Deciding If Renting Or Buying Is Better In My Market

[RusticBohemian]

Hi Guys.

I'm trying to figure out if I should invest in a house or keep renting. I'm just trying to get a sense of how a mustachian would go about evaluating his options, and would love your thoughts.

Currently, my girlfriend and I share a room in a two-bedroom apartment in Austin Texas. We love Austin, and want to stay. We've checked out the suburban areas around the city (other municipalities), but they don't appeal to us. This apartment is right on the lake, allows easy access to bike paths that lead around the city, and the nearbye parks are great.

We pay $315 a month each ($630) and get another $600 from a roomate who rents the other room.

The median home price in East Austin, which is the cheapest part of the city we'd consider living in, is $230,000. I'd try to get something lower than this, but this is the reality. Prices are expensive here.

How would you go about figuring out if purchasing such a house would end up being a better or worse deal for you financially in the end?

Thanks!

[Janie]

Try this calculator http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

[redbirdfan]

Would you be buying the house by yourself?, with your gf?, would you be renting out a room?   How does your current area compare to East Austin?  From your description it sounds like you are only considering E. Austin because of price.  I would vote against "buying just to buy" if you don't really like the area.  If you are good with your current situation with your gf and roommate I think you should continue to rent.  To answer your question you should really look into how much you would have to pay to move into the house (down payment, closing costs, any escrow amounts usually required in your area).  Play around with online calculators to get realistic numbers.  What does that do to your total cash on hand?  How much would you need to change locks, buy furniture, dishes, a lawn mower, beds, etc. to make it feel like your "home"?  What does that do to your total cash on hand?  Save the difference between your rental payment and your total housing costs on a $230k house in a money market account for a few months so you can see how it would feel to make the monthly payments (include PMI if applicable, and monthly escrow amounts for homeowner's insurance and real estate taxes).  If E. Austin would increase your commute, take gas, car maintenance and an increase in grumpiness into consideration.  What does that do to your total monthly cash flow?  What does that do to your stress level (for instance - when I considered buying I could technically afford the monthly payments but depleting cash/investments and increasing monthly bills made me more apprehensive about HAVING to keep my job.  I'm nowhere near FIRE levels but having semi-liquid investments that can carry you for several years does wonders for peace of mind). After all of that would you still have 3-6 months of expenses saved?  If you do all of those things and you still want to buy, go for it.  Don't feel compelled to buy something.  You are not inherently less Mustachian because you are a renter.  If it ain't broke, don't fix it! 

[alsoknownasDean]

The median home price in East Austin, which is the cheapest part of the city we'd consider living in, is $230,000. I'd try to get something lower than this, but this is the reality. Prices are expensive here.

How would you go about figuring out if purchasing such a house would end up being a better or worse deal for you financially in the end?

Thanks!

$230,000 for a house? That's not all that expensive. :)

In your situation, maybe it'd be worth taking a longer-term view. Do you want to stay in the area for ten years or more? Would you want to raise a family there (if you wish to do so)? Are the employment prospects in your area such that if your (or your GF's) job ended, another job would be available in your/her field that wasn't too far away?

I guess the other things to take into account are your income and whether you have much of a deposit saved.

[chasesfish]

What do property taxes run in Austin and the house you're looking?  Your rent seems dirt cheap to me, Texas doesn't have an income tax and instead has much higher property taxes.  You're only paying $1200-$1300/mo for rent.

Short-term, renting is going to be substantially better.  There is other value in owning your house, but be sure you'll be there for 5+ years and can afford financing it on a 15 year mortgage.

[iluvzbeach]

I live in Austin as well and agree with the points the others are bringing up. You can expect to pay at least 6K in annual property tax, which is close to your and your gf's combined rent. This doesn't include mortgage costs and all other stuff related to owning a place. If you feel you must buy, would you consider a condo at a much cheaper price? It could be a good way to start. There are some older buildings around downtown where you could find a small unit for just under or right at 200K. Of course even cheaper possibilities exist further from downtown.