[Vin100]

Interesting calculations.. I have been doing these calculations for past 1 month..or simply go to the app on NY times "buy or Rent" which seems quite fair and takes into account all cost as well as the saings on taxes.
It seems a little cheaper house say in low 300's might be a workable intermediate. The problem is Cheshire doesnt have many houses for rent which are at least 3 bedrooms..so you get forced to buy it if one wants to live there for the school system.

[Stratford, Ct. Resident]

Originally Posted by mrgmrg

Done. Numbers based on this house, based on 5-year ownership period: 760 Allen Ave, Cheshire, CT 06410 is For Sale - Zillow

$21,950 in maintenance (1% of purchase price per year, very, very conservative estimate for an older home).
$26,340 (6% commission).
$103,800 mortgage payments (per Zillow's estimate). Let's be generous and say $35k goes to principal, so only $73,800 included as a total loss.
$21,995 (your assumed 5% loss of value).
$10,000 (approximate opportunity cost of principal that otherwise could have been in an interest bearing account, assuming 5% interest rate).
---------
$154,085

Rental cost:
For that house, Zillow estimates rent at $1753, which = $105,180 total rent payments.
$48,905 = extra money saved by renting.
Opportunity cost of the $48,905 = $13,511
----
$62,416 total estimated loss for buying instead of renting.

**Cut out your assumed loss in value, and you still spend $40,000 more to buy than rent.

Even if you assume a higher rent--let's say $2,400--you will still spend $10,000 extra to own and will still lose a total of $13k including opportunity costs.

All of these facts aside, it's still irrelevant because my point is that renting is more CONSERVATIVE in the short term, not that it is CHEAPER. Which is not really subject to dispute.

First off, it's a $400K home, not $440K which is what you've presented.

Secondly, a $440K home is not renting for anywhere close to $1753.

Thirdly, thousands upon thousands of people would love for you to point them to whomever it is that is offering a 5% interest rate on a $10K deposit.

These are my numbers:

Purchase:
Interest- ~$23K(where you came up with $70K, i don't have a clue).
Maint.- ~$10K(you apparently don't realize that 1% figure is for "long-term" ownership)
Prop. Tax-~$30K($7K/7K/8K/8K)
Sale Comm.~$22.8K($380K X 6%)
Sale Loss $20K

Rent:

$2100(conservative for a $400K house) X 12 months= $25.2K
$2150 X 12= $25.8K
$2200 X 12= $26.4K
$2250 X 12= $27K

[mrgmrg]

Originally Posted by Stratford, Ct. Resident

First off, it's a $400K home, not $440K which is what you've presented.

Secondly, a $440K home is not renting for anywhere close to $1753.

Thirdly, thousands upon thousands of people would love for you to point them to whomever it is that is offering a 5% interest rate on a $10K deposit.

These are my numbers:

Purchase:
Interest- ~$23K(where you came up with $70K, i don't have a clue).
Maint.- ~$10K(you apparently don't realize that 1% figure is for "long-term" ownership)
Prop. Tax-~$30K($7K/7K/8K/8K)
Sale Comm.~$22.8K($380K X 6%)
Sale Loss $20K

Rent:

$2100(conservative for a $400K house) X 12 months= $25.2K
$2150 X 12= $25.8K
$2200 X 12= $26.4K
$2250 X 12= $27K

Great--we're in agreement, since even based on your (made up) numbers, renting is cheaper.

I suggest calling Vanguard. I earn fantastic rates of return with them, and lost very little money in the recession.

[Stratford, Ct. Resident]

Originally Posted by mrgmrg

Great--we're in agreement, since even based on your (made up) numbers, renting is cheaper.

I suggest calling Vanguard. I earn fantastic rates of return with them, and lost very little money in the recession.

I nudged the numbers to give you an opportunity to save face.

Nevermind....

OP: Discuss with a certified financial planner, as neither one of us clearly are.

[Vin100]

The whole idea here is not only financial planning. If the numbers for rent and buying are close then buying might be an option. As mentioned in my original post, i am already renting a town house subsidized by the hospital and leaving this place to rent another one at a monthly rent of 2200-2500 just does not make sense to me .
The reason for thinking of shifting is for a better neighbourhood, much better schools (though even now my daughter is going to a good magnet school and is very happy there). My wife feels that our children need a better neighbourhood in their growing age..a place where they can make friends around, play around etc. Moreover , Cheshire will be close to her work place. It doesnt have many 3 BR rentals either

The whole idea of the post is whether a person should spend all his savings and monthly income in buying and managing updated house for 400-430K (and compromising on many aspects like eating out, vacations, etc), or whether one should spend lesser amount on a dated house say around 280-340K and have some money spare for vacations, etc. I am comparing enjoying in quite an updated house (which will be in a richer neighbourhood) with living in a dated house (with old kitchen/ bathrooms etc) in a not so rich neighbourhood..
Obviously it might be easier to sell the updated house after 4-5 yrs if need be.

[JayCT]

Originally Posted by mrgmrg

Great--we're in agreement, since even based on your (made up) numbers, renting is cheaper.

I suggest calling Vanguard. I earn fantastic rates of return with them, and lost very little money in the recession.

I don't necessarily agree. One thing to keep in mind is that there is nothing saying that you will not have to move during those 5 years you are looking at renting for. Leases are usually only for one year and the landlord could ask you to vacate the home after the year or raise the rent significantly. You are not taking that into account. Owning a home sort of guarantees you do not have to move or won't be faced with a significant increase in your housing cost. Jay

[mrgmrg]

Originally Posted by JayCT

I don't necessarily agree. One thing to keep in mind is that there is nothing saying that you will not have to move during those 5 years you are looking at renting for. Leases are usually only for one year and the landlord could ask you to vacate the home after the year or raise the rent significantly. You are not taking that into account. Owning a home sort of guarantees you do not have to move or won't be faced with a significant increase in your housing cost. Jay

...Unless you're faced with a significant maintenance expense, or your taxes increase, or for whatever reason, your home loses value. Neither renting nor buying is perfect. Yes, your landlord can do irrational things--that's something that's hard to incorporate into a $ amount. What isn't hard to incorporate into a $ amount are home maintenance and interest expenses.

My advice was to rent a less expensive place instead of buying (at what seemed like a price OP wasn't completely comfortable with) and save money to purchase a permanent home when the time comes and they've found a place to live permanently. I find the controversy surrounding the notion that it is a more fiscally responsible and conservative decision to rent instead of buy when you intend to move in <5 years genuinely shocking, and it's convincing me that people truly will argue about anything.

[NewJeffCT]

First, there have been over 230 residential single-family homes sold in Cheshire in both 2012 and 2013, so I would think the median value increasing in Cheshire with that much data would be a legitimate increase. It's not like it was only 10 homes being sold in one year and 15 the next. Also, I did another post below about the Zillow estimate of home values as having increased by 3.6% over the past year.

Running the actual sales numbers, the sale price of single family homes has increased in Cheshire over the past 2.5 years from $339,000 to $357,000 in that time, an increase of 5.3%

According to Craig's List, there is only one place in all of Cheshire that has 4 or more bedrooms for rent, and it's going for $2,875/month. On Zillow, I saw only one 4 BR home for rent in Cheshire that was $2,450/month, and that home had 1.5 bathrooms, while the house in for sale listed above was 2.5 bathrooms.

Average those two out and you have an average of $2,663, or almost $32,000. Over four years, with small increases each year, you're looking at maybe $132,000 in rent over four years. None of that is tax deductible.

Z-Estimate for mortgage payments on the above house is $1,730/year, or $83,040 over four years. Most of it will be tax deductible, as it will be interest payments on the mortgage. Property taxes on zillow are $6,400 for the first year. Going by Cheshire's average of about 1.5%/year of increases, they'll have paid about $26,200 in property taxes, which are also tax deductible.

So, if they wanted to rent a similar home in Cheshire, they'd be paying $132,000 over four years. If they bought, they'd be paying $109,240 before maintenance charges, most of that $109,000 will be tax deductible. Maybe $80,000 is tax deductible, or an average of $20,000 is taken off their income each year. (Actually, probably a bit more than $20,000 in the beginning, then a bit below $20,000 after four years. And, most likely, it will be higher than $80,000 being tax deductible.)

Since other threads take Zillow's word as gold, they predict a 1.1% increase in prices in Cheshire this year, which would put their increase rate slightly below the previous years. For the $440,000 home listed above, it would be about a $20,000 increase in equity, which offsets the $21,000 in maintenance costs listed above. We'll call that a wash.

The only time there are 6% sales commissions for realtors is when dealing with a relocation and the company doing the relo offers to pay for it. Most commissions are 4.5% or 5.0% nowadays. So, if they sold their now $460,000 home in four years, the commission would be 5% of that, or $23,000.

So, renting is $132,000
Buying is $109,240, plus $23,000 to sell, or $132,240.

However, you also have $80,000 of the $132,240 being tax deductible, which would lower their income by an average of $20,000/year each of those four years. So, if their combined income was $120,000 before deductions, it would be $100,000 after deductions. Using H&R Block's tax calculator, they'd pay about $28,500/year in income taxes if they were renting, but $20,800/year if they bought a home and could deduct their mortgage interest and property taxes, a difference of $7,800/year less in income taxes if they bought.

[mrgmrg]

Originally Posted by NewJeffCT

However, you also have $80,000 of the $132,240 being tax deductible, which would lower their income by an average of $20,000/year each of those four years. So, if their combined income was $120,000 before deductions, it would be $100,000 after deductions. Using H&R Block's tax calculator, they'd pay about $28,500/year in income taxes if they were renting, but $20,800/year if they bought a home and could deduct their mortgage interest and property taxes, a difference of $7,800/year less in income taxes if they bought.

I don't disagree with you, except for this part. $7,800 on per year on $20,000 of deducted income is a tax rate of 39% on a family of 4. That's exceptionally high. I have worked in tax, and at that income level for a married couple filing jointly with two children, you're looking at rates of about 25%, state and federal combined. That means the $20,800 in interest effectively saves you more like $5,000 per year in taxes.

Again, the point is not that it is absolutely true that you will save money if you rent vs buy or vice versa. In the long run it is almost always cheaper than renting. (Though don't tell that to the many people who've lost their life savings in the housing market in the last decade.) As all of this number-crunching points out, it's actually pretty close in the short term. My point is that it isn't a risk-averse, conservative decision to choose to buy a home for the short term. Unless you believe that you have inside information on the housing market, national and local economies, weather patterns, political climate, and other events beyond your control, it's quite risky to take on a ton of debt in order to purchase an illiquid investment with a questionable future.

[hvexpatinct]

OP given your circumstances I would strongly consider buying at the lower end of your budget and compromise on the house itself in order to be where you want to be. I generally think renting is a better short term choice, but North Haven and Cheshire aren't exactly booming rental markets and there is something to be said for the stability of the same house, same neighborhood schools, etc when you are talking about 5 years in this area with school aged kids.