Author Topic: should we rent or buy  (Read 667 times)

clarkfan1979

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should we rent or buy
« on: July 25, 2017, 02:08:15 PM »
I was ready to buy, but we found a pretty good rental that is making me question buying.

It's difficult to find a rental that will accept a dog on Kauai. The red clay stains very badly and is tracked in with shoes and dog paws. From what I have been told, shoes off is a Hawaiian culture based on the powerful staining capabilities of the red clay.

The last 2 years we rented a studio for 1,100/month, internet and utilities included, but was 332 sq. ft. The drive was 27 minutes in the morning and 45 minutes on the way home.

The new rental is a 2 bed/1 bath and 900 sq. ft. We now have a baby, so the extra room is nice. It's 25 minutes in the morning and 30-35 minutes in the afternoon. It's in a different direction with less traffic. It's 1500/month with internet and utilities included. The current landlord is super nice.

If we bought in the same neighborhood as the current rental it would cost us 450K to 500K. 450K would need a little work and 500K would be totally done. We would have a mother-in-law suite that generates 1200/month. If you don't want the mother-in-law suite, you might be able to get something for 350K to 400K.

At 500K and 5% down, we are looking at a mortgage payment of $2700/month, including $250 of PMI. Do we wait until we can get 20% to put down? If so, our total mortgage would be more like $2,000/month. Or do we avoid renting all together?

One main advantage of buying is that we can house-swap with different people all over the world. We are not allowed to do airbnb for cash due to zoning (less than 6 months), but house swapping is within the rules. Our income numbers are below.

Me: Base salary of 62.5K, but will make 67K with summer school. People who are close to retirement currently top out around 110K to 120K with base salary. You don't make much to start, but I think they are good raises for higher education.
Wife: Will make 10K substitute teaching. She will be available 3 days/week and average 2 days/week of work at $159/day.

We get about 22K/year in rental income after vacancy and repairs.
Rental #1: Worth 235K, owe 77K. Rent = 1700/month. Total Mortgage 625/month
Rental #2: Worth 360K, owe 113K. Rent = 2200/month. Total Mortgage is 975/month

Current Cash: 35K

Current 401K: 82K

Based on our current cash flow, we pretty much spend all of my W-2 income. We are able to save all of my wife's W-2 income and all the rental income. 
Net worth (excluding pension) 488K

bender

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Re: should we rent or buy
« Reply #1 on: July 25, 2017, 09:37:17 PM »
Renting seems like the better deal.  Only way I'd consider buying a primary home is if you refinanced the rentals to get your 20% down.  Even if that option is available, I'd still say rent as the mortgage on a 450k home will own you.

clarkfan1979

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Re: should we rent or buy
« Reply #2 on: July 26, 2017, 08:44:31 PM »
or wait until I can get 20% down?

bender

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Re: should we rent or buy
« Reply #3 on: July 26, 2017, 08:52:04 PM »
Yes you can re-evaluate when you have 20%, but the $1500 deal on the rental you found is really good.  You may want to rent and use your cash to buy additional homes to rent out. 

daverobev

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Re: should we rent or buy
« Reply #4 on: July 27, 2017, 09:13:06 AM »
4% of $500k is $20k (4% SWR in invested money), vs $1500 x 12 = $18k.

No property tax or maintenance to pay on a rental, which could be a lot.

But, a house you don't own doesn't go up in value (nor, though, does it go down).

Renting is IMHO the much better choice here in pretty much all ways.
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clarkfan1979

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Re: should we rent or buy
« Reply #5 on: July 27, 2017, 10:03:40 AM »
Our landlord's house with the attached apartment is probably worth 600K. He gets 1500/month from us as rent to offset his mortgage. His Accessory Dwelling Unit (ADU) is a 2 bedroom.

I would like to do something similar, but with a 500K house with a 1 bedroom ADU that gets 1200/month.

If we only put 5% down on a 500K house, our total 2700 mortgage (including $250 of PMI, taxes & insurance) will be offset by 1200/month rental, for a total of 1500/month, which is what we pay in rent, but doesn't include utilities or maintenance.

Utilities should run around $250/month and maintenance $200/month. This makes owning $450/month more. However, we would get $700/month of principle pay down every month at the very beginning of the loan.


bender

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Re: should we rent or buy
« Reply #6 on: July 27, 2017, 10:29:35 AM »
That sounds like a decent plan too.