts in question, there likely won't be much, if anything, beyond the standard deduction to make itemizing make a whole lot of difference.
But this notion that rent is "throwing money away" is misleading at best. You have to live somewhere, and once the decision is made to move out from the parents' house, you pay rent - whether it be to a landloard, or as implicit rent in the property you purchase and occupy.
Long term real returns from real estate are not that impressive (a couple percentage points above inflation in the best studies), and that ignores maintenance and improvements (offsetting depreciation). And in the case of the OP, he clearly stated he's not looking at this as a long term residence.
Lastly, price to rent ratios differ greatly from city to city (or even within cities). There are places where renting is "cheaper" and other places where buying is "cheaper" at a given time.
All to say that there is no single right answer when it comes to real estate - each circumstance is different and requires specific analysis.
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