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We are looking for our retirement home in either the Northeast or Great Lakes region. We currently live in the Denver area. As some of you know, the Denver market continues to be very hot, and if we sold now, we would probably clear at least $150k in equity. Between that and our savings, we could afford to pay cash for a home of up to about $400k, with enough left over for a "cushion". Our dream is to build a fairly modest 1200 s.f. home on a very nice lot, which is "doable" in the areas we are looking. (Our Social Security will be enough to pay our bills if we don't have a mortgage.)
We are thinking about possibly buying the cheapest "move-in ready" house we can find in a quiet neighborhood, living in it until we find an either an appropriate lot or an existing house to remodel, and then sell the temporary house. We think that a year's rent would be less or just about as much as paying a $6,000 Realtor commission (on a $100k house*) and other closing costs, even if we had to sell the house for 10% less than we paid for it in order to facilitate a quick sale. We also think that we would be much happier if we don't rent. (We have a cat and a dog, a Lab mix, which might lead to increased costs and/or problems with renting.)
Opinions? Advice? (And thanks in advance!)
*Right now, in Green Bay, Wisconsin, the average price of a small home appears to be about $150k, but there appears to be many acceptable homes for even half that amount. (Of course, I know that we can't really judge until we see for ourselves, and we are taking a scouting trip to Wisconsin in June.) This is just one example of what I am talking about regarding a temporary home:
We are looking for our retirement home in either the Northeast or Great Lakes region. We currently live in the Denver area. As some of you know, the Denver market continues to be very hot, and if we sold now, we would probably clear at least $150k in equity. Between that and our savings, we could afford to pay cash for a home of up to about $400k, with enough left over for a "cushion". Our dream is to build a fairly modest 1200 s.f. home on a very nice lot, which is "doable" in the areas we are looking. (Our Social Security will be enough to pay our bills if we don't have a mortgage.)
We are thinking about possibly buying the cheapest "move-in ready" house we can find in a quiet neighborhood, living in it until we find an either an appropriate lot or an existing house to remodel, and then sell the temporary house. We think that a year's rent would be less or just about as much as paying a $6,000 Realtor commission (on a $100k house*) and other closing costs, even if we had to sell the house for 10% less than we paid for it in order to facilitate a quick sale. We also think that we would be much happier if we don't rent. (We have a cat and a dog, a Lab mix, which might lead to increased costs and/or problems with renting.)
Opinions? Advice? (And thanks in advance!)
*Right now, in Green Bay, Wisconsin, the average price of a small home appears to be about $150k, but there appears to be many acceptable homes for even half that amount. (Of course, I know that we can't really judge until we see for ourselves, and we are taking a scouting trip to Wisconsin in June.) This is just one example of what I am talking about regarding a temporary home:
I am like you, I don't like throwing money away on rent. The only way I would rent would be short term. (a few months or so) If you go this route and buy, make sure you buy in an area that doesn't have a problem with selling homes. Another thing you do have to think about is capital gains if you sell the house before living in it 2 years. The exception would be if you took any profit made and put it on your new house. I think you have 6 months to do that if I am not mistaken. The other thing that would concern me is that what if the real estate market takes a turn for the worse? Would you be able to rent the temp house? What about if you bought an inexpensive travel trailer or mobile home? Of course, there would be lot rent but definitely cheaper than rent in an apartment or a house. You could sell it once you find your forever home. I know I'd be happier if I didn't rent. These are all things to consider. Good luck!
My advice if new to an area you are not sure about would be to rent first. It gives you the chance to get out on the cheap if things don't work out as expected with the area. It also helps you find the exact neighborhood you may prefer after you get into that area and are actually living there. Within six months you will know better and can either begin the search there or in another area for a more permanent place.
Buying first, poses a higher risk in my opinion. But if you know the area well, you may get a better price today as prices are rising and likely will for the next several years. But who knows for sure.
You can also consider renting in the new area, while holding onto the old house and rent that out while you see if the new location works. It gives you more options in the long run as long as you can handle the long distance landlord thing. Getting a good property manager helps with this option.
Finally, the larger dog and cat combo could pose an issue in many rentals. A lot to consider, but if that last pet point can be worked out, you have choices. Good luck.
The house you linked has been on the market since 11/6/17. Odds are good you would find it equally tough to sell when the time come even with a lower price.
if you rent, your cost is fixed. X months x $Y rent= $Obligation
if you were to buy someplace, you might be able to rent it out and get real cash flow from it. You might find out all the pitfalls of being a landlord. You might find that if you decide to sell, the market isn't increasing the way Denver is, and you'd actually lose money on sale price (after agent compensation), plus the property taxes, etc.
We are in a temporary home while we build. It was a good choice in our market, where the rent far exceeds mortgages monthly, so we are essentially just renting it to ourselves for the duration and can then sell it when we are done.
But we are estimating 4-5 years to complete the house we are building, as my husband is doing it himself. It wouldn’t make sense to do it for only a year - the cost curves are such that owning only becomes cheaper for us if our occupancy exceeds 2 years and 3 months. For just a year I’d bite the bullet in a crappy apartment, personally. Our rental allowed pets and that made it work for us until we found the temporary home and the land we wanted to buy - so one year renting, four to five years owning a temp home, and then moving into the build is how we are doing it.
If you are bounding your term there by one-year, definitely rent first. Sure, you are "throwing money out the window" but at very little risk. Besides, if you go into it thinking you are going to buy a house and stay in it for just one year... the closing costs are "money thrown out the window."
Take the following scenario:
Let's say you buy a 250k house in your area. You put down 20% since you know you don't want to pay PMI since that is more money thrown out the window. Your loan origination fee, title search, etc is probably about 3000. Your taxes and insurance that you'll be either bringing to closing (or that you'd pay later)... let's say its another 3000. So that's $6000 that you would not be paying if you were renting.
Couple that with the 50,000 you had to bring as a down payment and you have just brought $56,000 to the table. At considerable risk too. What if the house has a problem you need to fix before you sell it in one year? What if the market goes down? That eats into that $50,000 equity you have.
Risk aside, you are "burning" $500 month for the privilege of living in that mortgaged house. And when you go to sell it... you'll be paying 3-5% of the value to the broker anyway. That's another $12,500 just to get out of the house. We'll call it an even $12000 for that. The broker fee when you sell and the up-front cost when you buy is about $18000 or $1500/month.
You could probably rent something really nice for $1500. Even if the rent was $2000, you are probably still better off. I didn't even factor in interest yet.
If you are bounding your term there by one-year, definitely rent first. Sure, you are "throwing money out the window" but at very little risk. Besides, if you go into it thinking you are going to buy a house and stay in it for just one year... the closing costs are "money thrown out the window."
Take the following scenario:
Let's say you buy a 250k house in your area. You put down 20% since you know you don't want to pay PMI since that is more money thrown out the window. Your loan origination fee, title search, etc is probably about 3000. Your taxes and insurance that you'll be either bringing to closing (or that you'd pay later)... let's say its another 3000. So that's $6000 that you would not be paying if you were renting.
Couple that with the 50,000 you had to bring as a down payment and you have just brought $56,000 to the table. At considerable risk too. What if the house has a problem you need to fix before you sell it in one year? What if the market goes down? That eats into that $50,000 equity you have.
Risk aside, you are "burning" $500 month for the privilege of living in that mortgaged house. And when you go to sell it... you'll be paying 3-5% of the value to the broker anyway. That's another $12,500 just to get out of the house. We'll call it an even $12000 for that. The broker fee when you sell and the up-front cost when you buy is about $18000 or $1500/month.
You could probably rent something really nice for $1500. Even if the rent was $2000, you are probably still better off. I didn't even factor in interest yet.
Thank you for such a detailed answer, but we would be paying for the temp house in full -- and I can't see paying more than $125k for it at most -- so no mortgage or interest, and the taxes would be less than $175 a month, going by the house I linked ($143 on a $100k house).
However, what you and others have written have made a lot of sense to me, so we are going to have to give this a lot more thought! I guess the idea of renting with pets is what is really bothering me -- along with the idea of getting "stuck" with the temp house if we can't sell it (and we don't want to be landlords) -- and the idea of the temp house turning into a money pit.
Again, just LOTS to consider -- so I truly do appreciate ALL replies, advice, and opinions!
Thank you for such a detailed answer, but we would be paying for the temp house in full -- and I can't see paying more than $125k for it at most -- so no mortgage or interest, and the taxes would be less than $175 a month, going by the house I linked ($143 on a $100k house).
However, what you and others have written have made a lot of sense to me, so we are going to have to give this a lot more thought! I guess the idea of renting with pets is what is really bothering me -- along with the idea of getting "stuck" with the temp house if we can't sell it (and we don't want to be landlords) -- and the idea of the temp house turning into a money pit.
Again, just LOTS to consider -- so I truly do appreciate ALL replies, advice, and opinions!
I used made up numbers. Generally speaking if you can buy a house for 125,000 then the rent in that same area would likely be cheaper than the numbers I was using.
However, if you are paying cash, you are still on the hook for these things you wouldn't pay if you were renting:
- Taxes
- Insurance
- Selling broker's fee when you move out since you said you don't want to be landlords
- Any incidentals that require out-of-pocket expenditure while you live there (water heater, AC, leaks)
Those are items that you can estimate. Property taxes are public information. You can estimate insurance. Most brokers will want 3-5% at closing. That's really the big ticket item if you ask me (3750 to 6250).
From there, it is a matter of doing math and seeing what you are comfortable with. On the absolute lowest end, you are probably look at spend $7350in unrecoverable costs for one year (2100 taxes, maybe 1500 in insurance, and 3750 for a selling broker's fee). That's $612.50/month.
I don't know your situation and circumstances, but in my area, the general rule most landlords go by is rent is roughly 1% of the value of the house, per month. That's a really rough ballpark number. If that holds true in your area, if you rented a 125k house (maybe you won't, maybe you'd live in a condo for a year instead?) - that rental might cost you $15k plus some form of deposit upfront (1 month?). But if you are upstanding individuals and the landlord isn't a thief, you'd get that back.
Whereas if you bought that home, you'd be laying out essentially 125k (cash) plus 7350 (taxes, insurance and what you pay to sell it).
Essentially you have:
- Rent: $1250/mo plus 1 month down - and you can walk away after 1 year with costs heavily controlled
- Buy: Half the cost of rent (about 625/mo) with no control over costs
It sort of boils down to "do you think you'll manage to get out of there spending a lot less than 625/mo on extra stuff? When you go to sell, if there was something you or your inspector didn't catch, that might eat into that buffer.
Yes, lots of things to consider. Good luck!
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